<PAGE> 1
As filed with the Securities and Exchange Commission on August 11, 1997.
Registration No. 333-29767
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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PROTECTION ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-1063818
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
---------------
6011 Bristol Parkway
Culver City, California 90230
(310) 338-6930
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
James M. Mackenzie, Jr.
President and Chief Executive Officer
Protection One, Inc.
6011 Bristol Parkway
Culver City, California 90230
(310) 338-6930
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copy to:
Laura A. Loftin, Esq.
Mitchell, Silberberg & Knupp LLP
11377 West Olympic Boulevard
Los Angeles, California 90064
(310) 312-2000
---------------
Approximate date of commencement of proposed sale to the public: From time
to time after the date this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered solely in connection with dividend or
interest reinvestment plans, check the following box. [X]
(Facing page continued on next page)
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(Continuation of facing page)
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]_______________
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a) of the
Securities Act of 1933, may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE SECURITIES,
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS Subject to Completion - Issued August 11, 1997
58,797 Shares
PROTECTION ONE, INC.
Common Stock
The 58,797 shares of Common Stock, $.01 par value per share ("Common
Stock"), of Protection One, Inc., a Delaware corporation ("POI"), covered by
this Prospectus (the "Shares") may be offered for sale from time to time by and
for the account of Mr. Jeffrey E. Kerr (the "Selling Stockholder"). See "Selling
Stockholder." The Selling Stockholder acquired the Shares in connection with
the acquisition by Protection One Alarm Monitoring, Inc., a wholly owned
subsidiary of POI ("Monitoring"), of all of the outstanding stock of Able Alarms
of Arizona, Incorporated, an Arizona corporation ("Able" and such acquisition
the "Acquisition"), pursuant to two Stock Purchase Agreements each dated as of
June 20, 1997 (the "Purchase Agreements"), one between Monitoring, on the one
hand, and the Selling Stockholder and Able, on the other, and one between
Monitoring, on the one hand, and the Kerr Charitable Trust and Able, on the
other.
POI is registering the Shares as required by the Purchase Agreement with
the Selling Stockholder. POI will not receive any of the proceeds from the sale
of Shares by the Selling Stockholder, but will pay all expenses incident to this
offering other than any underwriting discounts or selling commissions, transfer
taxes and fees and expenses payable to third parties employed by the Selling
Stockholder. See "Plan of Distribution."
The distribution of the Shares by the Selling Stockholder is not subject
to any underwriting agreement. The Selling Stockholder may from time to time
offer and sell the Shares through the Nasdaq National Market System in ordinary
brokerage transactions, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices, either through broker-dealers acting as
agents or brokers for the seller or through broker dealers acting as agents or
principals. Such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholder
and/or the purchasers of the Shares for whom such broker-dealers act as agent,
which compensation may be in excess of customary commissions. The price at which
any Shares may be sold, and the underwriting discounts and agent's commissions,
if any, paid in connection with any such sale, are unknown and may vary from
transaction to transaction. To the extent required, the purchase price, the name
of any such underwriter, dealer or agent and applicable underwriter's discount,
dealer's purchase price or agent's commission with respect to a particular
offering, if any, will be set forth in an accompanying supplement to this
Prospectus. The aggregate net proceeds to the Selling Stockholder from the sale
of any Shares will be the price thereof less the aggregate underwriter's
discount or agent's commissions, if any. See "Plan of Distribution."
The Selling Stockholder and any agent, broker, dealer or
underwriter that participates with the Selling Stockholder in the distribution
of the Shares may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any and all commissions received by them and any profit on
the resale of the Shares purchased by them may be deemed underwriting
commissions or discounts under the Securities Act. See "Plan of
Distribution."
<PAGE> 4
(Continuation of cover page)
The Common Stock is traded on the Nasdaq National Market under the symbol
"ALRM." On August 8, 1997, the last reported sale price for the Common Stock
was $17.00 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is _______________, 1997.
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN
MADE TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY POI, THE SELLING STOCKHOLDER OR ANY
UNDERWRITER, DEALER OR AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF POI OR ITS SUBSIDIARY (TOGETHER, THE
"COMPANY") SINCE THE DATE OF THIS PROSPECTUS OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES THIS
PROSPECTUS CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR UNDER ANY CIRCUMSTANCE IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by POI with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are incorporated in this Prospectus by
reference:
A. POI's Annual Report on Form 10-K for the year ended September 30,
1996;
B. POI's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996 and March 31, 1997;
C. POI's Current Report on Form 8-K reporting events dated October
21, 1996, October 30, 1996, June 23, 1997 and July 30, 1997; and
D. The description of the Common Stock contained in POI's
Registration Statement on Form 8-A dated September 8, 1994.
All documents filed by POI pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act, subsequent to the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
document. Any statement contained in this Prospectus or in a document
incorporated or deemed incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
POI will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus has been delivered, on the written or
oral request of such person, a copy of any or all of the documents referred to
above that have been or hereafter are incorporated by reference herein (other
than exhibits to such information, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates). Requests for copies should be directed to: Protection One, Inc.,
3900 S.W. Murray Boulevard, Beaverton, Oregon 97005, Attn: Montgomery Cornell,
Director of Investor Relations; telephone (503) 520-6019.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Incorporation of Certain Information by Reference............................2
Available Information........................................................3
Forward-Looking Statements...................................................4
The Company..................................................................4
Recent Developments..........................................................4
Risk Factors.................................................................5
The Acquisition.............................................................12
Use of Proceeds.............................................................12
Description of Capital Stock................................................12
Selling Stockholder.........................................................13
Plan of Distribution........................................................13
Legal Matters...............................................................15
Experts.....................................................................15
</TABLE>
AVAILABLE INFORMATION
POI is subject to the informational requirements of the Exchange Act, and
in accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information may be
inspected without charge and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's public reference facilities in New York, New York, and Chicago,
Illinois at prescribed rates. The Commission also maintains a Web Site at
http://www.sec.gov. that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
The Common Stock is traded on the Nasdaq National Market (Symbol: ALRM).
Reports, proxy statements and other information concerning POI also may be
inspected at the office of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
POI has filed with the Commission a Registration Statement on Form S-3
under the Securities Act with respect to the shares of Common Stock offered
hereby (including all amendments and supplements thereto, the "Registration
Statement"). This Prospectus, which forms a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits filed therewith, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to POI and the Common Stock offered hereby, referenced
is made to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any
agreement, instrument or other document referred to are not necessarily
complete, and with respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of such document. Each such statement is
qualified in its entirety by such reference.
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FORWARD-LOOKING STATEMENTS
This Prospectus and the materials incorporated by reference herein
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such statements include, but are not limited to, statements of the
Company's or management's intentions, expectations, beliefs or hopes, strategies
regarding the future and statements regarding liquidity, anticipated cash needs
and availability and anticipated expense levels. Forward looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, could differ materially from those set
forth in or contemplated by the forward-looking statements herein as a result of
the factors set forth below under the caption "Risk Factors" and elsewhere in
this Prospectus and the materials incorporated by reference herein. Each
forward-looking statement set forth or incorporated by reference in this
Prospectus are based on information available to the Company at the time such
statement was made, and the Company the Company assumes no obligation to update
any such forward-looking statement.
THE COMPANY
Protection One, Inc. and its subsidiaries (collectively the "Company")
provide security alarm monitoring services for residential and small business
subscribers. The Company monitors digital signals arising from burglaries, fires
and other events through security systems installed at subscribers' premises.
Most of these signals are received and processed at the Company's central
monitoring station located in Portland, Oregon. The Company also sells enhanced
security services, patrol and alarm response services and alarm systems and
provides local field repair services through 13 branch offices. Enhanced
security services provided by the Company include two-way voice communication,
supervised monitoring services, pager services, wireless backup services and
extended service protection. Based on the Company's 228,825 subscribers as of
March 31, 1997 (approximately 80% of which are residential), the Company
believes it is the fourth largest residential security alarm monitoring company
in the United States and the largest in the seven western states of Arizona,
California, Nevada, New Mexico, Oregon, Utah and Washington. The Company
incurred losses attributable to common stock of $8.8 million for the six
months ended March 31, 1997, $15.7 million for the year ended September 30,
1996 ("fiscal 1996"), $18.5 million for fiscal 1995, $9.2 million for fiscal
1994, $4.6 million for fiscal 1993 and $5.0 million for fiscal 1992.
The Company's strategy is to enhance its position as the largest
residential security alarm monitoring company in the western United States by
pursuing a balanced growth plan incorporating the purchase of subscriber
accounts from independent security alarm systems dealers with whom the Company
has exclusive purchase agreements (the "Dealer Program"), acquisitions of
portfolios of subscriber accounts, the sale of enhanced security services and
new alarm systems and possible joint ventures and other strategic alliances.
The Company's executive offices are located at 6011 Bristol Parkway,
Culver City, California 90230 and its telephone number is 310-338-6930.
Protection One(R) is a trademark of Protection One, Inc.
RECENT DEVELOPMENTS
On July 30, 1997, POI entered into a Contribution Agreement dated as of
July 30, 1997 (the "Contribution Agreement"), with Western Resources, Inc., a
Kansas corporation ("Western Resources"). Pursuant to, and on and subject to
the terms and conditions of, the Contribution Agreement, Western Resources will
contribute to POI all of the outstanding capital stock of WestSec, Inc. and
Westar Security, Inc., which provide security alarm monitoring services under
the Westinghouse, Westar Security and other trade names, and an aggregate of
approximately $320 million in cash; in consideration of such contribution, POI
will issue to Western Resources (the "Share Issuance") that number of shares of
Common Stock equal to the product of (x) .801 and (y) the sum of (A) the
aggregate number of shares of Common Stock outstanding immediately following
the issuance (including, for this purpose, shares issued pursuant to the
Contribution Agreement, but excluding any shares issued pursuant to the Stock
Option Agreement (as defined below), and (B) the aggregate number of shares of
Common Stock issuable as of the closing under the Contribution Agreement (the
"Closing") pursuant to then outstanding options and warrants of POI after
giving effect to the dividend described immediately below. Subsequent to the
Share Issuance, POI will pay to holders of record of Common Stock on the date
of the Closing (other than Western Resources) a $7.00 per share cash dividend.
Consummation of the Share Issuance is subject to, among other things, the
approval of the Share Issuance by the stockholders of POI and regulatory
approvals, including expiration or termination of the waiting period required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Concurrently with entering into the Contribution Agreement, POI and
Western Resources entered into a Stock Option Agreement dated as of July 30,
1997 (the "Stock Option Agreement"), pursuant to which POI granted Western
Resources an option to purchase up to 2,750,238 shares (subject to adjustment)
of Common Stock, which option is exercisable under certain circumstances (i) if
the Contribution Agreement is terminated, at a price of $13.50 per share, and
(ii) if the Share Issuance occurs, at a price of $15.50 per share. In addition,
the directors and certain officers and stockholders of POI (collectively, the
"Stockholders") have entered into an Option and Voting Agreement dated as of
July 30, 1997 (the "Option and Voting Agreement"), with Western Resources
pursuant to which the Stockholders have agreed, among other things, (i) to grant
Western Resources an option under certain circumstances to buy all shares of
Common Stock owned by the Stockholders, and (ii) to grant Western Resources an
irrevocable proxy to vote all shares of Common Stock owned by the Stockholders
so as to facilitate consummation of the Share Issuance.
Copies of the Contribution Agreement, the Stock Option Agreement and the
Option and Voting Agreement are filed as exhibits to the Current Report on Form
8-K filed by POI reporting an event dated July 30, 1997.
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RISK FACTORS
In addition to the other information set forth and incorporated by
reference in this Prospectus, the following risk factors should be considered
carefully in evaluating an investment in the Common Stock offered hereby:
Risks Related to High Leverage. The Company is highly leveraged. At March
31, 1997, the Company's consolidated indebtedness was $264.3 million (excluding
$0.8 million of contingent reimbursement obligations under outstanding letters
of credit), and Monitoring had unused borrowing capacity under its revolving
credit facility (the "Revolving Credit Facility") of $78.7 million. (POI is a
holding company with no operations of its own and no significant assets other
than POI's ownership of the capital stock of Monitoring.) Future additions of
subscriber accounts through the purchases from Company's independent dealers
(the "Dealer Program") and future acquisitions of subscriber account portfolios
will require additional borrowings under Monitoring's revolving credit facility
(the "Revolving Credit Facility"), thereby further increasing the Company's
leverage. See "-- Risks Related to Acquisitions." All borrowings then
outstanding under the Revolving Credit Facility are currently due in full on
January 3, 2000. Although Monitoring believes that it will be able to obtain
further extensions of the maturity date of the Revolving Credit Facility from
time to time, or will be able to refinance the Revolving Credit Facility prior
to its present maturity date, there can be no assurance that Monitoring will be
able to do so.
Monitoring is required to make semiannual cash payments of interest on
Monitoring's 6-3/4% Convertible Senior Subordinated Notes due 2003 (the
"Convertible Notes") of $3.5 million; in addition, the principal amount of
Monitoring's 13-5/8% Senior Subordinated Discount Notes due 2005 (the "Discount
Notes") will accrete in value until June 30, 1998, and Monitoring will be
required to make cash payments of interest on the Discount Notes beginning on
December 31, 1998. Based on the Discount Notes' interest rate of 13-5/8%, such
interest payment will be $11.3 million semiannually, or $22.6 million per year.
There can be no assurance that Monitoring's cash flows from operations will be
sufficient to make the required interest payments on the Convertible Notes, the
Discount Notes and borrowings under the Revolving Credit Facility.
The indentures pursuant to which the Convertible Notes and the Discount
Notes were issued (the "Convertible Notes Indenture" and the "Discount Notes
Indenture," respectively ) do not provide for any current amortization of
principal or require the establishment of any reserves or sinking funds in
respect of the payment of principal. As a result, Monitoring will be required to
repay the full principal amount of the Convertible Notes ($103.5 million) on
September 15, 2003 and the full principal amount of the Discount Notes ($166.0
million) on June 30, 2005. There can be no assurance that Monitoring will have
the cash necessary to repay the Convertible Notes and the Discount Notes at
maturity or will be able to refinance such obligations.
Monitoring's ability to pay the principal of and interest on the
Convertible Notes and the Discount Notes and continue to service its other
indebtedness will be subject to various business, financial and other factors,
many of which are beyond the Company's control. In addition, each of the
Discount Notes Indenture, the agreement governing the Revolving Credit Facility
(the "Credit Agreement") and, to a lesser extent, the Convertible Notes
Indenture includes covenants that restrict the operational and financial
flexibility of the Company. Failure to comply with certain covenants would, in
some instances, permit the holders of the Convertible Notes or the Discount
Notes or the lenders under the Revolving Credit Facility to accelerate the
maturity of Monitoring's obligations thereunder, and in other instances could
result in cross-defaults permitting the acceleration of all such debt and debt
under other agreements.
The Company's high degree of leverage may have important consequences to
holders of the Common Stock, including the following: (i) a substantial portion
of the Company's cash flow from operations is, and will continue to be,
dedicated to the payment of the principal of and interest on the Company's
indebtedness, thereby, reducing the funds available to the Company for its
operations and future growth or other business opportunities; (ii) the Company's
ability to obtain additional financing in the future for working capital, the
Dealer Program, acquisitions of portfolios of subscriber accounts, capital
expenditures, general corporate purposes or other purposes may be impaired;
(iii) the Convertible Notes Indenture, the Discount Notes Indenture and the
Credit Agreement contain, and are expected to continue
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to contain, certain restrictive covenants, including certain covenants that
require the Company to obtain the consent of the lenders under the Revolving
Credit Facility and to maintain certain financial ratios in order to undertake
significant acquisitions of portfolios of subscriber accounts; (iv) Monitoring's
borrowings under the Revolving Credit Facility are at floating rates of
interest, causing the Company to be vulnerable to increases in interest rates;
(v) the Company will be more vulnerable to a downturn in the Company's business
or the economy generally; and (vi) the Company's ability to compete against
other less leveraged companies may be adversely affected.
Risks Related to Acquisitions. A principal element of the Company's
business strategy is to acquire portfolios of alarm monitoring accounts. During
the fiscal 1992-1996 period, the Company completed 117 acquisitions of the
portfolios of subscriber accounts of other alarm service companies, and those
acquisitions were the primary source of the Company's growth during that period.
Although the Dealer Program is anticipated to be an increasingly important
component of the Company's growth, acquisitions of portfolios of subscriber
accounts are expected to continue. The Company faces competition for the
acquisition of portfolios of subscriber accounts, and may be required to offer
higher prices for acquired accounts than the Company has in the past. See
"--Competition." In addition, due to the continuing consolidation of the
security alarm industry and the acquisition by the Company and other alarm
companies of a number of large portfolios of subscriber accounts, there may in
the future be fewer large portfolios of subscriber accounts available for
acquisition. There can be no assurance that the Company will be able to find
acceptable acquisition candidates or, if such candidates are identified, that
acquisitions can be consummated on terms acceptable to the Company.
Acquisitions of portfolios of subscriber accounts involve a number of
special risks, including the possibility of unanticipated problems not
discovered prior to the acquisition, account attrition and the diversion of
management's attention from other business activities in order to focus on the
assimilation of accounts. For acquisitions that are structured as the purchase
of the stock of other alarm companies, the Company may assume unexpected
liabilities and must dispose of the unnecessary assets of the acquired
companies.
Because the Company's primary consideration in acquiring a portfolio of
subscriber accounts is the amount of cash flow that can be derived from the
monthly recurring revenue ("MRR") associated with the purchased accounts, the
price paid by the Company is customarily directly tied to such MRR. The price
paid varies based on the number and quality of accounts being purchased from the
seller, the historical activity of such accounts and other factors. The seller
typically does not have audited historical financial information with respect to
the acquired accounts; thus, in making acquisitions the Company generally has
relied on management's knowledge of the industry, due diligence procedures and
representations and warranties of the sellers. There can be no assurance that
such representations and warranties are true and complete or, if such
representations and warranties are inaccurate, that the Company will be able to
recover damages from the seller in an amount sufficient to fully compensate the
Company for any resulting losses. The Company expects that future acquisitions
will present at least the same risks to the Company as its prior acquisitions.
An important aspect of the Company's acquisition program is the
assimilation of subscriber accounts into the Company's operations after
purchase. Depending on the size, frequency and location of acquisitions, the
assimilation of subscribers may adversely affect the provision of field repair
services to existing subscribers, which may cause subscriber attrition to
increase. In addition, if the Company's corporate or branch operations fail to
assimilate a substantial portion of acquired subscriber accounts, the Company
may experience higher attrition in the future.
History of Losses. The Company incurred losses attributable to common
stock of $ 8.8 million for the six months ended March 31, 1997, $15.7 million
for fiscal 1996, $18.5 million for fiscal 1995, $9.2 million for fiscal 1994,
$4.6 million for fiscal 1993 and $5.0 million for fiscal 1992. ("Losses
attributable to common stock" means the Company's net loss, less dividends
payable on preferred stock.) These losses reflect, among other factors, the
substantial charges incurred by the Company for amortization of purchased
subscriber accounts, interest incurred on the Company's indebtedness and
extraordinary losses on early extinguishment of debt. Such charges, with the
exception of the extraordinary losses, will increase as the
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Company continues to purchase subscriber accounts, if the Company's indebtedness
increases, or if interest rates increase. The Company's earnings have been
insufficient to cover its fixed charges since the Company was formed, and there
can be no assurance that the Company will attain profitable operations.
Risks Related to the Dealer Program. During fiscal 1995 and fiscal 1996,
the Company increased its emphasis on the Dealer Program, which became a more
significant source of growth than in prior years. This emphasis has continued in
fiscal 1997. Several of the Company's competitors also have dealer programs, and
there can be no assurance that the Company will be able to retain or expand its
current dealer base or that competitive offers to the Company's dealers will not
require the Company to pay higher prices to the Company's dealers for subscriber
accounts than previously paid. The Company's five highest producing dealers
generated 45.2% of the total subscriber accounts purchased by the Company
through the Dealer Program in the fiscal 1996 and 32.5% of the total subscriber
accounts purchased by the Company in the six months ended March 31, 1997. The
loss of any of such dealers would negatively impact the Company's subscribers,
revenues and cash flows from operations.
Need for Additional Capital. In fiscal 1995 and fiscal 1996, the Company
spent a total of $170.7 million in investing activities, including acquisitions
of portfolios of subscriber accounts and purchases of subscriber accounts
through the Dealer Program. Net cash provided by operating activities during
such period totaled $32.6 million, and the Company used borrowings under the
Revolving Credit Facility and proceeds from offerings of debt and equity
securities to fund the remainder of the Company's investing activities. The
Company has continued in fiscal 1997, and intends to continue, to pursue
subscriber account growth through the Dealer Program and acquisitions. As a
result, the Company will be required to seek additional funding from additional
borrowings under the Revolving Credit Facility and the sale of additional
securities in the future, which may lead to higher leverage or the dilution of
then existing holders' investment in the Common Stock. See "--Risks Related to
High Leverage." Any inability of the Company to obtain funding through external
financings is likely to adversely affect the Company's ability to increase its
subscribers, revenues and cash flows from operations. There can be no assurance
that external funding will be available to the Company on attractive terms or at
all.
Management of Growth. The Company's business strategy is to grow rapidly
through the addition of subscriber accounts. This expansion has placed and will
continue to place substantial demands on the Company's management and
operational resources and system of financial and internal controls. The
Company's future operating results will depend in part on the Company's ability
to continue to implement and improve the Company's operating and financial
controls and to expand, train and manage the Company's employee base.
Significant changes in quarterly revenues and costs may result from the
Company's execution of its business strategy, resulting in fluctuating financial
results. Additionally, management of growth may limit the time available to the
Company's management to attend to other operational, financial and strategic
issues.
Attrition of Subscriber Accounts. The Company experiences attrition of
subscriber accounts as a result of, among other factors, relocation of
subscribers, adverse financial and economic conditions, and competition from
other alarm service companies. In addition, the Company loses certain accounts,
particularly acquired accounts, to the extent the Company does not service those
accounts adequately or does not assimilate new accounts into the Company's
operations. An increase in such attrition could have a material adverse effect
on the Company's revenues and earnings.
When acquiring accounts, the Company seeks to withhold a portion of the
purchase price as a partial reserve against excess subscriber attrition. If the
actual attrition rate for the accounts acquired is greater than the rate assumed
by the Company at the time of the acquisition, and the Company is unable to
recoup its damages from the portion of the purchase price held back from the
seller, such attrition could have a material adverse effect on the Company's
financial condition or results of operations. There can be no assurance that the
Company will be able to obtain purchase price holdbacks in future acquisitions,
particularly acquisitions of large portfolios. The Company is not aware of any
reliable historical data relating to account attrition rates prepared by
companies from whom the Company has acquired accounts, and the Company has no
assurance that actual account attrition for acquired accounts will not be
greater than the attrition rate assumed or historically incurred by the Company.
In addition, because some
7
<PAGE> 11
acquired accounts are prepaid on an annual, semiannual or quarterly basis,
attrition may not become evident for some time after an acquisition is
consummated.
At March 31, 1997, the cost of subscriber accounts and intangible assets,
net of previously accumulated amortization, was $299.2 million, which
constituted 86.9% of the book value of the Company's total assets. The Company's
purchased subscriber accounts are amortized on a straight-line basis over the
estimated life of the related revenues. To estimate such life, the Company first
determines gross subscriber attrition, defined by the Company for a period as a
quotient, the numerator of which is equal to the number of subscribers who
disconnect services during such period and the denominator of which is the
average of the number of subscribers at each month end during such period. Gross
subscriber attrition was 19.3% and 18.3% for fiscal 1995 and fiscal 1996,
respectively, and 17.6% for the twelve months ended March 31, 1997. The Company
offsets gross attrition by adding new accounts from subscribers who move into
premises previously occupied by Company subscribers and in which security alarm
systems are installed, conversions of accounts that were previously monitored by
other alarm companies to the Company's monitoring services and accounts for
which the Company obtains a guarantee from the seller that provides for the
Company to "put" back to the seller canceled accounts. The resulting figure is
used as a guideline to determine the estimated life of subscriber revenues. It
is the Company's policy to review periodically actual account attrition and,
when necessary, adjust the remaining estimated lives of the Company's purchased
accounts to reflect assumed future attrition. In fiscal 1993, the Company made
such an adjustment to the estimated life of subscriber accounts, reducing such
estimated life from 12 years to 10 years. There could be a material adverse
effect on the Company's results of operations and financial condition if actual
account attrition significantly exceeds assumed attrition and the Company has to
make further adjustments with respect to the amortization of purchased
subscriber accounts.
Impact of Accounting Differences for Account Purchases and New
Installations. A difference between the accounting treatment of the purchase of
subscriber accounts (including both purchases of subscriber account portfolios
and purchases under ongoing agreements with independent alarm dealers) and the
accounting treatment of the generation of subscriber accounts through direct
sales by the Company's sales force has a significant impact on the Company's
results of operations. All direct external costs associated with purchases of
subscriber accounts are capitalized and amortized over 10 years on a
straight-line basis. Also included in capitalized costs are certain acquisition
transition costs that reflect the Company's estimate of costs associated with
incorporating the purchased subscriber accounts into the Company's operations.
Such costs include costs incurred by the Company in fulfilling the seller's
pre-acquisition obligations to the acquired subscribers, such as providing
warranty repair services. In contrast, all of the Company's costs related to the
marketing, sales and installation of new alarm monitoring systems generated by
the Company's sales force are expensed in the period in which such activities
occur. The Company's marketing, sales and installation expenses for new systems
generally exceed installation revenues.
The Company's purchase activity increased significantly during fiscal
1994, fiscal 1995 and fiscal 1996. See "--Risks Related to Acquisitions." In
addition, during those periods the Company reduced the Company's sales of new
systems and related marketing expenditures. As a result of the difference in the
methods by which such activities are accounted for, the combined effect of these
two factors was to improve operating results during the three years ended
September 30, 1996. The Company has not further reduced, and does not expect to
further reduce, sales of new systems by Company personnel and related marketing
expenditures in fiscal 1997. There can be no assurance that the Company will not
increase its emphasis on the marketing and sales of new alarm system
installations in the future, particularly in connection with a joint venture or
other strategic alliance; any such increase could adversely affect results of
operations. The Company anticipates that subscriber accounts added through the
co-branded program with PacifiCorp will be purchased through the Dealer Program
rather than generated through sales of new alarm systems by Company personnel.
Possible Adverse Effect of "False Alarm" Ordinances. According to certain
data concerning the residential security alarm market prepared in December 1995
by J.P. Freeman & Co. (the "Freeman Data"), approximately 97% of alarm
activations that result in the dispatch of police or fire department personnel
are not emergencies, and thus are "false alarms." Significant concern has arisen
in certain municipalities about this high incidence of false alarms. This
concern could cause a decrease in the likelihood or
8
<PAGE> 12
timeliness of police response to alarm activations and thereby decrease the
propensity of consumers to purchase or maintain alarm monitoring services.
A number of local governmental authorities have considered or adopted
various measures aimed at reducing the number of false alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms, and (v) requiring further
verification of an alarm signal before the police will respond. Enactment of
such measures could adversely affect the Company's future business and
operations.
Of the monitoring signals received by the Company, approximately 98%
arise from false alarms, most of which are diagnosed and cancelled by the
Company prior to the dispatch of police. False alarm penalties and fines paid
by the Company totaled approximately $10,000 for the nine months ended
June 30, 1997.
Possible Adverse Effect of Future Government Regulations, Risks of
Litigation. The Company's operations are subject to a variety of laws,
regulations and licensing requirements of federal, state and local authorities.
In certain jurisdictions, the Company is required to obtain licenses or permits,
to comply with standards governing employee selection and training, and to meet
certain standards in the conduct of the Company's business. The loss of such
licenses, or the imposition of conditions to the granting or retention of such
licenses, could have a material adverse effect on the Company.
The Company's advertising and sales practices are regulated by both the
Federal Trade Commission and state consumer protection laws. Such regulations
include restrictions on the manner in which the Company promotes the sale of
security alarm systems and the obligation of the Company to provide purchasers
of alarm systems with certain rescission rights. While the Company believes that
it has complied with these regulations in all material respects, there can be no
assurance that none of these regulations was violated in connection with the
solicitation of the Company's existing subscriber accounts, particularly with
respect to accounts acquired from third parties, or that no such violation will
occur in the future.
From time to time, subscribers have submitted complaints to state and
local authorities regarding the Company's sales and billing practices, which in
some instances have resulted in discussions with, or actions by, such
authorities. In August 1994, as a result of certain complaints by subscribers,
three California governmental authorities brought an action against the Company,
and concurrently settled such action. In connection with the settlement of such
action, the Company agreed to the filing of an injunction requiring the Company
to provide notices of certain increases in charges for its services and to
comply with certain restrictions in its marketing, billing and collection
activities, and paid restitution to subscribers in the amount of $31,000 and
civil penalties of $30,000. Any violation by the Company of the terms of such
injunction could have a material adverse effect on the Company.
The Company does not believe that any of the investigations or actions
described herein has had or will have a material adverse effect on the Company.
However, there can be no assurance that other actions that may be taken in the
future by these or other authorities as a result of subscriber complaints will
not have such adverse effect on the Company.
Risks of Liability from Operations. The nature of the services provided by
the Company potentially exposes it to greater risks of liability for employee
acts or omissions or system failure than may be inherent in other businesses.
Most of the Company's alarm monitoring agreements and other agreements pursuant
to which the Company sells its products and services contain provisions limiting
liability to subscribers in an attempt to reduce this risk. However, in the
event of litigation with respect to such matters there can be no assurance that
these limitations will be enforced, and the costs of such litigation could have
an adverse effect on the Company.
The Company's alarm response and patrol services require Company personnel
to respond to emergencies that may entail risk of harm to such employees and to
others. In most cities in which the Company provides such services, the
Company's patrol officers carry firearms, which may increase such risk. Although
the Company screens and trains its employees, the provision of alarm response
service subjects the Company to greater risks related to accidents or employee
behavior than other types of
9
<PAGE> 13
businesses. Reduction of police participation in the handling of emergencies
could expose the Company's patrol officers to greater hazards and further
increase the Company's risk of liability.
The Company carries insurance of various types, including general
liability and errors and omissions insurance providing coverage of $15.0 million
on both an aggregate and a per claim basis. The loss experience of the Company
and other security service companies may affect the availability and cost of
such insurance. Certain of the Company's insurance policies and the laws of some
states may limit or prohibit insurance coverage for punitive or certain other
types of damages, or liability arising from gross negligence.
Geographic Concentration. The Company's existing subscriber base is
geographically concentrated in certain metropolitan areas and surrounding
suburbs in the seven western states in which the Company operates. Accordingly,
the performance of the Company may be adversely affected by regional or local
economic conditions.
As a result of acquisitions or strategic alliances, the Company may from
time to time expand its operations into regions outside of the Company's current
operating area. The acquisition of subscriber accounts in other regions, or in
metropolitan areas in which the Company does not currently have subscribers,
requires an investment by the Company in local branches and personnel necessary
to service such accounts. In order for the Company to expand successfully into a
new area, the Company must obtain a sufficient number, and density, of
subscriber accounts in such area to support the additional investment. There can
be no assurance that an expansion into new geographic areas would generate
operating profits.
In June, 1997, the Company entered into a sales agency agreement with
Southwestern Bell Telephone Company ("SWBT" and such agreement the "SWBT
Agreement"). Although subscribers generated by SWBT may reside in new
geographic areas, the SWBT Agreement requires the Company to provide only
monitoring and certain customer support services. As a result, the Company will
not establish new branch offices or make other significant infrastructure
investments in connection with the SWBT Agreement.
Competition. The security alarm industry is highly competitive and highly
fragmented. The Company competes with larger national companies, as well as
smaller regional and local companies, in all of the Company's operations.
Furthermore, new competitors are continuing to enter the industry and the
Company may encounter additional competition from such future industry entrants.
Certain of the Company's current competitors have, and new competitors may
have, greater financial resources than the Company. In addition, other alarm
services companies have adopted a strategy similar to the Company's that entails
the aggressive purchase of alarm monitoring accounts both through acquisitions
of account portfolios and through dealer programs. Some of these companies may
be willing to offer higher prices than the Company is prepared to offer to
purchase subscriber accounts. The effect of such competition may be to reduce
the purchase opportunities available to the Company, thus reducing the Company's
rate of growth, or to increase the price paid by the Company for subscriber
accounts, which would adversely affect the Company's return on investment in
such accounts and the Company's results of operations.
Dependence Upon Senior Management. The success of the Company's business
is largely dependent upon the active participation of the Company's executive
officers. The loss of the services of one or more of such officers for any
reason may have a material adverse effect on the Company's business.
Effect of Change of Control, Fundamental Change and Delaware Anti-takeover
Law. At the option of the holders of the Convertible Notes, Monitoring is
required to purchase the Convertible Notes at a price initially equal to 106.75%
of the principal amount thereof plus accrued and unpaid interest upon the
occurrence of any "Fundamental Change" as defined in the Convertible Notes
Indenture. In addition, Monitoring is required to make an offer to purchase all
of the Discount Notes at a price equal to 101% of their Accreted Value (as
defined in the Discount Notes Indenture) on any repurchase date prior to June
30, 1998, or at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest to any repurchase date on or after June 30,
1998, upon the occurrence of any "Change of Control" as defined in the Discount
Notes Indenture. A "Fundamental Change" and a "Change of Control" also
constitute events of default under the Revolving Credit Facility. If such an
event were to occur, the Company may not be able to repay all of its obligations
that would then become payable. Such provisions, together with certain
provisions of Delaware law, could delay or prevent a change in control of the
Company, could discourage acquisition proposals and could diminish the
opportunities for a stockholder
10
<PAGE> 14
to participate in tender offers, including tender offers at a price above the
then current market value of the Common Stock or over a stockholder's cost basis
in the Common Stock. In addition, the Board of Directors, without further
stockholder approval, may issue preferred stock, which could have the effect of
delaying, deferring or preventing a change in control of POI. The issuance of
preferred stock could also adversely affect the voting power of the holders of
Common Stock, including the loss of voting control to others.
Shares Eligible for Future Sale. Of the __________ shares of Common Stock
outstanding at August 15, 1997, __________ shares were freely tradeable in the
public market without any restriction whatsoever, and an additional _________
shares were eligible for sale subject to the volume limitations of Rule 144
under the Securities Act. In addition, as of August 15, 1997, (i) an aggregate
of 5,766,017 shares of Common Stock were issuable upon conversion of the
Convertible Notes at a conversion price of $17.95 per share, (ii) an aggregate
of __________ shares of Common Stock were issuable upon the exercise of
outstanding warrants with a weighted average exercise price of $_________ per
share, (iii) an aggregate of _________ shares of Common Stock were issuable upon
the exercise of outstanding options and management performance warrants with a
weighted average exercise price of $_______ per share, and (iv) an aggregate of
_________ shares were issuable in connection with certain acquisitions of
portfolios of alarm accounts, all of which shares are currently registered for
sale or resale under the Securities Act. Various stockholders of the Company
also have certain demand and "piggyback" registration rights pursuant to a
stockholders' agreement among such stockholders and POI. Sales and potential
sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Common Stock.
Dividend Policy, Restrictions on Dividends. POI has never paid any cash
dividends on the Common Stock and does not intend to pay any cash dividends in
the foreseeable future. POI is dependent upon the receipt of dividends or other
distributions from Monitoring to fund POI's operations, and the Credit Agreement
and the Discount Notes Indenture restrict POI's ability to declare or pay any
dividend on, or make any other distribution in respect of, the Common Stock and
do not permit distributions from Monitoring to POI other than for certain
specified purposes.
Possible Volatility of Prices of the Common Stock. The stock market has
from time to time experienced extreme price and volume fluctuations that have
been unrelated to the operating performance of particular companies. The market
prices of the Common Stock may be significantly affected by quarterly variations
in the Company's operating results, litigation involving the Company, general
trends in the security alarm industry, actions by governmental agencies,
national economic and stock market conditions, industry reports and other
factors, many of which are beyond the control of the Company. Due to all of the
foregoing factors, it is likely that the Company's operating results will fall
below the expectations of the Company, securities analysts or investors in some
future quarter. In such event, the trading price of the Common Stock would
likely be materially and adversely affected.
11
<PAGE> 15
THE ACQUISITION
On June 30, 1997, Monitoring acquired all of the outstanding capital stock
of Able Alarms of Arizona, Incorporated. Pursuant to the Purchase Agreements, in
consideration of the Acquisition, Monitoring (i) paid to the Selling Stockholder
approximately $1,149,000 in cash, $551,000 of which has been deferred for six
months pending certain purchase price adjustments, (ii) delivered to the Selling
Stockholder 58,797 shares of Common Stock, which number was derived by dividing
$765,836 by an average of the closing price of the Common Stock on the Nasdaq
National Market during the period of the 10 most recent trading days ending on
the second trading day prior to the signing of the Purchase Agreements, and
(iii) paid to the Kerr Charitable Trust approximately $2,356,000 in cash. The
Purchase Agreements also required Monitoring to pay approximately $269,500 to JK
Alarms of Arizona, Inc., a company affiliated with the Selling Stockholder. The
Purchase Agreements provided that POI will file the Registration Statement of
which this Prospectus is a part.
In connection with the Acquisition, POI and the Selling Stockholder
entered into a Registration Rights Agreement (the "Registration Rights
Agreement") that provides for the payment by POI of the expenses incurred in
connection therewith, other than underwriting discounts and selling commissions,
if any, transfer taxes and fees and expenses payable to third parties employed
by the Selling Stockholder.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale from time to time
of any of the Shares. All proceeds from the sale of the Shares will be for the
account of the Selling Stockholder, as described below. See "Selling
Stockholder" and "Plan of Distribution."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of POI consists of 40,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock, par value $.10 per share
("Preferred Stock").
COMMON STOCK
As of August 15, 1997, there were shares of Common Stock
issued and outstanding.
Each share of Common Stock entitles the holder of record thereof to cast
one vote on all matters submitted for a vote of stockholders. The holders of
Common Stock do not possess cumulative voting rights, and members of the Board
of Directors of POI are elected by a plurality vote. As a result, the holders of
a majority of outstanding shares of Common Stock voting for the election of
directors of POI can elect all directors then being elected.
Each share of Common Stock has an equal and ratable right to receive such
dividends as may be declared by the Board of Directors of POI out of funds
legally available therefor, subject to the rights of the holder(s) of any one or
more series of Preferred Stock then outstanding.
Upon the liquidation, dissolution or winding up of POI, the assets of POI
legally available for distribution to stockholders are distributable equally and
ratably among the holders of Common Stock, subject to prior distribution rights
of creditors of POI and to the preferential rights of the holders of any one or
more series of Preferred Stock then outstanding.
The holders of shares of Common Stock have no preemptive, subscription,
redemption or conversion rights and are not liable for further calls or
assessments. All outstanding shares of Common Stock are fully paid and
nonassessable.
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, Seattle, Washington.
12
<PAGE> 16
PREFERRED STOCK
POI is authorized to issue up to an aggregate of 5,000,000 shares of
Preferred Stock in such series and with such designations, rights and
preferences as may be determined from time to time by the Board of Directors of
POI. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. In the event of such issuance, the
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of POI. As of the date
of this Prospectus, there are no shares of Preferred Stock outstanding, and POI
has no present intention to issue any additional such shares.
DELAWARE ANTI-TAKEOVER LAW
POI is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. Pursuant to Section 203, certain "business
combinations" (as defined) between a Delaware corporation and an "interested
stockholder" (defined generally as a stockholder who becomes the beneficial
owner of 15% or more of a Delaware corporation's outstanding voting stock) are
prohibited for three years following the date such stockholder became an
interested stockholder, unless: (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203; (ii) the
business combination or the transaction in which the interested stockholder
became an interested stockholder was approved by the corporation's board of
directors before the other party to the business combination became an
interested stockholder; (iii) upon consummation of the transaction that resulted
in the interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding voting stock owned
by directors who are also officers of the corporation or held in employee
benefit plans that do not provide employees a confidential right to determine
whether to tender (or how to vote) stock held by the plan; or (iv) the business
combination was approved by the board of directors of the corporation and by the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. The three-year prohibition also does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions that
increase an interested stockholder's percentage ownership of stock. The
provisions of Section 203 requiring a "supermajority" vote to approve certain
corporate transactions could enable certain of the Company's stockholders to
exercise veto power over such transactions.
SELLING STOCKHOLDER
All of the Shares are owned, and may offered and sold from time to time,
by the Selling Stockholder. The Selling Stockholder has advised the Company
that as of the date of this Prospectus, the Selling Stockholder does not own any
shares of Common Stock other than the Shares and that if all of the Shares are
sold as described herein, the Selling Stockholder will not own any shares of
Common Stock.
Upon consummation of Monitoring's acquisition of Able, a company formed by
Mr. Kerr became a participant in the Company's independent dealer program.
Subject to the foregoing and except for the transactions contemplated by the
Purchase Agreements, the Selling Stockholder has not had any material
relationship with the Company or any of its affiliates within the three-year
period ending on the date of this Prospectus.
PLAN OF DISTRIBUTION
The Selling Stockholder may from time to time sell the shares of Common
Stock covered by this Prospectus in one or more of the following transactions:
(i) to underwriters who will acquire the shares
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<PAGE> 17
for their own account and resell such shares in one or more transactions,
including negotiated transactions, at a fixed price or at varying prices
determined at the time of sale, with any initial public offering price and any
discount or concession allowed or re-allowed or paid to dealers subject to
change from time to time; (ii) through brokers or dealers, acting as principal
or agent, in transactions (which may involve block transactions) on the Nasdaq
National Market in ordinary brokerage transactions, in negotiated transactions
or otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, at negotiated prices or otherwise (including
without limitation sales in transactions that comply with the volume and manner
of sale provisions contained in paragraphs (e) and (f) of Rule 144 under the
Securities Act ("Rule 144")); or (iii) directly or indirectly through brokers or
agents in private sales at negotiated prices, or in any combination of such
methods of sale. This Prospectus may be supplemented or amended from time to
time to describe a specific plan of distribution.
In connection with the distribution of the Shares or otherwise, the
Selling Stockholder may: (a) enter into hedging transactions with
broker-dealers or other financial institutions, and in connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of Common Stock in the course of hedging the positions they assume with
the Selling Stockholder; (b) sell shares of Common Stock short and redeliver
the Shares to close out such short positions; and/or (c) enter into option or
other transactions with broker-dealers or other financial institutions that
require the delivery to such broker-dealer or other financial institution of the
Shares, which Common Stock such broker-dealer or other financial institution may
(subject to any applicable transfer restriction contained in an agreement
between the Selling Stockholder and the Company) resell pursuant to this
Prospectus as supplemented or amended to reflect such transaction. The Selling
Stockholder also may loan or pledge the Shares to a broker-dealer or other
financial institution and, upon a default, such broker-dealer or other financial
institution may effect sales of the pledged Shares pursuant to this Prospectus
as supplemented or amended to reflect such transaction. In addition to the
foregoing, the Selling Stockholder may, from time to time, enter into other
types of hedging transactions.
Underwriters participating in any offering may receive underwriting
discounts and commissions, discounts or concessions may be allowed or re-allowed
or paid to dealers, and brokers or agents participating in such transactions may
receive brokerage or agent's commissions or fees, all in amounts to be
negotiated in connection with sales pursuant hereto. The underwriter, agent or
dealer utilized in the sale of Common Stock will not confirm sales to accounts
of which such persons exercise discretionary authority. In effecting sales of
the Shares, brokers or dealers engaged by the Selling Stockholder may arrange
for other brokers or dealers to participate. Brokers or dealers may receive
compensation in the form of commissions or discounts from the Selling
Stockholder and may receive commissions from the purchases of Shares for whom
such broker-dealers may act as agents, all in amounts to be negotiated,
including immediately prior to the sale.
The Selling Stockholder and all underwriters, dealers or agents, if any,
who participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any profit on the sale of such Shares by such stockholders, and all
discounts, commissions or concessions received by such underwriters, dealers or
agents, if any (whether received from the Selling Stockholder and/or from the
purchasers of the Shares for whom those dealers or agents may act as agents),
may be deemed to be underwriting discounts and commissions under the Securities
Act.
Certain of the above-described underwriters, dealers, brokers or agents
may engage in transactions with, or perform services for, with the Company and
its affiliates in the ordinary course of business.
Upon POI being notified by the Selling Stockholder that any arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering or secondary distribution or a purchase by a
broker-dealer, to the extent required by applicable law, a supplement to this
Prospectus will be distributed that will set forth the name(s) of the
participating underwriters, dealers or agents, the aggregate amount of Shares
being so offered and the terms of the offering, including all underwriting
discounts, commissions and other items constituting compensation from, and the
resulting net proceeds to, the Selling Stockholder, all discounts, commissions
or concessions allowed or re-allowed or paid to
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<PAGE> 18
dealers, if any, and, if applicable, the purchase price to be paid by any
underwriter for shares of Common Stock purchased from the Selling Stockholder.
The Selling Stockholder and other persons participating in the
distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations of the Commission thereunder,
including, without limitation, Regulation M, which provisions may limit the
timing of the purchase and sale of shares of Common Stock by the Selling
Stockholder.
Shares that qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to this Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
has been passed upon for POI by Mitchell, Silberberg & Knupp LLP, Los Angeles,
California.
EXPERTS
The consolidated balance sheets of Protection One, Inc. and subsidiaries
as of September 30, 1996 and 1995 and the related consolidated statements of
operations, cash flows and changes in stockholders' equity (deficit) for each of
the three years in the period ended September 30, 1996 incorporated by reference
in this Prospectus, have been incorporated herein in reliance on the report,
which includes an explanatory paragraph with respect to a change in method of
accounting for certain subscriber account acquisition and transition costs, of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
15
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
Nature of Expense
-----------------
<S> <C>
SEC Registration Fee.......................................... $ 319.70
Legal (Including blue sky) fees and expenses.................. 3,000.00
Accounting fees and expenses.................................. 1,000.00
Miscellaneous................................................. 680.30
---------
Total $5,000.00
=========
</TABLE>
All of the foregoing expenses other than the SEC registration fee are estimates.
Item 15. Indemnification of Directors of and Officers.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation has the power to indemnify a director,
officer, employee or agent of the corporation and certain other persons serving
at the request of the corporation in related capacities against amounts paid and
expenses incurred in connection with an action or proceeding to which he is or
is threatened to be made party by reason of such position, if such person shall
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful, provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances. The Fifth Restated
Certificate of Incorporation of the Registrant, as amended (the "Certificate of
Incorporation") provides that the Registrant shall indemnify its directors and
officers to the fullest extent permitted the DGCL.
The Certificate of Incorporation also provides, as permitted by Section
102(b) of the DGCL, that no director shall be liable to the Registrant or its
stockholders for monetary damages for breach of his fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction in which the director derived an improper personal benefit.
The By-laws of the Registrant contain provisions to the effect that each
director, officer and employee of the Registrant shall be indemnified by the
Registrant against liabilities and expenses in connection with any legal
proceedings to which he may be made a party or with which he may become involved
or threatened by reason of having been an officer, director or employee of the
company or of any other organization at the request of the company. The
provisions include indemnification with respect to matters covered by a
settlement. Under Delaware law, any such indemnification shall be made only if
the Board determines by a majority vote of a quorum consisting of disinterested
directors (or, if such quorum is not obtainable, or if the Board of Directors
directs, by independent legal counsel) or by stockholders, that indemnification
is proper in the circumstances because the person seeking indemnification has
met the applicable standards of conduct. In addition, it must be determined that
the director, officer or employee acted in good faith with the reasonable belief
that his action was in or not opposed to the best interests of the company, and,
with respect to any criminal action or proceeding, that he had no reasonable
cause to believe his conduct was unlawful.
The Registrant maintains a directors and officers liability insurance
policy providing for the insurance on behalf of any person who is or was a
director or officer of the Registrant and its subsidiary companies against any
liability incurred by such person in any such capacity or arising out of such
person's status as such. The insurer's limit of liability under the policy is $5
million in the aggregate for all insured
II-1
<PAGE> 20
losses. The policy contains various reporting requirements and is subject to
certain exclusions and limitations.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2.1 Stock Purchase Agreement dated as of June 20, 1997, among
Monitoring, Jeffrey E. Kerr and Able Alarms of Arizona,
Incorporated, as amended by Addendum dated June 30, 1997.
2.2 Stock Purchase Agreement dated as of June 20, 1997, among
Monitoring, The Kerr Charitable Trust and Able Alarms of
Arizona, Incorporated, as amended by Addendum dated June 30, 1997.
4.1 Fifth Restated Certificate of Incorporation of POI, as amended. (1)
4.2 Bylaws of POI, as amended. (2)
4.3 Registration Rights Agreement dated as of June 20, 1997, between
POI and Jeffrey E. Kerr, as amended by Addendum dated
June 30, 1997.
5.1 Opinion of Mitchell, Silberberg & Knupp LLP.(3)
23.1 Consent of Coopers & Lybrand L.L.P.(3)
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included in
Exhibit 5.1)(3).
24.1 Power of attorney (included on signature page).(3)
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q filed by POI for the quarter ended December 31, 1996.
(2) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q filed by Protection One, Inc. for the quarter ended March
31, 1996.
(3) Previously filed.
Item 17. Undertakings.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if,
II-2
<PAGE> 21
in the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if this
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the Registrant is a foreign private issuer, to file a
post-effective amendment to the Registration Statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the Registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Beaverton, State of Oregon, on August 11, 1997.
PROTECTION ONE, INC.
By: /s/ JOHN W. HESSE
-------------------------------------
John W. Hesse
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ---------------------------------- President, Chief Executive August 11, 1997
James M. Mackenzie, Jr. Officer and Director
/s/ JOHN W. HESSE
- ---------------------------------- Executive Vice President, August 11, 1997
John W. Hesse Chief Financial Officer
(principal financial and
accounting officer)
and Secretary
*
- ---------------------------------- Director August 11, 1997
Robert M. Chefitz
*
- ---------------------------------- Director August 11, 1997
Ben Enis
- ---------------------------------- Director August __, 1997
James Q. Wilson
*By /s/ JOHN W. HESSE
- ----------------------------------
John W. Hesse
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
2.1 Stock Purchase Agreement dated as of June 20, 1997, among
Protection One Alarm Monitoring, Inc. ("Monitoring"),
Jeffrey E. Kerr and Able Alarms of Arizona, Incorporated,
as amended by Addendum dated June 30, 1997.
2.2 Stock Purchase Agreement dated as of June 20, 1997, among
Monitoring, The Kerr Charitable Trust and Able Alarms of
Arizona, Incorporated, as amended by Addendum dated June 30, 1997.
4.1 Fifth Restated Certificate of Incorporation of Protection One,
Inc. ("POI"), as amended. (1)
4.2 Bylaws of POI, as amended. (2)
4.3 Registration Rights Agreement dated as of June 20, 1997, between
POI and Jeffrey E. Kerr, as amended by Addendum dated
June 30, 1997.
5.1 Opinion of Mitchell, Silberberg & Knupp LLP.(3)
23.1 Consent of Coopers & Lybrand L.L.P.(3)
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included in
Exhibit 5.1)(3).
24.1 Power of attorney.(3)
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q filed by POI for the quarter ended December 31, 1996.
(2) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q filed by Protection One, Inc. for the quarter ended March
31, 1996.
(3) Previously filed.
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
DATED: June 20, 1997
BETWEEN: Protection One Alarm Monitoring, Inc.,
a Delaware corporation
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005 ("Buyer")
AND: Able Alarms of Arizona, Incorporated,
an Arizona corporation
4114 E. Indian School Road
Phoenix, Arizona 85018 ("Company")
AND: Jeffrey E. Kerr
4114 E. Indian School Road
Phoenix, Arizona 85018 ("Stockholder")
RECITALS:
A. Stockholder is the owner of fifty percent (50%) of the issued
and outstanding shares of the capital stock (the "AAA Stock") of the Company;
and
B. Buyer desires to purchase the AAA Stock from Stockholder and
Stockholder desires to sell all such AAA Stock to Buyer, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The following terms shall be defined as set forth
below:
1.1 Alarm Accounts. The term "Alarm Accounts" is defined as
all installed monitored alarm accounts of the Company set forth on SCHEDULE
1.1(A) for the Alarm Accounts with Contracts (the "Written Alarm Accounts") and
SCHEDULE 1.1(B) for the Alarm Accounts without Contracts (the "Oral Alarm
Accounts") to be attached at the Closing to the Closing Addendum, including all
Equipment and goodwill related thereto, all available records (including,
without limitation, service and installation records), files, computer
information, monitoring codes, upload codes, download codes, master codes,
lock-out codes, communicator identification codes and
Page 1 STOCK PURCHASE AGREEMENT
<PAGE> 2
goodwill related thereto, and any and all Contracts and related agreements for
alarm systems and services between the Company and Subscribers.
1.2 Assets. The term "Assets" is defined as all of the Alarm
Accounts, Equipment, the Other Property, the Telephone Lines of the Company as
of the Closing, which will include all of the tangible and intangible assets of
the Company as of the Closing Date and which will not include on the Closing
Date the tangible and intangible assets of the Company listed on SCHEDULE 1.2 to
be attached at the Closing to the Closing Addendum which the Company transferred
to Stockholder or to Stockholder's designee prior to the Closing (the "Excluded
Assets").
1.3 Assumed Liabilities. The term "Assumed Liabilities" is
defined as (i) all obligations of Company to Subscribers to provide monitoring,
warranty, repair or other security services pursuant to written Contracts, as
that term is defined in Section 5.16, and the Other Contracts, as that term is
defined in Section 1.16, included in the Assets listed in Section 1.2 and all
express limited warranty obligations for alarm systems sold and installed by the
Company prior to Closing and (ii) all other liabilities set forth on SCHEDULE
1.3(A), if any, to be attached at the Closing to the Closing Addendum, which
shall set forth (a) the liabilities which will not be deducted from the Purchase
Price and (b) the liabilities which will be deducted from the Purchase Price.
The Assumed Liabilities shall not include the liabilities set forth on SCHEDULE
1.3(B) to be attached at the Closing to the Closing Addendum which the Company
transferred to Stockholder or to Stockholder's designee prior to Closing (the
"Excluded Liabilities").
1.4 Closing and Closing Date. The terms "Closing" and "Closing
Date" are defined as June 30, 1997, or such earlier date as the parties may
mutually agree upon in writing when the Closing of the purchase and sale of the
AAA Stock is consummated. The transfer to Buyer of control and the
responsibility of the Company shall be effective as of 12:01 a.m. Pacific
Daylight Savings Time on the day following the Closing Date.
1.5 Closing Value. The term "Closing Value" is defined as the
average per share closing price of Parent's shares of common stock for the ten
(10) trading days ending two (2) trading days prior to the date of this
Agreement, which is equal to Thirteen and 25/1000 Dollars ($13.025).
1.6 Deferred Payment. The term "Deferred Payment" is defined
as an amount equal to twelve percent (12%) of the QRR of the Alarm Accounts as
of the Closing Date, multiplied by a factor of thirty-nine (39), which is
subject to adjustment under Section 3, against which any Net Lost QRR, as that
term is defined in Section 3.4.2, shall be subtracted.
1.7 Environmental Laws. The term "Environmental Laws" is
defined as any and all foreign and domestic federal, state and local laws
(including case law), regulations, ordinances, rules, judgments, orders,
decrees, codes, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and governmental restrictions relating to the environment
or to
Page 2 STOCK PURCHASE AGREEMENT
<PAGE> 3
emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes that affect human health and the environment or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation thereof.
1.8 Environmental Liabilities. The term "Environmental
Liabilities" is defined as all liabilities, whether vested or unvested,
contingent or fixed, which (i) arise under or relate to Environmental Laws and
(ii) relate to actions occurring or conditions existing on or prior to the
Closing Date.
1.9 Equipment. The term "Equipment" means any and all
installations and equipment owned or leased by the Company at Subscribers'
residences or places of business with respect to the Alarm Accounts.
1.10 Guaranty Period. The term "Guaranty Period" is defined as
the nine (9) month period following the Closing Date.
1.11 Hazardous Substances. The term "Hazardous Substances" is
defined as any toxic, radioactive, caustic or otherwise hazardous substance
regulated by any Environmental Law, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any material
constituent elements displaying any of the foregoing characteristics.
1.12 Lost QRR. The term "Lost QRR" is defined as the QRR
(which was determined as of the Closing Date) for any Alarm Accounts which were
canceled because a notice of cancellation, dispute or intent not to renew had
been received by Buyer or the Company, either orally or in writing, after the
Closing Date and/or which had an accounts receivable balance at least sixty (60)
days past due at the Closing Date which receivables balance due as of the
Closing Date was not paid in full on or before the expiration of the Guaranty
Period and which had been canceled or terminated by Buyer prior to the
expiration of the Guaranty Period. Lost QRR will not include: (i) Alarm Accounts
which are canceled due to the Subscriber moving and within sixty (60) days of
cancellation either the Subscriber signs a new monitoring agreement at a new
location or a new customer signs a new monitoring agreement at Subscriber's
original location; or (ii) Alarm Accounts which cancel due to service or
monitoring problems attributable to the negligence of Buyer or the Company after
the Closing Date.
1.13 Material Adverse Effect. The term "Material Adverse
Effect" is defined as any change, effect or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on (i) the condition (financial or otherwise) or prospects of the
Company, its business or the Assets, or (ii) the operation of the business
before or after the Closing Date or the ownership or other use of the Assets by
Buyer and the Company thereafter.
Page 3 STOCK PURCHASE AGREEMENT
<PAGE> 4
1.14 Other Property. The term "Other Property" is defined as
Stockholder's trademarks, tradenames and intellectual property rights listed in
SCHEDULE 1.14 to be attached at the Closing to the Closing Addendum.
1.15 Purchase Price and Closing Price Components. The term
"Purchase Price" is defined as an amount equal to: (i) fifty percent (50%) of
the QRR of the Alarm Accounts as of the Closing Date, multiplied by a factor of
thirty-eight (38); less (ii) the Unearned Income as of the Closing Date; and
less (c) the Assumed Liabilities, if any, described in subparagraph (b) of
SCHEDULE 1.3(A), all of which shall be subject to adjustment under Sections 3.3
and 3.4 hereof. The items comprising the "Closing Price Components" are set
forth in SCHEDULE 1.15 (the "Closing Purchase Price Schedule").
1.16 QRR. The term "QRR" is defined as the gross monthly
recurring revenue of the Written Alarm Accounts, as such term is defined herein,
under valid Contracts, as such term is defined in Section 5.16, and of the Oral
Alarm Accounts, as such term is also defined herein, under any valid contracts
the Company has in effect for the Oral Alarm Accounts (the "Other Contracts")
for the leasing, monitoring and servicing of alarm systems which are in full
force and effect as of the Closing Date, do not contain restrictions or
limitations against assignment to Buyer and which have receivable balances which
are current or no more than ninety (90) days past due. QRR is reduced by: (i)
the total monthly charge paid to third party response agencies for patrol or
alarm response; and (ii) a deduction for leased alarm accounts if ownership of
the alarm system passes to the Subscriber at the end of the lease. QRR does not
include any amounts derived from or which are expected to be derived from: (a)
services to be provided under any Contract or Other Contract which by its terms
is terminable and has been terminated by a Subscriber as a result of the
consummation of the transaction contemplated hereby; (b) services to be provided
under any Contract or Other Contract as to which verbal or written notice of
cancellation, termination or non-renewal has been received prior to the Closing;
(c) time and materials charges or any other like charges for non-recurring,
non-regular services; (d) reimbursement for or prepayment of leased telephone
line charges associated with the Alarm Accounts; (e) reimbursement for or
prepayment of any false alarm assessments; and (f) reimbursement for or
prepayment of any taxes, fees, increased monitoring charges or other charges
imposed by any governmental authority with respect to the furnishing of alarm
services. Quarterly, semi-annual and annual billings shall be divided by three
(3), six (6) and twelve (12), respectively, to determine the monthly recurring
revenue amount.
1.17 Replacement Accounts. The term "Replacement Accounts"
means a monitored alarm contract, including all leased equipment related
thereto, and any and all related agreements for leasing, installation,
maintenance, servicing and/or monitoring of alarm systems owned by Stockholder
or JK Alarms of Arizona, Inc. after the Closing Date which is used to replace
Lost QRR under Section 3.4.3 of this Agreement. As of the date of transfer of
each Replacement Account to Buyer or the Company, all terms, conditions and
representations applicable to the Alarm Accounts shall apply in all material
respects to each Replacement Account.
Page 4 STOCK PURCHASE AGREEMENT
<PAGE> 5
1.18 Subscriber. The term "Subscriber" is defined as any
person, business, corporation or other entity that has an Alarm Account with the
Company for the provision of alarm and monitoring services.
1.19 Taxes. The term "Taxes" is defined as any and all
federal, state, local, foreign or other taxes (including all those related to
income, gross receipts, franchise, excise, sales and use, social security,
unemployment, workers' compensation, ad valorem and property taxes).
1.20 Telephone Lines. The term "Telephone Lines" is defined as
the Company's interest in all of the telephone lines, voice service lines, call
back lines and numbers on which the Alarm Accounts are being monitored or which
are otherwise used or owned by the Company in connection with the business. All
of the telephone numbers for the Telephone Lines shall be listed in SCHEDULE
1.20 to be attached at the Closing to the Closing Addendum.
1.21 Unearned Income. The term "Unearned Income" is defined
as: (i) all accounts receivable billed by the Company for services to be
rendered on or after the Closing to the Alarm Accounts by Buyer; and (ii)
payments and deposits received by the Company prior to the Closing, for services
to be rendered on or after the Closing to the Alarm Accounts by Buyer.
2. Agreement to Purchase and Sell AAA Stock. In reliance upon the
warranties, representations and covenants of Stockholder contained in this
Agreement, and subject to the provisions in this Agreement, Buyer agrees to
purchase from Stockholder at the Closing all of the issued and outstanding
shares of the AAA Stock of the Company of which Stockholder is the owner and
holder. In reliance on the warranties, representations and covenants of Buyer
contained in this Agreement, and subject to the provisions in this Agreement,
Stockholder agrees to sell to Buyer at the Closing all of the AAA Stock of which
Stockholder is the owner and holder.
3. Purchase Price and Adjustments to Purchase Price.
3.1 Payment of the Purchase Price. The Purchase Price shall be
paid to Stockholder as follows:
3.1.1 Closing Payment. On the Closing Date, Buyer shall
pay to Stockholder the following:
(a) An amount equal to sixty percent (60%) of the
Purchase Price, less the Deferred Payment, by check or wire transfer to
Stockholder; and
(b) An amount equal to forty percent (40%) of the
Purchase Price by delivering to Stockholder stock certificates for shares of
common stock of Protection One, Inc., par value $.01 per share (the "Pro One
Stock"), the number of shares of which shall equal forty percent (40%) of the
Purchase Price divided by the Closing Value (the amounts payable pursuant
Page 5 STOCK PURCHASE AGREEMENT
<PAGE> 6
to subsections (a) and (b) are collectively referred to herein as the "Closing
Payment"). Rather than issue fractional shares of Pro One Stock, Buyer will pay
in cash the amount of any fractional shares of Pro One Stock to which
Stockholder would be entitled.
3.1.2 Deferred Payment. Buyer shall pay the Deferred
Payment to Stockholder within ninety (90) days after the end of the Guaranty
Period, subject to adjustment in accordance with Sections 3.3 and 3.4.
Page 6 STOCK PURCHASE AGREEMENT
<PAGE> 7
3.2 Registration of Pro One Stock.
3.2.1 Registration Statement. Prior to the Closing Date,
Buyer shall cause Protection One, Inc. (the "Parent") to file a Registration
Statement on Form S-3 registering the offer and sale by Stockholder from time to
time of the Pro One Stock delivered to Stockholder under this Agreement. To
evidence the obligation of Parent to register the Pro One Stock, Parent and
Stockholder shall enter into a Registration Rights Agreement concurrently
herewith defining their respective rights and responsibilities with respect to
the Pro One Stock and Stockholder shall execute and deliver to Buyer an
affidavit verifying the status of Stockholder as an "accredited investor" within
the meaning of Rule 501(a)(1) of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended, a copy of the
forms of which are attached hereto as SCHEDULE 12.12 and by this reference
incorporated herein.
3.2.2 Exchange of Pro One Stock. If for any reason the
Registration Statement filed by Parent does not become effective on or before
July 31, 1997, Stockholder may tender to Buyer the stock certificates for the
Pro One Stock delivered by Buyer to Stockholder pursuant to Section 3.1.1(b) and
Buyer, upon receipt of such stock certificates, shall pay to Stockholder an
amount equal to forty percent (40%) of the Purchase Price, less any amounts paid
at the Closing for any fractional shares of Pro One Stock to which Stockholder
would be entitled, by check or wire transfer to Stockholder.
3.3 Purchase Price Adjustments. The Purchase Price, including
the Closing Payment and Deferred Payment, shall be subject to adjustments as
follows:
3.3.1 Final Purchase Price Schedule. Within one hundred
twenty (120) days after the Closing Date, Buyer will prepare and deliver to
Stockholder a schedule (the "Final Purchase Price Schedule"), setting forth any
adjustments to the Purchase Price based upon any changes, differences or
discrepancies in the Closing Price Components as scheduled or represented herein
as of the Closing Date. If Stockholder disagrees with any adjustments shown on
the Final Purchase Price Schedule, the Stockholder shall notify Buyer within
fourteen (14) days of receipt of the Final Purchase Price Schedule by a written
notice setting forth the basis for the disagreement. Any differences regarding
the Final Purchase Price Schedule not resolved with one hundred fifty (150) days
after the Closing Date shall be resolved in accordance with Section 20.10.
3.3.2 Purchase Price Adjustment. In the event the Closing
Price Components set forth in the Final Purchase Price Schedule are more or less
than the Closing Price Components used to calculate the Purchase Price at
Closing, then and in such event, the Purchase Price, Closing Payment and
Deferred Payment shall be adjusted upwards or downwards accordingly. If the
Purchase Price, Closing Payment and Deferred Payment are adjusted upward as a
result in change of any changes in the Closing Price Components other than a
change in the QRR, Buyer shall, concurrently with the delivery of the Final
Purchase Price Schedule, pay to Stockholder the amount of the increase. If the
Purchase Price, Closing Payment and Deferred Payment is adjusted
Page 7 STOCK PURCHASE AGREEMENT
<PAGE> 8
downwards as a result of a change in any of the Closing Price Components other
than the QRR, unless Stockholder notified Buyer that Stockholder disagreed with
the Final Purchase Price Schedule in accordance with Section 3.3.1, Stockholder
shall, within twenty (20) days of the receipt of the Final Purchase Price
Schedule, refund the amount of the decrease to Buyer. If the Purchase Price,
Closing Payment and Deferred Payment is adjusted upwards as a result of a change
in the QRR, Buyer shall, concurrently with the delivery of the First Purchase
Price Schedule, pay to Stockholder an amount equal to the QRR set forth on the
Final Purchase Price Schedule (the "Final QRR") less the QRR determined at
Closing (the "Closing QRR"), multiplied by a factor of thirty-nine (39) and then
multiplied by eighty-eight percent (88%), and an amount equal to the Final QRR
less the Closing QRR, multiplied by a factor of thirty-nine (39) and then
multiplied by twelve percent (12%), shall be added to the Deferred Payment. If
the Purchase Price is adjusted downward as a result of a change in the QRR,
unless Stockholder notified Buyer that Stockholder disagreed with the Final
Purchase Price Schedule in accordance with Section 3.3.1, Stockholder shall,
within twenty (20) days of receipt of the Final Purchase Price Schedule, refund
to Buyer an amount equal to the Closing QRR less the Final QRR, multiplied by a
factor of thirty-nine (39) and then multiplied by eighty-eight percent (88%),
and the Deferred Payment shall be decreased by an amount equal to the Closing
QRR less the Final QRR, multiplied by a factor of thirty-nine (39) and then
multiplied by twelve percent (12%). If Stockholder notified Buyer that
Stockholder disagreed with the Final Purchase Price Schedule, the Stockholder
shall refund any amounts to Buyer immediately upon resolution of any differences
regarding the Final Purchase Price Schedule in the manner described in Section
3.3.1. If there are increases and decreases in the Purchase Price, they shall be
offset against each other in determining the net amount to be paid.
3.4 QRR Guaranty.
3.4.1 Guaranty Period and QRR Guaranty. Stockholder
hereby guarantees the QRR of the Alarm Accounts for the term of the Guaranty
Period, subject to the terms and provisions contained in this Section 3.4 (the
"QRR Guaranty").
3.4.2 Calculation of QRR Guaranty Payment. Within sixty
(60) days after the end of the Guaranty Period, Buyer shall determine the Net
Lost QRR by subtracting the QRR of Replacement Accounts from all Lost QRR. The
Purchase Price and Deferred Payment shall be reduced if the Net Lost QRR is less
than ninety-eight percent (98%) of the Lost QRR, in which case the balance of
the Purchase Price and the Deferred Payment due to Stockholder shall be reduced
by an amount equal to ninety-eight percent (98%) of the Lost QRR less the Net
Lost QRR multiplied by a factor of thirty-nine (39) (the "QRR Guaranty
Payment"). Buyer shall prepare and deliver to Stockholder a written statement
showing the computation of the QRR Guaranty Payment.
3.4.3 Replacement Accounts. During the Guaranty Period,
Buyer shall provide to Stockholder, on or before the twentieth (20th) day of
each month, a report ("QRR Report") listing the Lost QRR ("Monthly Lost QRR")
for the previous full calendar month. If Stockholder desires to transfer
Replacement Accounts to the Company to replace Monthly Lost
Page 8 STOCK PURCHASE AGREEMENT
<PAGE> 9
QRR, then Stockholder or JK Alarms of Arizona, Inc. must transfer such
Replacement Accounts to the Company within thirty (30) days after the date of
such monthly QRR Report and before the forty- fifth (45th) day after the end of
the Guaranty Period. The QRR for Replacement Accounts transferred to the Company
shall not exceed the Monthly Lost QRR set forth in the QRR Report dated within
thirty (30) days prior to the date of each transfer of Replacement Accounts.
Each Replacement Account must be located in Buyer's existing market areas of
Arizona, California, Colorado, Nevada, New Mexico, Oregon, Utah and Washington
or in Northwestern Idaho ("Buyer's Market"), and shall meet the representations
agreed to herein which are applicable to the Alarm Accounts, including without
limitation, the definitions of Alarm Accounts and QRR, as of the date of
transfer of the Replacement Account. Buyer will not accept as Replacement
Accounts any accounts which are subject to oral agreements or which are more
than thirty (30) days past due as of the date of transfer to Buyer. In addition,
on the date each Replacement Account is transferred to the Company, there shall
be no more than two (2) months of either free monitoring service or of prepaid
monitoring service. Each Replacement Account shall be transferred to the Company
pursuant to a form contract expressly approved by Buyer, a form utilized by
Buyer or a form substantially similar to Buyer's form contract. Upon transfer to
the Company of a Replacement Account which conforms to the requirements set
forth herein, the Replacement Account shall be deemed to be an Alarm Account,
and shall be subject to all terms, conditions, representations and warranties
set forth in this Agreement as it relates to the Alarm Accounts.
Contemporaneously with the transfer of the Replacement Account to the Company,
Stockholder shall also deliver to the Company all contracts, records,
information and documents which Buyer may reasonably require in order to take
possession and control of the Replacement Account and to provide monitoring
service. Stockholder shall execute such documents as Buyer shall reasonably
require to evidence the Company's ownership of the Replacement Accounts and the
alarm system equipment related thereto if it is owned by Stockholder. JK Alarms
of Arizona, Inc. will monitor the Replacement Accounts on one of the Telephone
Lines which will be transferred to Buyer in accordance with the Maintenance and
Monitoring Agreement attached as SCHEDULE 8.3. In the event a Replacement
Account must be reprogrammed in order to be monitored by Buyer's central
monitoring station, Stockholder shall reprogram, at its cost, each Replacement
Account within fifteen (15) days after transfer to the Company of the
Replacement Account.
3.4.4 Transfer of Lost QRR Customer Files to Stockholder.
Within twenty (20) days after the end of each month during the Guaranty Period,
Buyer will transfer to Stockholder, without recourse or warranty of any kind,
the customer files for those Subscribers whose alarm accounts have been
cancelled or terminated during the Guaranty Period and for which an adjustment
to the Deferred Payment was made. Buyer reserves the right to collect past due
charges, Buyer's customary cancellation fee and any other amounts due under the
Contracts with the Subscribers, on any terms or conditions deemed acceptable by
Buyer, in its sole discretion. Buyer makes no representations regarding the
cancelled or terminated accounts transferred to Stockholder hereunder, and
Stockholder acknowledges and agrees that Buyer shall have no liability to
Stockholder if the Subscribers of these cancelled or terminated accounts fail to
renew, reinstate or reaffirm their alarm account contracts with Stockholder.
Page 9 STOCK PURCHASE AGREEMENT
<PAGE> 10
3.4.5 Payment of Balance of Deferred Payment. Buyer shall
pay to Stockholder ninety (90) days after the end of the Guaranty Period any
positive Deferred Payment balance (after any adjustments under Section 3.4.2)
remaining after subtracting the QRR Guaranty Payment. Any disputes regarding the
QRR Guaranty Payment and Deferred Payment shall be resolved in accordance with
Section 20.10. Stockholder shall notify Buyer of any dispute relating to the QRR
Guaranty Payment within fourteen (14) days after delivery of the schedule. If
the QRR Guaranty Payment exceeds the Deferred Payment, then Buyer shall have no
obligation to pay any of the Deferred Payment to Stockholder, and Stockholder
shall have no obligation to pay to Buyer the amount by which the QRR Guaranty
Payment exceeds the Deferred Payment.
4. Additional Schedules Delivered as of the Closing Date. In
addition to other schedules specified herein, Stockholder shall prepare and
deliver the following schedules to Buyer to be attached to the Closing Addendum
as SCHEDULES 4.1, 4.2, AND 4.3.
4.1 Schedule of Third Party Guarantees. A schedule setting
forth, in detail, all third party guarantees related to any alarm monitoring
accounts purchased by the Company, including all accounts purchased as a result
of the acquisition of the assets of third parties and all accounts which have
been separately purchased by the Company.
4.2 Schedule of Contracts and Agreements. A schedule setting
forth, in detail, all of the noncompete agreements or covenants, nonsolicitation
agreements or covenants and consulting agreements and other agreements between
the Company and third parties relating to the Company's acquisition of QRR.
4.3 Schedule of Restrictive Agreements. A schedule setting
forth, in detail, all contracts, agreements or understandings to which (a) the
Company is a party or (b) the Company is in any way bound, and which in any way
restrict or purport to restrict the Company's business whether with specified
persons or in specified areas or otherwise.
5. Representations, Warranties and Agreements of the Company and
Stockholder. Except as otherwise set forth or described on SCHEDULE 5
("Stockholder's Disclosure Schedule") or any other schedule or exhibit attached
hereto, as such SCHEDULE 5 or any other schedule or exhibit may be updated on
the Closing Date in the Closing Addendum, the Company and Stockholder agree,
represent and warrant as follows:
5.1 Corporate Status of the Company. The Company is a
corporation duly organized and validly existing under the laws of the State of
Arizona. The Company does not have any subsidiaries and does not own any
securities of, or have any proprietary interest in, any other entity. The
Company has full corporate power and corporate authority to own, or hold under
lease, the Assets and is qualified to conduct business in all jurisdictions
except where the failure to qualify would not materially adversely affect the
business of the Company.
Page 10 STOCK PURCHASE AGREEMENT
<PAGE> 11
5.2 Outstanding Stock of the Company. The authorized capital
stock of the Company consists of one hundred thousand (100,000) shares of common
stock, no par value per share, of which three hundred seven and two-tenths (307
2/10) shares are issued and outstanding. All of the Company's issued and
outstanding shares of stock have been validly issued to Stockholder and to
Jeannette Bouvier, Trustee of the Kerr Charitable Trust dated May 28, 1997 (the
"Other Stockholder"), and are fully paid and nonassessable and are not subject
to any preemptive or other similar rights. There are no accrued and unpaid
dividends on the preferred stock. Stockholder and the Other Stockholder are each
the owner, beneficially and of record, of fifty percent (50%) of the issued and
outstanding shares of the Company free and clear of all restrictions of any
kind, nature or description. The Company has not authorized or issued any
securities other than to Stockholder and to the Other Stockholder, and no
person, corporation or entity holds any option, warrant or right to purchase or
otherwise acquire any shares of capital stock of the Company. Stockholder and
the Other Stockholder have not entered into any agreement with any former
stockholder of the Company, if any, regarding the sale, transfer or disposition
of the capital stock or Assets of the Company or in any manner affecting the
capital stock or Assets of the Company.
5.3 Corporate Documentation. Stockholder has furnished, or
shall have furnished on or before the Closing Date, to Buyer with a true and
complete copy of the Company's Articles of Incorporation, certified by the
Corporation Commission of the State of Arizona, a true and complete copy of the
Company's Bylaws, certified by the Secretary of the Company, a certificate of
the Corporation Commission of the State of Arizona evidencing the due
organization and valid existence of the Company under the laws of the State of
Arizona. In addition, the Company's stock transfer records and corporate records
of the meetings of the directors and stockholders of the Company, all of which
have been delivered, or all of which will have been delivered on or before the
Closing Date, to Buyer, are true, accurate and complete and reflect all issues
and transfers of stock to date and all actions and proceedings of such bodies to
the Closing Date.
5.4 Authorization of Stockholder. This Agreement has been duly
executed and delivered by Stockholder and constitutes a valid obligation legally
binding on Stockholder and is enforceable against Stockholder in accordance with
its terms, except as enforceability may be limited or affected by applicable
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting the rights of creditors and except as enforceability
may be limited by rules of law governing specific performance, injunctive relief
or other equitable remedies. The execution, delivery and performance of this
Agreement by Stockholder and the consummation of the transactions contemplated
hereby by Stockholder do not and will not conflict with, or result in a breach,
default, violation or loss of a material benefit under any agreement, mortgage,
lease, license or other instrument or obligation of Stockholder or the Company
in connection with the operation of the Company's business or any of the Assets;
do not require the consent or permission of any person or governmental agency;
and will not violate any law, rule or regulation of any agency or governmental
body to which Stockholder or the Company is subject and that is individually or
in the aggregate material to the transactions contemplated hereby. No
registration, declaration or filing
Page 11 STOCK PURCHASE AGREEMENT
<PAGE> 12
with any governmental or administrative authority is required on the part of
Stockholder or the Company in connection with the execution, delivery and
performance of this Agreement.
5.5 Title to Stock. Stockholder has good and valid title to
the AAA Stock, free and clear of all liens, claims, charges or other
encumbrances, with full lawful right, power,
capacity and authority to sell, assign, transfer and deliver the certificates
for the AAA Stock to Buyer pursuant to this Agreement and to consummate the
transactions contemplated hereby, and there are no agreements, arrangements or
understandings restricting or otherwise relating to the transfer or voting of
the AAA Stock. At the Closing, Buyer will receive good and valid title to the
AAA Stock, free and clear of all liens, claims, charges or other encumbrances of
any nature whatsoever.
5.6 Assets. The schedules describing or listing the Assets
are, or will be on the Closing Date, true, accurate and complete and sets forth,
and will set forth on the Closing Date, a complete and an accurate listing of
all of the material intangible and tangible operating assets of the Company. The
only material tangible and intangible operating assets of the Company are the
Assets.
5.7 Excluded Assets. All of the Company's right, title and
interest in the Excluded Assets have been assigned, or will have been assigned
on or before the Closing Date, to Stockholder or his designee, and Stockholder
or his designee has acknowledged, or will have acknowledged on or before the
Closing Date, receipt of such assets.
5.8 Assumed Liabilities. SCHEDULE 1.3(A) is, or will be as of
the Closing Date, true, accurate and complete and, together with the other
Assumed Liabilities described in Section 1.3, sets forth, or will set forth as
of the Closing Date, a complete and an accurate listing of all accrued, absolute
and contingent liabilities of the Company as of the Closing Date. The Company
has no obligations, indebtedness or liabilities, contingent or otherwise, other
than (i) those expressly described or listed in the schedules hereto; and (ii)
immaterial obligations, indebtedness or liabilities arising in the ordinary
course of business and not required by generally accepted accounting principles
to be recorded in financial statements or notes thereto.
5.9 Excluded Liabilities. All of the Excluded Liabilities have
been assumed, or will have been assumed as of the Closing Date, by Stockholder
or his designee, and the Company has been released, or will have been released
on or before the Closing Date, in writing from any liability therefrom.
5.10 Financial Statements. Stockholder has heretofore
delivered to Buyer a copy of the Company's financial statements dated as of May
31, 1997 ("Financial Statements"), a copy of which is included in SCHEDULE 5.
The Financial Statements include, among other things, a balance sheet of the
Company dated as of May 31, 1997, and the related internal statement of income
and retained earnings for the period ended May 31, 1997. To the best of the
Company's and Stockholder's best knowledge, the Financial Statements fairly
present the financial position, results
Page 12 STOCK PURCHASE AGREEMENT
<PAGE> 13
of the operations and the changes in financial position of the Company for the
periods indicated were accurately prepared from the books and records of the
Company in accordance with the accounting policies then in effect and have been
prepared on a consistent basis with past periods, all subject to year-end
adjustment, which adjustment in the aggregate shall not materially affect the
results contained therein.
5.10.1 Changes in Business. Except as expressly allowed or
contemplated by this Agreement, since the date of the Financial Statements, the
Company has conducted its business in the ordinary course and there has not
occurred:
(i) Any Material Adverse Effect with respect to the
Company;
(ii) Any amendments or changes in the Company's
Articles of Incorporation or Bylaws;
(iii) Any redemption, repurchase or other
acquisition of shares of capital stock of the Company or any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the capital stock of the Company;
(iv) Any increase in or modification of the
compensation or benefits payable or to become payable by the Company to any of
its directors, employees or consultants, except in the ordinary course of
business consistent with past practice, which past practice has been previously
disclosed in writing to Buyer;
(v) Any acquisition, sale or disposition of
property or assets by or of the Company, except in the ordinary course of
business;
(vi) Any entry into, amendment of, relinquishment,
termination or nonrenewal by the Company of any Contracts, lease transaction,
commitment or other right or obligation other than in the ordinary course of
business; or
(vii) Any agreement or arrangement made by the
Company to take any action after the date hereof which, if taken prior to the
date hereof, would have made any representation or warranty set forth in this
Section 5.10 untrue or incorrect as of the date hereof.
5.10.2 Undisclosed Liabilities. To the best knowledge of
Stockholder, there are no liabilities or obligations of any nature of the
Company, due or to become due, determined or determinable, absolute, accrued,
contingent or otherwise, and there are no conditions, situations or
circumstances that have existed, are existing or that could reasonably be
expected to result in any such liabilities or obligations, except, in any such
event, (i) as, and to the extent, set
Page 13 STOCK PURCHASE AGREEMENT
<PAGE> 14
forth or specifically reserved against on the Financial Statements, (ii)
liabilities incurred since the date of the Financial Statements in the ordinary
and usual course of business consistent with past practice (none of which is a
material uninsured liability for breach of contract, breach of warranty, tort or
infringement claim, violation of law or lawsuit) and (iii) liabilities incurred
in connection with or contemplated by this Agreement or listed in the schedules
attached hereto.
5.11 Taxes and Tax Filings. The Company has duly and timely
filed when due, or will have timely filed on or before the Closing Date, all
returns, reports, declarations and applications ("Returns"), relating to all
Taxes required to be filed by the Company (including, without limitation, with
respect to estimated Taxes, excise Taxes and informational returns) relating to
periods through the Closing Date. All such Returns filed before the Closing Date
were, when filed, true, accurate and complete and reflect all Taxes payable by
the Company. The Company has paid or, if payment is not yet due, has established
adequate reserves for the payment of all Taxes, assessments, deficiencies,
levies, duties, license fees, registration fees, withholdings and all similar
governmental charges for periods through the Closing Date, and any interest,
penalties or additions to tax imposed thereon in each case, whether disputed or
not and whether due or claimed to be due by any taxing authority from the
Company.
No Return required to be filed by the Company has been audited
by any taxing authority. There is no action, suit, proceeding, audit,
investigation or claim pending or threatened in respect of any Taxes for which
the Company is or may become liable, nor has any deficiency or claim for any
Taxes been imposed or assessed. There are no outstanding notices of
deficiencies, adjustments, changes in assessments, or, to the best knowledge of
the Stockholder, increases in tax rates with respect to any Taxes. The Company
has not waived any statute of limitations with respect to any taxable year.
There is no agreement, waiver or consent providing for an extension of time with
respect to the assessment of any Taxes against the Company.
The Company has timely paid, withheld or otherwise collected,
or made provision on its books for all Taxes due and payable with respect to all
taxable periods ending on or prior to the Closing Date and for the relevant
portion (ending on the Closing Date) of any taxable period beginning prior to
the Closing Date and ending after the Closing Date. There are no liens for Taxes
upon the Assets of the Company, except liens for current Taxes not yet due.
To the best of Stockholder's knowledge, the Company will not
be required to include any adjustment in taxable income for any Tax period (or
portion thereof) ending after the Closing Date pursuant to Section 481(c) of the
Internal Revenue Code (or any similar provision of the Tax laws of any
jurisdiction) as a result of a change in method of accounting for any Tax period
(or portion thereof) ending on or before the Closing Date or pursuant to the
provisions of any agreement entered into with any taxing authority with regard
to the Tax liability of the Company for any Tax period (or portion thereof)
ending on or before the Closing Date.
Page 14 STOCK PURCHASE AGREEMENT
<PAGE> 15
The Company is not and has not been a member of an affiliated
group parent, or filed or been included in a combined, consolidated or unitary
Tax return or participated in any other similar arrangement whereby any income,
revenues, receipts, gains, losses, deductions, credits or other Tax items of the
Company was determined or taken into account for Tax purposes with reference to
or in conjunction with any such items of any other person.
The Company is not currently under any contractual obligation
to pay the income or franchise tax obligations of, or with respect to
transactions relating to, any other person or to indemnify any other person with
respect to any income or franchise tax. The Company has not signed any letter or
entered into any agreement or arrangement in writing consenting to the surrender
or sharing of any deductions, credits, or other Tax attributes with any other
person or transferred or assigned to any other person for Tax purposes any such
item.
5.12 Title. The Company has good and marketable title to the
Assets, free and clear of all security interests, liens, claims or encumbrances
of any nature or kind whatsoever, except for the Assumed Liabilities disclosed
to Buyer. All Assets located on the premises of Subscribers of the Company may,
at the option of the Company, be removed from or abandoned on such premises upon
the termination of service to such customer.
5.13 No FM Deficiencies. The Company's Alarm Accounts have
been monitored at Company's central station located at 4114 E. Indian School
Road, Phoenix, Arizona, which has been approved and listed by Factory Mutual
Research Corporation ("FM"), and is not subject to any deficiencies with respect
thereto. All required fire inspections with respect to each fire alarm system
installed at the premises of the Company's Subscribers have been performed as
required by all applicable governmental authorities.
5.14 Employees. The Company does not have any obligation
contingent or otherwise, under, nor any commitment or agreement to enter into
and no officer, director or employee is covered by any employment agreement; the
Company is not a party or otherwise subject to any collective bargaining or
other agreement governing the wages, hours and terms of employment of the
Company's employees, is not subject to any actual or threatened with any labor
dispute or labor trouble involving employees of the Company, and is not subject
to any actual or threatened demand by its employees for a collective bargaining
agreement or recognition by any labor organization, labor grievance proceeding,
controversy with any labor or employee organization, or claim or proceeding with
any employee or union under any labor law, including but not limited to equal
opportunity law or occupational safety and health law; the Company does not have
any employment contract or arrangement (including any union agreement) providing
for future compensation, written or oral, with any officer, consultant, director
or employee which is not terminable by the Company on an "at will" basis without
penalty or obligation to make payments related to such termination; and the
Company is not a party to any plan, contract or arrangement with any officer,
consultant, director or employee, written or oral, providing for bonuses,
pensions, deferred compensation, severance pay or benefits, retirement payments,
profit sharing, or the like
Page 15 STOCK PURCHASE AGREEMENT
<PAGE> 16
to be paid after the Closing Date. All employees of the Company will be
terminated effective as of June 30, 1997, and all amounts due and owing to the
employees through and including June 30, 1997, will have been paid in full,
including without limitation, all wages, salaries, payroll taxes, bonuses,
severance and employer contributions to any pension or retirement plan.
Stockholder has provided Buyer with a complete and accurate copy of all of the
Company's employee manuals, benefits and policies.
Page 16 STOCK PURCHASE AGREEMENT
<PAGE> 17
5.15 Benefit Plans.
5.15.1 Employee Benefit Plans. Each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and each employment agreement, compensation
agreement, bonus, commission or similar arrangement, and fringe benefit
arrangement which is maintained, administered or contributed to by the Company
or any of its affiliates (as defined below) and covers any employee or former
employee of the Company or any affiliate or under which the Company or any
affiliate has any liability shall be identified on SCHEDULE 5 as updated on the
Closing Date in the Closing Addendum. Copies (or, if not in writing, detailed
summaries) of such plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof have been furnished, or
shall have been furnished on or before the Closing Date, to Buyer together with
(to the extent existing) (a) the most recent annual report prepared in
connection with any such plan and (b) the most recent actuarial valuation report
prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Employee Plans." For purposes of this Section 5.17
only, an "affiliate" of any person or entity means any other person or entity,
which, together with such person or entity, would be treated as a single
employer under Section 414 of the Internal Revenue Code (the "Code") or Title IV
of ERISA. The only Employee Plans which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section 3(2) of
ERISA are identified as such in Exhibit 2.10(a).
5.15.2 Multiemployer Plans. No Employee Plan constitutes
a "multiemployer plan" as defined in Section 3(37) of ERISA (a "Multiemployer
Plan"), no Employee Plan is maintained in connection with any trust described in
Section 501(c)(9) of the Code and no Employee Plan is subject to Title IV of
ERISA or Section 412 of the Code. If the Company or any of its affiliates ever
maintained or was obligated to contribute to a Multiemployer Plan or a plan
subject to Title IV of ERISA or Section 412 of the Code, any withdrawal or other
liability under Title IV of ERISA with respect to such plan has been fully
satisfied. Nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any Employee Plan has or will make the
Company or any officer or director thereof, subject to any liability under Title
I of ERISA or liable for any tax pursuant to Section 4975 of the Code.
5.15.3 Qualification of Employee Plan. Each Employee Plan
which is intended to be qualified under Section 401(a) of the Code is so
qualified and has been so qualified during the period from its adoption to date,
and each trust forming a part thereof is exempt from tax pursuant to Section
501(a) of the Code. The Company has furnished, or shall have been furnished on
or before the Closing Date, to Buyer copies of the most recent Internal Revenue
Service determination letters, if any, with respect to each such Employee Plan.
Each Employee Plan has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan.
Page 17 STOCK PURCHASE AGREEMENT
<PAGE> 18
5.15.4 Effect of this Agreement. There is no contract,
agreement, plan or arrangement covering any employee or former employee of the
Company or any affiliate that would, as a result of the consummation of the
transactions contemplated by this Agreement, (a) result in any payment
(including, without limitation, severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any director or employee of the
Company from the Company, under any Employee Plan or otherwise, (b) materially
increase any benefits otherwise payable under any Employee Plan, (c) result in
the acceleration of the time of payment or vesting of any such benefits or (d)
otherwise obligate the Company or any affiliate to pay any additional
compensation, including severance pay, that would not be deductible pursuant to
the terms of Sections 162(a)(1) or 280G of the Code.
5.15.5 Post Retirement Benefits. Neither the Company nor
any of its affiliates maintain or administer any "defined benefit plans" for the
benefit of their employees. Neither the Company nor its affiliates have any
projected liability in respect of post retirement health, life and medical
benefits for retired employees of the Company or its affiliates, other than any
liability to provide benefits under Title I, Part 6 of ERISA, if any. Other than
provisions of applicable law, to the best knowledge of Stockholder, no condition
exists that would prevent the Company from amending or terminating any
applicable Employee Plan.
5.15.6 Plan Maintenance Expenses. Other than any increase
in premiums imposed by the insurer under an employee welfare benefit plan (as
defined in ERISA Section3(1)), there has been no amendment to, written
interpretation or announcement (whether or not written) by the Company or any of
its affiliates relating to, or change in employee participation or coverage
under, any Employee Plan which would materially increase the expense of
maintaining such Employee Plan above the level of the expense incurred in
respect thereof for the most recent fiscal year.
5.16 Form Contracts. Included in SCHEDULE 5 is a true and
correct copy of each type of form contract the Company has in effect with its
Subscribers for alarm leases, alarm monitoring and other alarm services (the
"Contracts"). The Company has not modified, except in a writing disclosed to
Buyer, any of the Contracts and, except for the Other Contracts, has not
undertaken any obligations or made any warranties or guarantees to any
Subscribers other than those set forth in the Contracts. The Company has not
entered into any other type of service or lease contract with its Subscribers
nor is the Company rendering services to any of its Subscribers other than
pursuant to either a Contract or an Other Contract. To the best of the Company's
and Stockholder's knowledge, each Contract which the Company has with its
current Subscribers is fully executed, valid, in full force and effect and
enforceable in accordance with its terms. To the best of the Company's and
Stockholder's knowledge, each Other Contract which the Company has with its
current Subscribers is valid, in full force and effect and enforceable in
accordance with its terms. The Company is not, and on the Closing Date will not
be, in default or material violation of any contracts with its Subscribers
(whether pursuant to a Contract or an Other Contract). On the Closing Date, the
Company shall have possession of all original monitoring and lease contracts
(except for
Page 18 STOCK PURCHASE AGREEMENT
<PAGE> 19
Subscribers with Other Contracts) with Subscribers and/or such other documents
and information which Buyer will need and may reasonably require to perform
monitoring, repair, servicing and other alarm services requested by Subscribers
or required to be provided to the Subscribers with Contracts and to the
Subscribers without Contracts. Notwithstanding the foregoing, after the Closing,
Stockholder shall not be required to resign any Alarm Account to a new
monitoring contract or to require any Subscriber with an Other Contract to
execute a monitoring contract.
5.17 Employee Entitlements. Stockholder has provided, or shall
have been provided on or before the Closing Date, to Buyer with a copy of the
Company's latest Payroll Register, the employee's name, whether such employee
holds any state-issued licenses in connection with his/her employment, hire-in
date, position, current salary and accrued vacation entitlements. Except as set
forth in the employee information provided to Buyer, no bonuses, severance,
medical expense reimbursement, additional compensation (other than salary or
wage increases in the ordinary course of business) or other like benefits were
paid or are payable to any employees during the period from the date of such
employee information provided to Buyer to the Closing Date, or are payable to
any such employees in respect of any other periods ending on, prior or
subsequent to the Closing Date. The Company has, with respect to the hiring of
any employee, performed such actions including investigations of such employee
an may be required by applicable federal, state or local laws, ordinances or
regulations.
5.18 Increase in Fees. Since January 1, 1997, the Company
neither has increased recurring monitoring charges or service charges payable by
the Company's retail Subscribers, other than for additions or changes in
services or protection.
5.19 No Defaults. To the best of the Company's and
Stockholder's knowledge, the Company is not in default or alleged to be in
default under any material agreement, license or obligation relating to the
Assets and/or Assumed Liabilities. Except for delinquent payments by some of its
Subscribers, no other party to any such agreement, license or obligation is in
default thereunder and there exists no condition or event which, after notice or
lapse of time or both, would constitute a default by any party to any such
agreement, license or obligation.
5.20 License and Permits. The Company and its employees have
all material governmental licenses and permits (federal, state and local)
necessary for the conduct of the business as now carried on by the Company, and
such licenses are in full force and effect. Copies of all of the Company's
licenses shall be included in SCHEDULE 5 as updated on the Closing Date in the
Closing Addendum. No violations are or have been recorded and Stockholder is not
aware of any unrecorded violations in respect of any such licenses or permits of
the Company and no proceedings are pending or to Stockholder's knowledge
threatened concerning the revocation or limitation of any such license or permit
of the Company.
5.21 Environmental Compliance. The Company has never received
any written notice, demand, citation, summons, complaint or order or any written
notice of any penalty,
Page 19 STOCK PURCHASE AGREEMENT
<PAGE> 20
lien or assessment and, to the best of Stockholder's knowledge, no investigation
or review is pending by any governmental entity, with respect to any (i) alleged
material violation by the Company of any Environmental Law; or (ii) alleged
material failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required in connection with the
conduct of their business. To the best of Stockholder's knowledge, the Company
has no Environmental Liabilities and the Company has never had a material
release of Hazardous Substances into the environment in violation of any
Environmental Law or environmental permit. The Company has delivered, or shall
have been delivered on or before the Closing Date, to Buyer copies of all
environmental audits and other similar reports which have been prepared by or
for the Company with respect to its owned or leased real property. The Company
does not own, lease or otherwise have any obligations with respect to or
responsibility for any underground fuel storage tanks or facilities and has not
and does not transport or store Hazardous Substances.
5.22 Compliance With Laws. To the best of the Company's and
Stockholder's knowledge, the Company has complied with all material requirements
of laws, rules, regulations and orders applicable to the operation of the
business conducted by the Company. The Company has not received notice of any
action nor taken any action or failed to take any action which action or failure
will or would, in any way, preclude or prevent Buyer and the Company from using
the Assets after the Closing in the same manner as theretofore used by the
Company. To the best of the Company's and Stockholder's knowledge, none of the
real property leased by the Company, or the occupation thereof, is in violation
of any material requirement of any law, building code, zoning or other
authority, code or regulation applicable thereto and no notice from any
governmental body has been served upon Stockholder or the Company claiming any
violation of any such law, ordinance, codes or regulation or requiring or
calling attention to the need for any work, repair, construction, alteration or
installation or in connection with said properties which has not been complied
with or settled. None of the real property under lease is subject to any pending
zoning hearing or proceedings.
5.23 Litigation. There are no claims, litigation, proceedings
or investigations pending or to Stockholder's knowledge, threatened against the
Company. A list of all the incidents in the past two years where a customer or
third party alleged damages in excess of One Thousand Dollars ($1,000), which is
alleged to result from a failure of an alarm system or the Company's service,
and whether the Company has reported such incident to its insurance carrier
shall be including on SCHEDULE 5 as updated on the Closing Date in the Closing
Addendum. No insurance carrier, which has had any such incident reported to it,
has made a reservation of rights or denial of coverage with respect to such
incident.
5.24 Brokers. Stockholder has not employed any broker, finder
or agent or dealt with anyone purporting to act in such capacity or agreed to
pay any brokerage fee, finder's fee or commission in connection with the
transactions contemplated by this Agreement.
Page 20 STOCK PURCHASE AGREEMENT
<PAGE> 21
5.25 Insurance. The Company has in full force and effect the
policies of automobile liability insurance and commercial general liability
insurance ("Liability Insurance"). A copy of such Liability Insurance policies
shall be included in SCHEDULE 5 as updated on the Closing Date in the Closing
Addendum. All of the Contracts are covered by the Company's Liability Insurance
coverage for negligence claims. The Company has had similar Liability Insurance
in full force and effect, without interruption, for the life of the Company. To
the best of the Company's and Stockholder's knowledge, the Company in not in
default, and no event has occurred (or failed to occur) that, with the passing
of time or the giving of notice or both would constitute a default by the
Company under any such policy of insurance, or would entitle the insurer under
such insurance to deny coverage of any claim against the Company.
5.26 Restrictive Agreements. Stockholder has provided, or will
have provided as of the Closing Date, to Buyer with a complete set of all
contracts, agreements or understandings ("Restrictive Agreements") to which (i)
the Company is a party or (ii) the Company is in any way bound and which in any
way restrict or purport to restrict the Company's business or competition
whether with specified persons or specified areas or otherwise. None of the
Restrictive Agreements have been modified or changed and none of the rights of
the Company therein have been waived. Stockholder is not aware of any
unauthorized use or breach of contract by any third parties in connection with
any customer lists or other proprietary information included in any account or
asset acquisition by the Company.
5.27 Material Documents of the Company. A list identifying all
material contracts (1), licenses, authorizations and applications therefore
relating to, or affecting, and in which the Company is a party, which are not
elsewhere described herein (excluding any such items set forth in SCHEDULE 1.2),
including, without limiting the generality of the foregoing, any and all
agreements whereby the Company acquired the operations, stock, or substantially
all of the assets and/or accounts of any other alarm company shall be included
in SCHEDULE 5 as updated on the Closing Date in the Closing Addendum. In
addition, SCHEDULE 5, as updated, shall have indicated, with respect to any
agreements, licenses, authorizations, applications or other similar documents
included in the Assets or Assumed Liabilities and listed on any other schedule
to this Agreement, those which, in the absence of specific waiver, consent,
modification, renewal, replacement or other action, may, upon or as a result of
the consummation of this Agreement and the purchase and sale of the AAA Stock
pursuant hereto, terminate, expire, be modified, be subject to termination by a
party other than the Company or in any respect not remain in full force and
effect or be breached by the Company. Stockholder is not aware of any facts that
would lead a reasonable person to believe that a third party intends to cancel
its contract or contracts with the Company or that a third party is entitled to
terminate any such contract. The Company does not have any warranty obligations
under any of its contracts or accounts, except customary warranties given in the
ordinary course of business and set forth in the Contracts.
- --------------------
(1) A material contract is any contract or commitment (i) not made in the
ordinary course of the Company's business or (ii) which commits the Company to
spend more than $1,000.00 from the date hereof and which is not cancelable at
the Company's discretion without penalty to the Company.
Page 21 STOCK PURCHASE AGREEMENT
<PAGE> 22
5.28 Monitoring. All of the Alarm Accounts are monitored on
Telephone Lines which are owned and controlled by the Company.
5.29 Alarm Systems and Equipment. All of the alarm systems in
which the protective devices are owned by the Company are in good working order
and condition, ordinary wear and tear, routine service needs and Subscriber
misuse or non-use excepted, and such alarm system equipment has been installed
in accordance with good workmanlike practices prevailing in the industry at the
time of installation. All alarm systems and equipment of the Company conform in
all material respects to the Contract pursuant to which it was installed and
comply with all material applicable laws, rules, regulations and codes at the
time of its installation.
5.30 Location of Alarm Account Subscribers. All of the Alarm
Account Subscribers are located in Buyer's Market.
5.31 Accredited Investor Status. Stockholder is an "accredited
investor" within the meaning of Rule 501(d)(1) of Regulation D promulgated by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
5.32 Schedules Delivered at Execution. To the best of the
Company's and Stockholder's knowledge, all of the schedules described in this
Agreement and prepared by the Company and Stockholder which are being delivered
to Buyer upon execution hereof are true, accurate and complete in all material
respects as of the date hereof and have been prepared in conformity with the
provisions of this Agreement.
5.33 No Material Misstatements. To the best of the Company's
and Stockholder's knowledge, no representation or warranty by Stockholder
contained in this Agreement, or in any exhibit or schedule attached hereto,
contains, or will contain, any untrue statement of a material fact or omits, or
will omit, to state a material fact necessary to make the statements contained
herein or therein not misleading.
6. Representations, Warranties and Agreements of Buyer. Except as
set forth on SCHEDULE 6 ("Buyer's Disclosure Schedule"), Buyer agrees,
represents and warrants as follows:
6.1 Corporate Status of Buyer. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer is qualified to conduct business in the State of Arizona as a
foreign corporation. Buyer has full corporate power and corporate authority to
purchase and acquire the AAA Stock as herein provided.
Page 22 STOCK PURCHASE AGREEMENT
<PAGE> 23
6.2 Authorization of Buyer. This Agreement has been duly
executed and delivered by Buyer and constitutes a valid obligation legally
binding on Buyer and is enforceable against Buyer in accordance with its terms,
except as enforceability may be limited or affected by applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the rights of creditors and except as enforceability may be limited by
rules of law governing specific performance, injunctive relief or other
equitable remedies. No registration, declaration or filing with any governmental
or administrative authority is required on the part of Buyer in connection with
the execution, delivery and performance of this Agreement.
6.3 Litigation. There are no claims, litigation, proceedings
or investigations pending or, to the best knowledge of Buyer, threatened against
Buyer which would have a material adverse impact on Buyer's ability to perform
all of its duties and obligations under this Agreement.
6.4 Brokers. Buyer has not employed any broker, finder or
agent or dealt with anyone purporting to act in such capacity or agreed to pay
any brokerage fee, finder's fee or commission in connection with the
transactions contemplated by this Agreement.
6.5 Investment Intent. Buyer is acquiring the AAA Stock for
its own account and not with a view to any public resale or distribution. Buyer
is an "accredited investor" as such term is defined in Regulation D under the
Securities Act of 1933, as amended ("Securities Act"). Buyer acknowledges that
the AAA Stock has not been registered under the Securities Act or registered or
qualified under the securities laws of any state and may not be offered, sold,
pledged, hypothecated or otherwise transferred unless so registered or qualified
or unless an exemption from the registration requirements under the Securities
Act and any applicable state securities laws is available.
7. Covenants and Agreements of the Company and Stockholder
Pending the Closing. The Company and Stockholder covenant and agree as follows:
7.1 Access. Until the earlier of the Closing and the rightful
abandonment or termination of this Agreement pursuant to Section 15 or otherwise
(the "Release Time"), the Company will afford, and Stockholder will cause the
Company to afford, the officers, employees, counsel, agents, investment bankers,
accountants and other representatives of the Buyer and lenders, investors and
prospective lenders and investors free and full access to the plants,
properties, books and records of the Company, will permit them to make extracts
from and copies of such books and records, and will from time to time furnish
Buyer with additional financial and operating data and other information as to
the financial condition, results of operations, businesses, properties, assets,
liabilities or future prospects of the Company as Buyer from time to time may
request.
7.2 Conduct of Business. Until the Release Time, the Company
will, and Stockholder will cause the Company to, conducts its affairs so that at
the Closing no representation
Page 23 STOCK PURCHASE AGREEMENT
<PAGE> 24
or warranty of the Company or Stockholder will be inaccurate, no covenant or
agreement of the Company or Stockholder will be breached, and no condition in
this Agreement will remain unfulfilled by reason of the actions or omissions of
the Company or Stockholder. Except as otherwise requested by the Buyer in
writing, until the Closing, the Company and Stockholder will cause the Company
to use its best efforts to preserve the business operations of the Company
intact to preserve in full force and effect the contracts and to preserve the
goodwill of their suppliers, customers and others having business relations with
it. Until the Closing, the Company will, and Stockholder will cause the Company
to, conduct their business and operations in all respects only in the ordinary
course.
7.3 Advice of Changes. Until the Release Time, the Company and
Stockholder will immediately advise the Buyer in a detailed written notice of
any fact or occurrence or any pending or threatened occurrence of which any of
them obtains knowledge and which (if existing and known at the date of the
execution of this Agreement) would have been required to be set forth or
disclosed in or pursuant to this Agreement or a schedule hereto, which (if
existing and known at any time prior to or at the Closing) would make the
performance by any party of a covenant contained in this Agreement impossible or
make such performance materially more difficult than in the absence of such fact
or occurrence, or which (if existing and known at the time of the Closing) would
cause a condition to any party's obligations under this Agreement not to be
fully satisfied.
7.4 Confidentiality. The Company and Stockholder shall insure
that all confidential information which the Company, any of their respective
officers, directors, employees, counsel, agents, investment bankers or
accountants, or Stockholder or any of his counsel, agents, investment bankers or
accountants may now possess or may hereafter create or obtain relating to the
financial condition, results of operations, business, properties, assets,
liabilities or future prospects of the Company, Buyer or any affiliate of any of
them, or any customer or supplier of any of them or any such affiliate shall not
be published, disclosed or made accessible by any of them, except pending the
Closing in the business and for the benefit of the Company, in each case without
the prior written consent of Buyer; provided, however, that the restrictions of
this sentence shall not apply (a) with respect to the obligations of the Company
after the Closing takes place, (b) with respect to the obligations of all such
persons and entities after this Agreement is rightfully terminated, but only to
the extent confidential information relates to the financial condition, results
of operations, business, properties, assets, liabilities or future prospect of
the Company, of any affiliate of it or (insofar as such confidential information
was obtained directly by the Company or any such affiliate from any customer or
supplier of if) of any such customer or supplier, (c) as may otherwise be
required by law, (d) as may be necessary or appropriate in connection with the
enforcement of this Agreement, or (e) to the extent the information shall have
otherwise become publicly available. The Company and Stockholder shall, and
shall cause all other such persons and entities to, deliver to Buyer all
tangible evidence of the confidential information to which the restrictions of
the foregoing sentence apply at the Closing or the earlier rightful termination
of this Agreement.
Page 24 STOCK PURCHASE AGREEMENT
<PAGE> 25
7.5 Public Statements. Before the Company or Stockholder shall
release any information concerning this Agreement or the transactions
contemplated by this Agreement which is intended for or may result in public
dissemination thereof, they shall cooperate with Buyer, shall furnish drafts of
all documents or proposed oral statements to Buyer for comments and shall not
release any information relating thereto without the written consent of Buyer.
Nothing contained herein shall prevent the Company or Stockholder from releasing
any information to any governmental authority if required to do so by law.
7.6 Voting by Stockholder. Stockholder agrees that until the
Release Time, Stockholder will vote all securities of the Company which he is
entitled to vote against (a) any merger, consolidation, reorganization other
business combination or recapitalization involving the Company, (b) any sale of
assets of the Company, (c) any stock split, stock dividend or reverse stock
split relating to any class or series of the Company's stock, (d) any issuance
of any shares of capital stock of the Company, any option, warrant or other
right calling for the issuance of any such share of capital stock or any
security convertible into or exchangeable for any such share of capital stock,
(e) any authorization of any other class or series of stock of the Company, (f)
the amendment of the Articles of Incorporation (or other charter document) or
the Bylaws of the Company or (g) any proposition the effect of which may be to
inhibit, restrict or delay the consummation of any of the transactions
contemplated by this Agreement or impair the contemplated benefits to the
Company of the transactions contemplated by this Agreement.
7.7 No Solicitation. Until the Release Time, the Company and
Stockholder shall not, and shall neither authorize nor permit any officer,
director, employee, counselor, agent, investment banker, accountant or other
representative of any of them, directly or indirectly, to initiate contact with
any person or entity in an effort to solicit any Takeover Proposal (as such term
is defined in this Section 7.7); cooperate with or furnish or cause to be
furnished any nonpublic information with respect to the financial condition,
results of operation, business, properties, assets, liabilities or future
prospects of the Company to any person or entity in connection with any Takeover
Proposal; negotiate with any person or entity with respect to any Takeover
Proposal; or enter into any agreement or understanding with respect to any
Takeover Proposal. The Company and Stockholder shall immediately give written
notice to Buyer of the details of any Takeover Proposal of which any of them
becomes aware. As used in this Section 7.7, "Takeover Proposal" shall mean any
proposal, other than as contemplated by this Agreement, for a merger,
consolidation, reorganization, other business combination or recapitalization
which involves the Company; for the acquisition of any of the capital stock of
the Company; for the acquisition of all or substantially all of the assets of
the Company other than in the ordinary course of its business; or the effect of
which may be to prohibit, restrict or delay the consummation of any of the
transactions contemplated by this Agreement or impair the contemplated benefits
to Buyer of any of the transactions contemplated by this Agreement.
8. Post-Closing Covenants of Stockholder.
Page 25 STOCK PURCHASE AGREEMENT
<PAGE> 26
8.1 Stub Tax Return Filing. Stockholder, at his sole expense,
agrees to prepare and to file within the applicable filing time limits all
federal, state and local tax returns of the Company for all periods prior to the
Closing Date which are required to be filed and shall provide Buyer with copies
of all such returns and related work papers.
8.2 Excluded Liabilities. Stockholder agrees to assume,
discharge and hold the Company and Buyer harmless from any liability for the
Excluded Liabilities.
8.3 Post-Closing Monitoring and Other Services. Stockholder
agrees to cause JK Alarms of Arizona, Inc. to provide monitoring and other
services to the Alarm Accounts after the Closing Date pursuant to a Maintenance
and Monitoring Agreement, the form of which is attached hereto as SCHEDULE 8.3.
Page 26 STOCK PURCHASE AGREEMENT
<PAGE> 27
9. Post-Closing Covenants of the Buyer.
9.1 Access to Books and Records. For a period of two (2) years
after the Closing Date, Buyer agrees that Stockholder and his representatives
shall have reasonable access to all books and records of the Company to the
extent that such access is lawful and may reasonably be required by the
Stockholder in connection with matters relating to or affected by the operations
of the Company prior to the Closing Date, including without limitation tax
matters and pending litigation. Such access shall be afforded by Buyer during
normal business hours.
9.2 Assumed Liabilities. Buyer agrees to assume, discharge and
hold Stockholder harmless from any liability for the Assumed Liabilities.
9.3 License Agreement. Buyer agrees to grant to JK Alarms of
Arizona, Inc. a license to use the Company's name after the Closing Date
pursuant to a License Agreement, the form of which is attached hereto as
SCHEDULE 9.3.
9.4 Ongoing Agreement. Buyer agrees to appoint JK Alarms of
Arizona, Inc. as a dealer after the Closing Date pursuant to an Agreement for
Ongoing Purchase and Sale of Alarm System Customer Accounts and addendum thereto
(collectively, the "Ongoing Agreement"), the form of which is attached hereto as
SCHEDULE 9.4.
10. Indemnification By Stockholder.
10.1 Indemnification. Notwithstanding any investigation by
Buyer, Stockholder agrees to indemnify, hold harmless and defend Buyer,
including Buyer's agents, employees, officers, directors and subsidiary and
parent corporations (collectively, the "Buyer Parties") from and against, and to
reimburse the Buyer Parties with respect to, any and all losses, damages,
liabilities, costs and expenses, including interest, penalties and reasonable
attorney's fees, incurred by the Buyer Parties, or any of them, by reason of or
arising out of or in connection with: (i) any breach or inaccuracy of any
representation or warranty of Stockholder made in this Agreement or the
schedules or exhibits hereto or of the Other Stockholder in that certain Stock
Purchase Agreement between Buyer and the Other Stockholder dated concurrently
herewith (the "Other Stock Purchase Agreement") or the schedules or exhibits
thereto; (ii) the nonfulfillment or inadequate performance of any covenant or
agreement on the part of Stockholder under this Agreement or the nonfulfillment
or inadequate performance of any covenant or agreement on the part of the Other
Stockholder under the Other Stock Purchase Agreement; (iii) any liabilities of
the Company to third parties of any nature arising out of any act performed or
state of facts suffered to exist by the Company on or prior to the Closing Date,
other than (a) the Assumed Liabilities, and (b) performance of the duties and
obligations under the Contracts with Subscribers after the Closing Date; (iv)
any claim or liability arising out of or related to the litigation and claims,
or threats thereof, described in SCHEDULE 10.1(IV) ("Existing Litigation
Claims"), as such schedule may be updated in the Closing Addendum; and (v) the
failure by the Company or its predecessors to comply,
Page 27 STOCK PURCHASE AGREEMENT
<PAGE> 28
prior to the Closing Date, with any "three (3) or seven (7) day right of
rescission" law or similar right of rescission statute covering any of the Alarm
Accounts. This indemnification extends to any losses suffered or costs incurred
by the Buyer Parties arising out of or relating to claims pursuant to this
Section 10.1, including, without limitation, reasonable attorney's fees, whether
or not a lawsuit is commenced by any third party. Any claim for indemnification
by any of the Buyer Parties pursuant to this Section 10.1 shall hereinafter be
referred to as a "Buyer's Claim."
10.2 Survivability. In order for any Buyer Parties to be
entitled to indemnification for a Buyer's Claim as provided for in Section 10.1,
a notice of Buyer's Claim must be submitted to Stockholder within the following
applicable time limitations:
(a) Except as provided in Section 10.2(b) or in cases of
fraud or intentional misrepresentation, a Buyer's Claim pursuant to Section
10.1(i) must be submitted on or before December 31, 1998;
(b) A Buyer's Claim pursuant to Section 10.1(i) for a
breach of Sections 5.5, 5.11, 5.12 and 5.14 must be submitted before the
expiration of the applicable statute of limitations relative to such Buyer's
Claim;
(c) A Buyer's Claim pursuant to Section 10.1(ii) for a
breach of Section 19 of this Agreement or Section 9 of the Other Stock Purchase
Agreement must be submitted before the expiration of the applicable statute of
limitations relative to such Buyer's Claim;
(d) All other Buyer's Claims must be submitted on or
before July 1, 1999.
10.3 Buyer's Claim Basket and Liability Limit. With the
exception of Buyer's Claims under Section 10.1(iv), Stockholder's obligations
with respect to indemnity pursuant to this section shall be limited to the
extent that the aggregate of such Buyer's Claims must first exceed Fifty
Thousand Dollars ($50,000) ("Buyer's Claim Basket"); provided, however, any
Buyer's Claim resulting from Stockholder's (or their designee's) failure to pay
or otherwise satisfy any of the Excluded Liabilities shall not be included in
the Buyer's Claim Basket or Liability Limit described in this Section 10.3. In
no event shall the total liability of the Stockholder for all Buyer's Claims
exceed the Purchase Price ("Liability Limit"); provided, however, the Liability
Limit shall not apply to a breach of Sections 5.5, 5.11, 5.12 or 5.14 of this
Agreement and Section 4.4 of the Other Stock Purchase Agreement.
10.4 Notice; Tendering Defense to Stockholder. Stockholder's
obligation to indemnify and reimburse Buyer hereunder are subject to prior
written thirty (30) day notice by Buyer of a Buyer's Claim, unless the Buyer's
Claim involves litigation, in which case Buyer shall provide Stockholder with
notice of such litigation within twenty (20) days after receipt of such
complaint by Buyer; and provided, however, that Stockholder shall have the right
to defend any
Page 28 STOCK PURCHASE AGREEMENT
<PAGE> 29
Buyer's Claim made by a third party, and Stockholder shall have the right to
control the defense, settlement or compromise of such Buyer's Claim and Buyer
shall have the right to be kept currently informed and to reasonably participate
in all aspects of such litigation to the extent deemed necessary to protect
Buyer's interest, unless the amount of damages demanded or alleged or prayed for
in the complaint (or if no damages are demanded, alleged or prayed for in the
complaint, the damages reasonably likely to result from such a Buyer's Claim)
exceeds the Stockholder's Liability Limit, as such term is defined in Section
10.3, in which case the party with the greatest economic risk shall have the
right to such control, subject to the other party's right of information and
participation. Notwithstanding anything to the contrary contained in this
Agreement, Buyer shall control the defense, settlement or compromise of any
Buyer's Claim where the damages demanded or alleged or prayed for in the
complaint (or if no damages are demanded or alleged or prayed for in the
complaint, the damages reasonably likely to result from such a Buyer's Claim) do
not exceed the Buyer's Claim Basket, and after the Buyer's Claim Basket has been
exceeded, Buyer shall control the defense, settlement or compromise of any
Buyer's Claim where the damages demanded or alleged or prayed for in the
complaint do not exceed the sum of Two Thousand Five Hundred Dollars ($2,500),
and Stockholder shall have no right to be kept informed or to participate in
such litigation.
In addition, Stockholder will indemnify and hold harmless
Buyer from, for and against any costs and expenses (including attorney's fees at
trial and in any appeal) which it may suffer or incur in connection with
enforcement of the indemnification obligation of the Stockholder hereunder.
10.5 Right of Set Off. In addition to the rights of Buyer
under Sections 10.1 through 10.4, Stockholder agrees that Buyer shall have the
right at any time following the Closing Date to set off against any amounts
payable to Stockholder under this Agreement an amount equal to any and all
losses, damages, liabilities, costs and expenses incurred by Buyer, including
without limitation, reasonable attorney's fees, for which Buyer has a right to
indemnification under Sections 10.1 through 10.4. If Buyer sets off any amounts
payable to Stockholder under this Agreement, then Buyer shall provide to
Stockholder at least five (5) days prior written notice thereof and describe in
reasonable detail the basis for such set off.
11. Indemnification by Buyer.
11.1 Indemnification. Notwithstanding any investigation by
Stockholder, Buyer agrees to indemnify, hold harmless and defend Stockholder,
including Stockholder's agents (collectively, the "Stockholder Parties") from
and against, and to reimburse the Stockholder Parties with respect to, any and
all losses, damages, liabilities, costs and expenses, including interest,
penalties and reasonable attorney's fees, incurred by the Stockholder Parties,
or any of them, by reason of or arising out of or in connection with: (i) any
breach or inaccuracy of any representation or warranty of Buyer made in this
Agreement or the schedules or exhibits hereto, (ii) the nonfulfillment or
inadequate performance of any covenant or agreement on the part of Buyer under
Page 29 STOCK PURCHASE AGREEMENT
<PAGE> 30
this Agreement or (iii) any liabilities of the Company to third parties of any
nature arising out of any act performed or state of facts suffered to exist by
the Company on or after the Closing Date. This indemnification extends to any
losses suffered or costs incurred by the Stockholder Parties arising out of or
relating to claims pursuant to this Section 11.1, including, without limitation,
reasonable attorney's fees, whether or not a lawsuit is commenced by any third
party. Any claim for indemnification by any of the Stockholder Parties pursuant
to this Section 11.1 shall hereinafter be referred to as a "Stockholder's
Claim."
11.2 Survivability. In order for any Stockholder Parties to be
entitled to indemnification for a Stockholder's Claim as provided for in Section
11.1, a notice of Stockholder's Claim must be submitted to Buyer within the
following applicable time limitations:
(a) Except in cases of fraud or intentional
misrepresentation, a Stockholder's Claim pursuant to Section 11.1(i) must be
submitted on or before December 31, 1998; and
(b) All other Stockholder's Claims must be
submitted on or before July 1, 1999.
11.3 Stockholder's Claim Basket and Liability Limit. Buyer's
obligations with respect to indemnity pursuant to this section shall be limited
to the extent that the aggregate of such Stockholder's Claims must first exceed
Fifty Thousand Dollars ($50,000) ("Stockholder's Claim Basket"). In no event
shall the total liability of the Buyer for all Stockholder's Claims exceed the
Purchase Price ("Buyer's Liability Limit"); provided, however, any Stockholder's
Claim resulting from Buyer's (or its designee's) failure to pay or otherwise
satisfy any of the Assumed Liabilities shall not be included in the
Stockholder's Claim Basket or Buyer's Liability Limit described in this Section
11.3.
11.4 Notice; Tendering Defense to Buyer. Buyer's obligation to
indemnify and reimburse Stockholder hereunder is subject to prior written thirty
(30) day notice by Stockholder of a Stockholder's Claim, unless the
Stockholder's Claim involves litigation, in which case Stockholder shall provide
Buyer with notice of such litigation within twenty (20) days after receipt of
such complaint by Stockholder; provided, however, that Buyer shall have the
right to defend any Stockholder's Claim made by a third party, and Buyer shall
have the right to control the defense, settlement or compromise of such
Stockholder's Claim and Stockholder shall have the right to be kept currently
informed and to reasonably participate in all aspects of such litigation to the
extent deemed necessary to protect Stockholder's interests, unless the amount of
damages demanded or alleged or prayed for in the complaint (or if no damages are
demanded, alleged or prayed for in the complaint, the damages reasonably likely
to result from such a Stockholder's Claim) exceeds the Buyer's Liability Limit,
in which case the party with the greatest economic risk shall have the right to
such control, subject to the other party's right of information and
participation. Provided, however, that Stockholder shall control the defense,
settlement or compromise of any Stockholder's
Page 30 STOCK PURCHASE AGREEMENT
<PAGE> 31
Claim where the damages demanded or alleged or prayed for in the complaint (or
if no damages are demanded or alleged or prayed for in the complaint, the
damages reasonably likely to result from such a Stockholder's Claim) do not
exceed the Stockholder's Claim Basket, and after the Stockholder's Claim Basket
has been exceeded, Stockholder shall control the defense, settlement or
compromise of any Stockholder's Claim where the damages alleged or prayed for in
the complaint do not exceed the sum of Two Thousand Five Hundred ($2,500), and
Buyer shall have no right to be kept informed or to participate in such
litigation.
In addition, Buyer will indemnify and hold harmless
Stockholder from, for and against any costs and expenses (including attorney's
fees at trial and in any appeal) which they may suffer or incur in connection
with enforcement of the indemnification obligation of the Buyer hereunder.
12. Conditions Precedent to Obligations of Buyer. All obligations
of Buyer at the Closing are subject, at Buyer's option, to the fulfillment prior
to or at the Closing by the Stockholder of each of the following:
12.1 Closing Addendum. The execution and delivery by
Stockholder of the Closing Addendum.
12.2 Agreement and Schedules. The execution and delivery by
Stockholder of all schedules and exhibits required by this Agreement to be
delivered on the date hereof and the Closing Date, including the updating of
such schedules and exhibits.
12.3 Corporate Actions of the Company. The receipt by Buyer of
the resignations of all of the directors and officers of the Company as and to
the extent requested by Buyer.
12.4 Authorization of the Company. The Board of Directors and
the stockholders of the Company shall, to the extent required by applicable law,
have approved this Agreement. Certified copies of the Company's Board of
Directors minutes authorizing the transactions contemplated by this Agreement
shall have been delivered to Buyer.
12.5 Good Standing Certificate. Receipt by Buyer of a
certificate from the Corporation Commission of the State of Arizona, dated as
close to the Closing Date as possible, stating that the Company is an existing
Arizona corporation.
12.6 No Pending Litigation. There shall not be pending or
threatened any claim, proceeding, investigation or inquiry, by any person,
governmental body or authority, seeking to prevent or change the terms of, or
obtain damages in connection with, this Agreement or the transaction
contemplated hereby or which questions the validity or legality of the
consummation of the transaction contemplated hereby. No action or proceeding
relating to any item that is not
Page 31 STOCK PURCHASE AGREEMENT
<PAGE> 32
disclosed in SCHEDULE 5, as such schedule may be updated on the Closing Date in
the Closing Addendum, shall have been instituted or threatened prior to the
Closing Date that, if concluded adversely to the Company, would be materially
adverse to Buyer's ownership of the AAA Stock and operation of the Assets and
business of the Company.
12.7 Due Diligence. Buyer shall have completed a due diligence
review of the Assets and the business of the Company satisfactory to Buyer in
its sole discretion.
12.8 Transfer of Excluded Assets and Excluded Liabilities.
Buyer shall have received evidence satisfactory to Buyer in its sole discretion
that the Excluded Assets and Excluded Liabilities have been transferred to
Stockholder or to Stockholder's designee.
12.9 AAA Stock Certificates. Receipt by Buyer of the AAA Stock
certificates and executed transfer documents.
12.10 Other Stock Purchase Agreement. The Company and the
Other Stockholder shall have executed and delivered to Buyer the Other Stock
Purchase Agreement.
12.11 Agreements With JK Alarms of Arizona, Inc. JK Alarms of
Arizona, Inc. and Stockholder shall have executed and delivered to Buyer the
Ongoing Agreement, the License Agreement and the Maintenance and Monitoring
Agreement.
12.12 Registration Rights Agreement. Stockholder shall have
executed and delivered to Buyer as of the date of this Agreement the
Registration Rights Agreement and Affidavit and Agreement of Prospective
Investor in the form attached hereto as SCHEDULE 12.12.
12.13 Opinion Letter of Stockholder's Legal Counsel. Receipt
by Buyer of the opinion of Stockholder's legal counsel in a form acceptable to
Buyer.
12.14 Stockholder's Certificate. Receipt by Buyer of a
certificate, dated as of the Closing Date, signed by Stockholder, to the effect
that all of the representations and warranties of the Company and Stockholder
set forth in Section 5 are true and correct as of the Closing Date and that
Stockholder, in all material respects, has complied with and performed the
terms, covenants, agreements and conditions required to be performed by
Stockholder as of the Closing Date under this Agreement.
12.15 Miscellaneous. Receipt by Buyer of all consents and such
additional instruments and documents as may reasonably be required by this
Agreement or to consummate the transactions contemplated herein.
Page 32 STOCK PURCHASE AGREEMENT
<PAGE> 33
13. Conditions Precedent to Obligations of Stockholder. All
obligations of Stockholder at the Closing are subject, at the option of
Stockholder, to the fulfillment prior to or at the Closing by Buyer of each of
the following:
13.1 Closing Addendum. The execution and delivery by Buyer of
the Closing Addendum.
13.2 Closing Payment. Receipt by Stockholder of the Closing
Payment.
13.3 Closing Date QRR. The QRR as of the Closing Date shall
have equaled at least Ninety Thousand Dollars ($90,000).
13.4 Authorization of Buyer. The Board of Directors of Buyer
shall have approved, to the extent required under applicable law or Buyer's
Certificate of Incorporation and Bylaws, (i) the Agreement and the execution and
delivery hereof by the Buyer and (ii) the performance by Buyer of all of its
obligations pursuant to this Agreement. Certified copies of Buyer's Board of
Directors minutes authorizing the transactions contemplated by this Agreement
shall have been delivered to Stockholder.
13.5 Other Stock Purchase Agreement. Buyer shall have executed
and delivered to the Company and the Other Stockholder the Other Stock Purchase
Agreement.
13.6 Agreements with JK Alarms of Arizona, Inc. Buyer shall
have executed and delivered to Stockholder and JK Alarms of Arizona, Inc. the
Ongoing Agreement, the License Agreement and the Maintenance and Monitoring
Agreement.
13.7 Registration Rights Agreement. Parent shall have executed
and delivered to Stockholder as of the date of this Agreement the Registration
Rights Agreement in the form attached hereto as SCHEDULE 12.12.
13.8 Registration Statement. Parent shall have filed the
Registration Statement with the Securities and Exchange Commission for the Pro
One Stock.
13.9 Buyer's Certificate. Receipt by Stockholder of a
certificate, dated as of the Closing Date, signed by Buyer to the effect that
all of the representations and warranties of Buyer set forth in Section 6 are
true and correct as of the Closing Date and that Buyer, in all material
respects, has complied with and performed the terms, covenants, agreements and
conditions required to be performed by Buyer as of the Closing Date under this
Agreement.
13.10 Miscellaneous. Receipt by Stockholder of all consents
and such additional instruments and documents as may reasonably be required by
this Agreement or to consummate the transactions contemplated herein.
Page 33 STOCK PURCHASE AGREEMENT
<PAGE> 34
14. Closing.
14.1 Closing Date. The Closing of the transaction contemplated
by this Agreement shall take place at the offices of Bryan Cave LLP, 2800 N.
Central Avenue, 21st Floor, Phoenix, Arizona 95004, at 10:00 a.m., local time,
on June 30, 1997. The Closing may occur at such different place, such different
time or at such different date or a combination thereof as Buyer and Stockholder
agree in writing.
14.2 Closing Addendum. Buyer and Stockholder shall execute an
addendum to this Agreement at the Closing (the "Closing Addendum") setting forth
the Purchase Price and Deferred Payment and updating the schedules and exhibits
hereto. Except as otherwise set forth in the Closing Addendum, all covenants,
representations, warranties and agreements made by the parties hereunder shall
remain in full force and effect.
15. Termination.
15.1 Cut-off Date. If Closing does not occur for any reason on
or before July 15, 1997, any party that has been diligent in its efforts to
consummate the transaction contemplated by this Agreement may cancel and
terminate this Agreement.
15.2 Termination for Cause. If, pursuant to the provisions of
Section 12 and 13 of this Agreement, Stockholder or Buyer is not obligated at
the Closing to consummate this Agreement, then the party who is not so obligated
may terminate this Agreement.
15.3 Termination Without Cause. Anything herein or elsewhere
to the contrary notwithstanding, this Agreement may be terminated and abandoned
at any time without further obligation or liability on the part of any party in
favor of any other by mutual consent of Buyer and Stockholder.
15.4 Termination Procedure. Any party having a right to
terminate this Agreement may terminate this Agreement by delivering to the other
parties written notice of the termination, and thereupon, this Agreement shall
be terminated without obligation or liability of any party in favor of any other
party.
16. Expenses. Buyer, the Company and Stockholder shall each pay
all of their own respective expenses incurred by or on behalf of each of them in
connection with this Agreement and the transactions contemplated hereunder,
including, but not limited to, all due diligence, legal and accounting expenses.
17. Nature of Statements and Survival of Representations,
Warranties And Agreements. All statements of fact and only those statements of
facts contained in any written statement, certificate, exhibit, schedule or
other document delivered by or on behalf of the parties
Page 34 STOCK PURCHASE AGREEMENT
<PAGE> 35
pursuant hereto or in connection with the consummation of the transactions
contemplated hereby are deemed representations and warranties made hereunder.
All covenants, representations, warranties and agreements made by the parties
hereunder shall survive the Closing Date, the delivery of the AAA Stock and the
payment of the Purchase Price therefor and the dissolution and liquidation of
any party hereto and remain effective regardless of any investigation at any
time (whether before or after the date of this Agreement) made by or on behalf
of any party or of any information any party may obtain or have (whether before
or after the date of this Agreement) in respect thereof and regardless of any
non-exercise by a party of any rights hereunder.
18. Transition Support. After the Closing Date and continuing for
a period of no less than thirty (30) days and no more than one hundred eighty
(180) days, Stockholder, at no cost to Buyer, shall make the former "key"
executives of the Company listed in SCHEDULE 18 (who terminated their employment
with the Company as of or prior to the Closing Date) reasonably available to
respond to Buyer's questions as necessary to assist Buyer during such period
with the transition of Assets, business and operations to Buyer as a result of
the sale contemplated hereby. There will be no charge to Buyer for such
transition assistance, other than reimbursement for reasonable out-of-pocket
expenses directly incurred in connection with any travel or other expenses
undertaken at the written request of Buyer.
19. Nonsolicitation and Confidentiality.
19.1 Nonsolicitation Covenants. Stockholder agrees that
between the date of the termination of the Ongoing Agreement for any reason and
the date which is twenty (20) years following the date of this Agreement,
Stockholder will not, individually or as a director, officer, partner, limited
partner, member, employee, agent, representative, stockholder, creditor or
consultant or in any other capacity with any business, in any manner, directly
or indirectly, in or with regard to any Alarm Accounts in the State of Arizona,
solicit, divert or knowingly accept orders for sale or leasing, installation,
maintenance or monitoring of alarm systems or for providing armed response
services from any Subscribers whose Alarm Accounts are owned by the Company as
of the Closing Date. Stockholder also agrees that between the date of
termination of the Ongoing Agreement for any reason and the date which is twenty
(20) years following the date of this Agreement, if any of the Stockholder
individually or as a director, officer, partner, limited partner, member,
employee, agent, representative, stockholder, creditor or consultant or in any
other capacity with any business, in any manner, directly or indirectly, in or
with regard to any Alarm Accounts in the State of Arizona, solicit, divert or
unknowingly accept orders for sale or leasing, installation, maintenance or
monitoring of alarm systems or for providing armed response services from any
Subscribers whose Alarm Accounts are owned by the Company as of the Closing
Date, that Stockholder shall be responsible for notifying Buyer promptly (but in
no event more than thirty (30) days after discovery of such Subscriber's alarm
account) and shall, upon request of Buyer, transfer to Buyer such Subscriber's
alarm account, at no cost to Buyer, plus all amounts prepaid by such Subscriber
for monitoring and other services to be performed by Buyer after the date of
such transfer. Before accepting new subscribers at JK Alarms of Arizona, Inc. or
any other alarm companies
Page 35 STOCK PURCHASE AGREEMENT
<PAGE> 36
in which Stockholder has any ownership interest or management responsibility,
they shall determine if the new subscriber's address is the same address as any
of the Subscribers, and shall not, twenty (20) years after the date of this
Agreement, accept such new subscriber if the subscribers' Alarm Account was
owned by the Company. The parties agree that general advertising which is not
directed to or targeted to the Subscribers shall not violate the nonsolicitation
restrictions set forth herein, so long as all other restrictions against
diverting or knowingly accepting orders for sale or leasing, installation,
maintenance or monitoring of alarm systems or for providing armed response
services are observed. Notwithstanding the foregoing, Stockholder directly or by
and through JK Alarms of Arizona, Inc. may contact any Subscribers whose Alarm
Accounts are owned by the Company as of the Closing Date for a period of six (6)
months following the date of this Agreement to offer for sale and sell to such
Subscribers radio service; provided, however, that such services must be offered
at prices approved by Buyer and upon such other terms and conditions upon which
Stockholder and Buyer initially agree. Stockholder also agrees that, for five
(5) years following the date of this Agreement, Stockholder will not,
individually or as a director, officer, partner, limited partner, member,
employee, agent, representative, stockholder, creditor or consultant or in any
other capacity with any business, recruit, offer to employ, or otherwise solicit
the employment of any person who was at any time within three (3) months prior
to such action an employee of Buyer or to whom the Company has extended an offer
to continue their employment after the Closing Date; provided however, that a
general classified advertisement which is not directed to Buyer's or the
Company's employees shall not violate the restrictions set forth herein so long
as no offer of employment is made to any employee of Buyer or the Company or to
a person who was an employee of Buyer or the Company within the previous three
(3) months.
19.2 Nondisclosure of Confidential Information. Stockholder
agrees to maintain as secret and confidential all "Confidential Information," as
defined herein, and agrees not to use, disclose, transfer, sell or make such
information available to any successors or third parties, except as authorized
in advance and in writing by Buyer or in the following circumstances: (a) as
required in order to comply with any subpoena, court order or applicable law,
provided that the disclosing party shall use its best efforts to give Buyer
prior written notice of such disclosure or (b) if such information becomes
publicly available not due to the fault of Stockholder. The term "Confidential
Information" means any trade secrets, proprietary or other information which is
either reasonably designated in writing to Stockholder as confidential by Buyer
or reasonably known by Stockholder to be confidential relating to the Alarm
Accounts or Assets, including without limitation, any of the following
information, which is hereby designated as confidential: any customer or
Subscriber lists; any lists, notes, or compilations which contain the names,
addresses, telephone numbers or any contract information for or relating to the
Subscribers; monitoring information and Subscriber codes and passwords; and
copies of contracts, agreements, and related documents between the Company and
the Subscribers under the Alarm Accounts.
19.3 Enforcement. Stockholder acknowledges and agrees that the
time, scope, geographic area and other provisions of Sections 19.1 and 19.2 have
been specifically negotiated by sophisticated parties and specifically hereby
agree that such time, scope, geographic
Page 36 STOCK PURCHASE AGREEMENT
<PAGE> 37
area and other provisions are reasonable under the circumstances. Stockholder
further agrees that if, at any time, despite the express agreement of the
parties hereto, a court of competent jurisdiction holds that any portion of
Sections 19.1 and 19.2 are unenforceable for any reason, the maximum
restrictions of time, scope or geographic area reasonable under the
circumstances, as determined by such court, will be substituted for any such
restrictions held unenforceable. Stockholder agrees that Buyer will suffer
irreparable harm if any of the Stockholder fails to comply with the provisions
of Section 19 this Agreement and that Buyer will be entitled to injunctive
relief to enforce the terms of this Agreement in addition to any other remedies
available to Buyer.
Page 37 STOCK PURCHASE AGREEMENT
<PAGE> 38
20. Miscellaneous.
20.1 Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made to another party if served either
personally or if deposited in the United States mail, certified or registered,
postage prepaid, return receipt requested. If such notice, demand or other
communication is served personally, or by facsimile (with verbal verification of
complete receipt), service shall be conclusively deemed made at the time of such
personal service or facsimile transmission. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
seventy-two (72) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
If to Company or Stockholder: Jeffrey E. Kerr
Able Alarms of Arizona, Incorporated
4114 E. Indian School Road
Phoenix, Arizona 85018
Telecopier: (602) 956-0498
With a copy to: Thomas F. Harper
Bryan Cave LLP
2800 N. Central Avenue, 21st Floor
Phoenix, Arizona 95004
Telecopier: (602) 226-5938
If to Buyer: Protection One Alarm Monitoring, Inc.
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005
Attention: John W. Hesse
Telecopier: (503) 520-6099
and
Protection One Alarm Monitoring, Inc.
6011 Bristol Parkway
Culver City, California 90230
Attention: John E. Mack III
Telecopier: (310) 649-3855
Page 38 STOCK PURCHASE AGREEMENT
<PAGE> 39
With a copy to: David R. Ludwig
Farleigh, Wada & Witt, P.C.
121 S.W. Morrison Street, Suite 600
Portland, Oregon 97204
Telecopier: (503) 228-1741
Any party hereto may change its address for the purpose of receiving notices,
demands and other communications as herein provided by a written notice given in
the manner provided hereby to the other party or parties hereto.
20.2 Modifications or Amendments. No amendment, change or
modification of this document shall be valid unless in writing and signed by all
parties hereto.
20.3 Waiver. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof. All waivers must be in writing and signed by the party waiving
compliance.
20.4 Knowledge of Parties. Where any representation or
warranty contained in this Agreement is expressly qualified by a reference to
knowledge, information and/or belief of the party making such representation and
warranty, such party shall have made reasonable inquiry as to the matters that
are the subject of such representations and warranties.
20.5 Binding Effect. All of the terms and provisions contained
herein shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, personal representatives, successors and, to
the extent permitted by Section 20.6, assigns.
20.6 Assignment. The Company and Stockholder may not assign
any rights or delegate any duties under the Agreement with the prior written
consent of Buyer (including without limitation any rights in and to the Deferred
Payment).
20.7 Separate Counterparts. This document may be executed in
one or more separate counterparts, each of which, when so executed, shall be
deemed to be an original. Such counterparts shall, together, constitute and
shall be one and the same instrument.
20.8 Further Assurances. Each of the parties hereto shall
execute and deliver any and all additional papers, documents, and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties hereto.
20.9 Applicable Law; Severability; Attorney's Fees. This
Agreement shall, in all respects, be governed by the laws of the State of
California applicable to agreements executed and to be wholly performed within
the State of California. Nothing contained herein
Page 39 STOCK PURCHASE AGREEMENT
<PAGE> 40
shall be construed so as to require the commission of any act contrary to law,
and wherever there is any conflict between any provision contained herein and
any present or future statute, law, ordinance or regulation contrary to which
the parties have no legal right to contract, the latter shall prevail but the
provision of this document which is affected shall be curtailed and limited only
to the extent necessary to bring it within the requirements of the law. In the
event any action or arbitration is instituted by a party hereto to enforce or
construe any term or to recover damages resulting from the breach of any term of
this Agreement, the prevailing party in such action or arbitration shall be
entitled to such reasonable attorney's fees and costs and expenses (including
the costs of the arbitrator) as may be fixed by the court or arbitrator. The
jurisdiction for any arbitration or judicial proceedings brought by either party
against the other party with respect to this Agreement shall be Los Angeles
County, California.
20.10 Arbitration. Either party may elect to require that any
controversy arising out of or relating to this Agreement be determined by
arbitration in accordance with the then effective commercial arbitration rules
of American Arbitration Association. All statutes of limitation which would
otherwise be applicable shall apply to the arbitration proceeding. Any judgment
upon the award rendered pursuant to arbitration may be entered in any court
having jurisdiction. In lieu of using the American Arbitration Association, the
parties may agree to select a single arbitrator who is experienced in the alarm
industry. If any legal action or other proceeding has been brought by either
party to construe, interpret or enforce this Agreement; (i) the party who is the
defendant or respondent in such proceeding shall be deemed to have waived the
option to arbitrate if a general appearance is made in such proceeding prior to
filing a claim in arbitration and (ii) the party who is the plaintiff or
petitioner in such proceeding shall be deemed to have waived the option to
arbitrate if a claim for arbitration is not filed within sixty (60) days after a
general appearance has been made by the adverse party in such proceeding. If
either party exercises the option to arbitrate, arbitration shall be mandatory
and any pending judicial proceeding shall be stayed except to the extent
permitted in this section.
20.11 Provisional Remedies. The following remedies may be
exercised by either party regardless of whether an arbitration proceeding is
then pending and without waiving any right to require arbitration: (i)
injunctive or other equitable relief to the extent such relief does not conflict
with any arbitration award; and/or (ii) set off or recoupment.
20.12 Captions. Any captions to the sections of this Agreement
are solely for the convenience of the parties and are not a part of this
Agreement and shall not be used for the determination of the validity of this
Agreement or any provision therefor.
20.13 Entire Agreement. This document, together with any
exhibits, schedules or documents attached hereto, or delivered and initialed by
the parties in connection herewith, constitutes the entire understanding and
agreement of the parties with respect to the subject matter of this Agreement.
Page 40 STOCK PURCHASE AGREEMENT
<PAGE> 41
20.14 No Third Party Beneficiaries. Nothing contained in this
Agreement shall be construed to give any person other than Buyer, the Company
and Stockholder any legal or equitable right, remedy or claim under or with
respect to this Agreement.
20.15 Confidentiality. Each party shall hold in confidence the
fact of the existence of and all economic and other terms of this Agreement and
the transactions contemplated herein (collectively, "Confidential Terms"). The
parties agree that disclosure of any Confidential Terms shall be limited solely
to management of and advisors to Buyer and Stockholder on a "need to know"
basis, and such management and advisors shall be advised of and agree to be
bound by the provisions of this Section 20.15. In furtherance and not in
limitation of the foregoing, no statements shall be issued regarding this
Agreement or the economic or other terms of the transactions contemplated herein
without the prior written consent of Buyer and Stockholder. Notwithstanding
anything to the contrary set forth in this Agreement or any other documents
executed by the parties, Buyer is authorized to disclose the existence of and
all economic and other terms of this Agreement in connection with any state or
federal securities filings, offering circulars, registration statements, or loan
agreements of Buyer or its parent company, Protection One, Inc.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
COMPANY: ABLE ALARMS OF ARIZONA, INCORPORATED
By:
----------------------------------
Title:
-------------------------------
STOCKHOLDER:
Jeffery E. Kerr
BUYER: PROTECTION ONE ALARM MONITORING, INC.
By:
----------------------------------
Its:
----------------------------------
Page 41 STOCK PURCHASE AGREEMENT
<PAGE> 42
SCHEDULE 1.3(A)
ASSUMED LIABILITIES
(a) Assumed Liabilities Not Deducted from the Purchase Price - The
obligations of the Company to Subscribers described in Section 1.3.
(b) Assumed Liabilities Deducted from the Purchase Price - None.
Page 42 STOCK PURCHASE AGREEMENT
<PAGE> 43
SCHEDULE 1.15
CLOSING PURCHASE PRICE SCHEDULE
<TABLE>
Closing Price Components
<S> <C> <C>
1. Fifty percent (50%) of the QRR of the Alarm Accounts of
$ , multiplied by a factor of thirty-eight (38): $
------------ -----------------
less
2. The Unearned Income of $ : $
------------ -----------------
less
3. The Assumed Liabilities, if any, described in subparagraph
(b) of SCHEDULE 1.3 of the Closing Addendum $
-----------------
PURCHASE PRICE $
=================
DEFERRED PAYMENT
(Twelve percent (12%) of the QRR of the Alarm Accounts of $ ,
------------
multiplied by a factor of thirty-nine (39)) $ $
-----------------
CLOSING PAYMENT
(The Purchase Price less the Deferred Payment, comprised of $
----------
payable by check or wire transfer (sixty percent (60%) of the Purchase
Price, less the Deferred Payment) and of shares of Pro One
--------
Stock ($ divided by the Closing Value (forty percent (40%) of
----------
the Purchase Price)) $ $
-----------------
</TABLE>
Page 43 STOCK PURCHASE AGREEMENT
<PAGE> 44
SCHEDULE 5
STOCKHOLDER'S DISCLOSURE SCHEDULE
See attached.
Stockholder has employed Advent Financial as a broker, finder or agent in this
transaction and has agreed to pay Advent Financial a brokerage fee, finder's fee
or commission in connection with the transactions contemplated by this
Agreement.
Page 44 STOCK PURCHASE AGREEMENT
<PAGE> 45
SCHEDULE 6
BUYER'S DISCLOSURE SCHEDULE
None.
Page 45 STOCK PURCHASE AGREEMENT
<PAGE> 46
SCHEDULE 8.3
MAINTENANCE AND MONITORING AGREEMENT
See attached.
Page 46 STOCK PURCHASE AGREEMENT
<PAGE> 47
SCHEDULE 9.3
LICENSE AGREEMENT
See attached.
Page 47 STOCK PURCHASE AGREEMENT
<PAGE> 48
SCHEDULE 9.4
ONGOING AGREEMENT
See attached.
Page 48 STOCK PURCHASE AGREEMENT
<PAGE> 49
SCHEDULE 10.1(IV)
EXISTING LITIGATION CLAIMS
None.
Page 49 STOCK PURCHASE AGREEMENT
<PAGE> 50
SCHEDULE 12.12
FORM OF REGISTRATION RIGHTS AGREEMENT AND AFFIDAVIT
See attached.
Page 50 STOCK PURCHASE AGREEMENT
<PAGE> 51
SCHEDULE 18
KEY EXECUTIVES
Jeffrey E. Kerr
Page 51 STOCK PURCHASE AGREEMENT
<PAGE> 52
ADDENDUM TO STOCK PURCHASE AGREEMENT
DATED: June 30, 1997
BETWEEN: Protection One Alarm Monitoring, Inc.,
a Delaware corporation
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005 ("Buyer")
AND: Able Alarms of Arizona, Incorporated,
an Arizona corporation
4114 East Indian School Road
Phoenix, Arizona 85018 ("Company")
AND: Jeffrey E. Kerr
4114 East Indian School Road
Phoenix, Arizona 85018 ("Stockholder")
On June 20, 1997, the parties executed and delivered a Stock
Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Defined Terms. Unless given a different meaning herein,
all capitalized terms used in this Addendum to Asset Purchase Agreement
("Closing Addendum") shall have the meanings ascribed to them in the Agreement.
2. Continuing Effectiveness. Except as expressly modified
herein, all of the terms, conditions, covenants and exhibits set forth in the
Agreement remain in full force and offset among the parties.
3. Closing Date and Closing Value. The Closing Date is
June 30, 1997. The Closing Value for the shares of Pro One Stock of Parent
issued to Company at Closing is Thirteen and Twenty-Five One Thousands Dollars
($13.025) per share.
4. Closing Date Exhibits. The following Exhibits are
attached hereto and incorporated in this Closing Addendum and the Agreement by
this reference:
a. Schedule 1.1 - Alarm Accounts.
b. Schedule 1.2 - Excluded Assets.
c. Schedule 1.3(a) - Assumed Liabilities.
<PAGE> 53
d. Schedule 1.3(b) - Excluded Liabilities.
e. Schedule 1.14 - Other Property.
f. Schedule 1.15 - Closing Purchase Price Schedule.
g. Schedule 1.20 - Telephone Lines.
h. Schedule 4.1 - Third-Party Guarantees.
i. Schedule 4.2 - Contracts and Agreements.
j. Schedule 4.3 - Restrictive Agreements.
k. Schedule 5 - Stockholder's Disclosure Schedule.
l. Schedule 10.1(iv) - Existing Litigation Claims.
5. Purchase Price. At the Closing the Purchase Price for the AAA
Stock purchased hereunder is One Million Nine Hundred Fourteen Thousand Five
Hundred Ninety and 57/100 Dollars ($1,914,590.57) and is based on the
calculations set forth in the Closing Purchase Price Schedule attached as
Schedule 1.15.
6. Payment of Purchase Price. Buyer shall pay to Stockholder the
following:
a. At the Closing, the Closing Date Payment is One Million
Three Hundred Sixty-Three Thousand Four Hundred Thirty-Seven and 03/100 Dollars
($1,363,437.03), which shall be paid as follows:
i. The sum of Five Hundred Ninety-Seven Thousand
Six Hundred and 80/100 Dollars ($597,600.80) shall be paid to Stockholder in
cash by wire transfer to the account or accounts designated by Stockholder.
ii. The sum of Seven Hundred Sixty-Five Thousand
Eight Hundred Thirty-Six and 23/100 Dollars ($765,836.23) shall be paid to
Stockholder by delivery of Fifty-Eight Thousand Seven Hundred Ninety-Seven
(58,797) shares of Pro One Stock within two (2) business days of the date
hereof (based upon the Closing Value of Thirteen and 25/1000 Dollars [$13.25])
per share and payment in cash of the sum of Five and 34/100 Dollars ($5.34) in
lieu of issuing fractional shares will be wire transferred pursuant to Section
6(a)(i) hereof.
b. The Deferred Payment amount is Five Hundred Fifty-One
Thousand One Hundred Fifty-Three and 54/100 Dollars ($551,153.54).
2
<PAGE> 54
7. Keys. Stockholder shall return to the Subscribers any and all
keys in the Company's possession for such Subscribers as of the Closing Date
within ninety (90) days of the Closing Date.
8. Stub Tax Return Filing. Section 8.1 of the Agreement is hereby
amended in its entirety to provide as follows:
Stockholder, at his sole expense, shall prepare and file within ninety
(90) days after the Closing Date all federal, state and local tax
returns of the Company for all periods prior to the Closing Date which
are required to be filed and shall provide Buyer with all copies of such
returns and related work papers.
9. Access to Books and Records. Section 9.1 of the Agreement is
hereby amended in its entirety to provide as follows:
For a period of two (2) years after the Closing Date, Stockholder agrees
that he shall store all books and records of the Company. Stockholder
agrees during that period that Buyer and its representatives shall have
access to all such books and records. As the expiration of such two (2)
year period or at such earlier time as requested by Buyer, Seller shall
at buyer's expense deliver such books and records to Buyer at such
location or locations designated by Buyer.
10. Certification of Stockholder. Stockholder certifies that all
representations and warranties of the Company and Stockholder set forth in
Section 5 of the Agreement are true and correct as of the Closing Date and that
the Company and Stockholder has, in all material respects, complied with and
performed the terms, covenants, agreements and conditions required to be
performed by the Company and Stockholder as of the Closing Date under the
Agreement.
11. Certification of Buyer. Buyer certifies that all representations
and warranties of Buyer set forth in Section 6 of the Agreement are true and
correct as of the Closing Date and that Buyer has, in all material respects,
complied with and performed the terms, covenants, agreements and conditions
required to be performed by Buyer as of the Closing Date under the Agreement.
12. Exchange of Pro One Stock. Section 3.2.2. of the Agreement is
hereby amended in its entirety to provide as follows:
If the Registration Statement filed by Parent shall not have become
effective by August 31, 1997, then Stockholder shall have the option for
a period of ten (10) days thereafter either (i) to elect to tender to
Buyer the stock certificates (the "Certificates") for the Pro One Stock
delivered by Buyer to Stockholder pursuant to
3
<PAGE> 55
Section 3.1.1(b), and Buyer, upon receipt of such Certificates, shall
pay to Stockholder an amount equal to forty percent (40%) of the
Purchase Price, less any amounts paid at the closing for any fractional
share of Pro One Stock to which Stockholder would be entitled, by check
or wire transfer to Stockholder (the "Cash Payment"); or (ii) to retain
the Pro One Stock as "restricted stock" in lieu of the registration of
the Pro One Stock. If Stockholder elects to tender such Certificates
to Buyer, concurrently with Stockholder's receipt of the cash Payment,
the Pro One Stock represented by the Certificates shall be null and void
ab initio or, at Parent's option, redeemed, retired or repurchased. In
either event, Parent shall have no further obligation to register the
Pro One Stock.
13. Waiver. Buyer hereby waives any objection or claim it may have to
Alarm Accounts on the basis that they are not evidenced by written contracts.
14. Increase in Fees. Section 5.18 of the Agreement is hereby amended
in its entirety to provide as follows:
Since January 1, 1997, the company has not increased recurring
monitoring charges or service charges payable by the Company's retail
Subscribers, other than for additions or changes in services or
protection except for two classes of Subscribers whose fees were
increased in 1997 described below:
(i) Persons who became Subscribers from January 1, 1996, through June
1996 whose fees were increased for services provided after June 1, 1997,
whose fees would have otherwise been subject to a general increase which
was effective in October 1996;
(ii) Persons who are Subscribers under the Alarm Net radio monitoring
system whose fees for services were increased on or about June 18,
1997.
15. Registration. In connection with the Registration Statement as
provided in Section 3.2.1 and Exchange of Pro One Stock as provided in Section
3.2.2 of the Agreement, Buyer makes the following representations and
warranties:
a. Parent has been advised that the Securities and Exchange
Commission ("SEC") intends to commence a full review of the Registration
Statement which includes Parent's Form 10-K and applicable other filings of the
Parent with the SEC.
4
<PAGE> 56
b. Buyer is not aware of any facts, circumstances or reasons
that Buyer and the Registration Statement are not in compliance in all material
respects with all applicable Federal and securities laws.
c. Buyer is not aware of any facts, circumstances or reasons
why the Registration Statement should not be able to be declared effective on
or before August 31, 1997.
d. The SEC has advised Parent that the SEC does not as a
matter of policy reveal why a registration statement is being reviewed. Buyer
is not aware of any facts, circumstances or reasons why the SEC would desire a
full review of the Registration Statement except it is being done pursuant to
the SEC's routine program of periodic reviews of companies registering new
shares and in light of Parent's filing of several similar registration
statements, all of which have been declared effective by the SEC.
16. Brokers. Section 5.24 of the Agreement is hereby amended in its
entirety to provide as follows:
Buyer has not employed any broker, finder or agent or dealt with anyone
purporting to act in such capacity or agreed to pay any brokerage fee,
finder's fee or commission in connection with the transactions
contemplated by this Agreement, except Dennis J. Preato (dba) Advent
Financial, for which Stockholder shall be solely responsible for payment
of all brokerage fees, finder's fees or commissions.
IN WITNESS WHEREOF, the parties have executed this Closing Addendum as
of the date first written above.
BUYER: PROTECTION ONE ALARM MONITORING, INC.,
a Delaware corporation
By: /s/ JOHN B. MACK, III
-------------------------------------------
John B. Mack, III, Executive Vice President
STOCKHOLDER:
By: /s/ JEFFREY E. KERR
-------------------------------------------
Jeffrey E. Kerr
5
<PAGE> 57
COMPANY: ABLE ALARMS OF ARIZONA, INCORPORATED,
an Arizona corporation
By: /s/ JEFFREY E. KERR
--------------------------------
Title: President
6
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
DATED: June 20, 1997
BETWEEN: Protection One Alarm Monitoring, Inc.,
a Delaware corporation
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005 ("Buyer")
AND: Able Alarms of Arizona, Incorporated,
an Arizona corporation
4114 E. Indian School Road
Phoenix, Arizona 85018 ("Company")
AND: Jeannette Bouvier, Trustee of the Kerr
Charitable Trust dated May 28, 1997
3433 N. 47th Place
Phoenix, Arizona 85018 ("Stockholder")
RECITALS:
A. Stockholder is the owner of fifty percent (50%) of the issued
and outstanding shares of the capital stock (the "AAA Stock") of the Company;
and
B. Buyer desires to purchase the AAA Stock from Stockholder and
Stockholder desires to sell all such AAA Stock to Buyer, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The following terms shall be defined as set forth
below:
1.1 Alarm Accounts. The term "Alarm Accounts" is defined as
all installed monitored alarm accounts of the Company set forth on SCHEDULE
1.1(A) for the Alarm Accounts with Contracts (the "Written Alarm Accounts") and
SCHEDULE 1.1(B) for the Alarm Accounts without Contracts (the "Oral Alarm
Accounts") to be attached at the Closing to the Closing Addendum, including all
Equipment and goodwill related thereto, all available records (including,
without limitation, service and installation records), files, computer
information, monitoring codes, upload codes, download codes, master codes,
lock-out codes, communicator identification codes and
Page 1 STOCK PURCHASE AGREEMENT
<PAGE> 2
goodwill related thereto, and any and all Contracts and related agreements for
alarm systems and services between the Company and Subscribers.
1.2 Assets. The term "Assets" is defined as all of the Alarm
Accounts, Equipment, the Other Property, the Telephone Lines of the Company as
of the Closing, which will include all of the tangible and intangible assets of
the Company as of the Closing Date.
1.3 Assumed Liabilities. The term "Assumed Liabilities" is
defined as (i) all obligations of Company to Subscribers to provide monitoring,
warranty, repair or other security services pursuant to written contracts
therefor (the "Contracts") and pursuant to oral contracts (the "Other
Contracts") included in the Assets listed in Section 1.2 and all express limited
warranty obligations for alarm systems sold and installed by the Company prior
to Closing and (ii) all other liabilities set forth on SCHEDULE 1.3(A), if any,
to be attached at the Closing to the Closing Addendum, which shall set forth (a)
the liabilities which will not be deducted from the Purchase Price and (b) the
liabilities which will be deducted from the Purchase Price. The Assumed
Liabilities shall not include the liabilities set forth on SCHEDULE 1.3(B) to be
attached at the Closing to the Closing Addendum which the Company transferred to
Stockholder or to Stockholder's designee prior to Closing (the "Excluded
Liabilities").
1.4 Closing and Closing Date. The terms "Closing" and "Closing
Date" are defined as June 30, 1997, or such earlier date as the parties may
mutually agree upon in writing when the Closing of the purchase and sale of the
AAA Stock is consummated. The transfer to Buyer of control and the
responsibility of the Company shall be effective as of 12:01 a.m. Pacific
Daylight Savings Time on the day following the Closing Date.
1.5 Equipment. The term "Equipment" means any and all
installations and equipment owned or leased by the Company at Subscribers'
residences or places of business with respect to the Alarm Accounts.
1.6 Material Adverse Effect. The term "Material Adverse
Effect" is defined as any change, effect or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on (i) the condition (financial or otherwise) or prospects of the
Company, its business or the Assets, or (ii) the operation of the business
before or after the Closing Date or the ownership or other use of the Assets by
Buyer and the Company thereafter.
1.7 Other Property. The term "Other Property" is defined as
Stockholder's trademarks, tradenames and intellectual property rights listed in
SCHEDULE 1.7 to be attached at the Closing to the Closing Addendum.
1.8 Purchase Price. The term "Purchase Price" is defined as an
amount equal to fifty percent (50%) of the QRR of the Alarm Accounts as of the
Closing Date, multiplied by a factor of forty (40).
Page 2 STOCK PURCHASE AGREEMENT
<PAGE> 3
1.9 QRR. The term "QRR" is defined as the gross monthly
recurring revenue of the Written Alarm Accounts, as such term is defined herein,
under valid Contracts, as such term is defined in Section 1.3 of this Agreement,
and of the Oral Alarm Accounts, as such term is also defined herein, under valid
Other Contracts, as that term is also defined in Section 1.3 of this Agreement
for the leasing, monitoring and servicing of alarm systems which are in full
force and effect as of the Closing Date, do not contain restrictions or
limitations against assignment to Buyer and which have receivable balances which
are current or no more than ninety (90) days past due. QRR is reduced by: (i)
the total monthly charge paid to third party response agencies for patrol or
alarm response; and (ii) a deduction for leased alarm accounts if ownership of
the alarm system passes to the Subscriber at the end of the lease. QRR does not
include any amounts derived from or which are expected to be derived from: (a)
services to be provided under any Contract or Other Contract which by its terms
is terminable and has been terminated by a Subscriber as a result of the
consummation of the transaction contemplated hereby; (b) services to be provided
under any Contract or Other Contract as to which verbal or written notice of
cancellation, termination or non-renewal has been received prior to the Closing;
(c) time and materials charges or any other like charges for non-recurring,
non-regular services; (d) reimbursement for or prepayment of leased telephone
line charges associated with the Alarm Accounts; (e) reimbursement for or
prepayment of any false alarm assessments; and (f) reimbursement for or
prepayment of any taxes, fees, increased monitoring charges or other charges
imposed by any governmental authority with respect to the furnishing of alarm
services. Quarterly, semi-annual and annual billings shall be divided by three
(3), six (6) and twelve (12), respectively, to determine the monthly recurring
revenue amount.
1.10 Subscriber. The term "Subscriber" is defined as any
person, business, corporation or other entity that has an Alarm Account with the
Company for the provision of alarm and monitoring services.
1.11 Telephone Lines. The term "Telephone Lines" is defined as
the Company's interest in all of the telephone lines, voice service lines, call
back lines and numbers on which the Alarm Accounts are being monitored or which
are otherwise used or owned by the Company in connection with the business. All
of the telephone numbers for the Telephone Lines shall be listed in SCHEDULE
1.11 to be attached at the Closing to the Closing Addendum.
2. Agreement to Purchase and Sell AAA Stock. In reliance upon the
warranties, representations and covenants of Stockholder contained in this
Agreement, and subject to the provisions in this Agreement, Buyer agrees to
purchase from Stockholder at the Closing all of the issued and outstanding
shares of the AAA Stock of the Company of which Stockholder is the owner and
holder. In reliance on the warranties, representations and covenants of Buyer
contained in this Agreement, and subject to the provisions in this Agreement,
Stockholder agrees to sell to Buyer at the Closing all of the AAA Stock of which
Stockholder is the owner and holder.
3. Payment of Purchase Price. On the Closing Date, Buyer shall
pay to Stockholder the Purchase Price by check or wire transfer to Stockholder
Page 3 STOCK PURCHASE AGREEMENT
<PAGE> 4
4. Representations, Warranties and Agreements of the Company and
Stockholder. Except as otherwise set forth or described on SCHEDULE 4
("Stockholder's Disclosure Schedule") or any other schedule or exhibit attached
hereto, the Company and Stockholder agree, represent and warrant as follows:
4.1 Corporate Status of the Company. The Company is a
corporation duly organized and validly existing under the laws of the State of
Arizona. The Company does not have any subsidiaries and does not own any
securities of, or have any proprietary interest in, any other entity. The
Company has full corporate power and corporate authority to own, or hold under
lease, the Assets and is qualified to conduct business in all jurisdictions
except where the failure to qualify would not materially adversely affect the
business of the Company.
4.2 Outstanding Stock of the Company. The authorized capital
stock of the Company consists of one hundred thousand (100,000) shares of common
stock, no par value per share, of which three hundred seven and two-tenths (307
2/10) shares are issued and outstanding. All of the Company's issued and
outstanding shares of stock have been validly issued to Stockholder and to
Jeffrey E. Kerr (the "Other Stockholder"), and are fully paid and nonassessable
and are not subject to any preemptive or other similar rights. There are no
accrued and unpaid dividends on the preferred stock. Stockholder and the Other
Stockholder are each the owner, beneficially and of record, of fifty percent
(50%) of the issued and outstanding shares of the Company free and clear of all
restrictions of any kind, nature or description. The Company has not authorized
or issued any securities other than to Stockholder and to the Other Stockholder,
and no person, corporation or entity holds any option, warrant or right to
purchase or otherwise acquire any shares of capital stock of the Company.
Stockholder and the Other Stockholder have not entered into any agreement with
any former stockholder of the Company, if any, regarding the sale, transfer or
disposition of the capital stock or Assets of the Company or in any manner
affecting the capital stock or Assets of the Company.
4.3 Authorization of Stockholder. This Agreement has been duly
executed and delivered by Stockholder and constitutes a valid obligation legally
binding on Stockholder and is enforceable against Stockholder in accordance with
its terms, except as enforceability may be limited or affected by applicable
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting the rights of creditors and except as enforceability
may be limited by rules of law governing specific performance, injunctive relief
or other equitable remedies. The execution, delivery and performance of this
Agreement by Stockholder and the consummation of the transactions contemplated
hereby by Stockholder do not and will not conflict with, or result in a breach,
default, violation or loss of a material benefit under any agreement, mortgage,
lease, license or other instrument or obligation of Stockholder or the Company
in connection with the operation of the Company's business or any of the Assets;
do not require the consent or permission of any person or governmental agency;
and will not violate any law, rule or regulation of any agency or governmental
body to which Stockholder or the Company is subject and that is individually or
in the aggregate material to the transactions contemplated hereby. No
registration, declaration or filing
Page 4 STOCK PURCHASE AGREEMENT
<PAGE> 5
with any governmental or administrative authority is required on the part of
Stockholder or the Company in connection with the execution, delivery and
performance of this Agreement.
4.4 Title to Stock. Stockholder has good and valid title to
the AAA Stock, free and clear of all liens, claims, charges or other
encumbrances, with full lawful right, power, capacity and authority to sell,
assign, transfer and deliver the certificates for the AAA Stock to Buyer
pursuant to this Agreement and to consummate the transactions contemplated
hereby, and there are no agreements, arrangements or understandings restricting
or otherwise relating to the transfer or voting of the AAA Stock. At the
Closing, Buyer will receive good and valid title to the AAA Stock, free and
clear of all liens, claims, charges or other encumbrances of any nature
whatsoever.
4.5 Brokers. Stockholder has not employed any broker, finder
or agent or dealt with anyone purporting to act in such capacity or agreed to
pay any brokerage fee, finder's fee or commission in connection with the
transactions contemplated by this Agreement.
4.6 Schedules Delivered at Execution. To the best of the
Company's and Stockholder's knowledge, all of the schedules described in this
Agreement and prepared by the Company and Stockholder which are being delivered
to Buyer upon execution hereof are true, accurate and complete as of the date
hereof and have been prepared in conformity with the provisions of this
Agreement.
4.7 No Material Misstatements. To the best of the Company's
and Stockholder's knowledge, no representation or warranty by Stockholder
contained in this Agreement, or in any exhibit or schedule attached hereto,
contains, or will contain, any untrue statement of a material fact or omits, or
will omit, to state a material fact necessary to make the statements contained
herein or therein not misleading.
5. Representations, Warranties and Agreements of Buyer. Except as
set forth on SCHEDULE 5 ("Buyer's Disclosure Schedule"), Buyer agrees,
represents and warrants as follows:
5.1 Corporate Status of Buyer. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer is qualified to conduct business in the State of Arizona as a
foreign corporation. Buyer has full corporate power and corporate authority to
purchase and acquire the AAA Stock as herein provided.
5.2 Authorization of Buyer. This Agreement has been duly
executed and delivered by Buyer and constitutes a valid obligation legally
binding on Buyer and is enforceable against Buyer in accordance with its terms,
except as enforceability may be limited or affected by applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the rights of creditors and except as enforceability may be limited by
rules of law governing specific performance, injunctive relief or other
equitable remedies. No registration,
Page 5 STOCK PURCHASE AGREEMENT
<PAGE> 6
declaration or filing with any governmental or administrative authority is
required on the part of Buyer in connection with the execution, delivery and
performance of this Agreement.
5.3 Litigation. There are no claims, litigation, proceedings
or investigations pending or, to the best knowledge of Buyer, threatened against
Buyer which would have a material adverse impact on Buyer's ability to perform
all of its duties and obligations under this Agreement.
5.4 Brokers. Buyer has not employed any broker, finder or
agent or dealt with anyone purporting to act in such capacity or agreed to pay
any brokerage fee, finder's fee or commission in connection with the
transactions contemplated by this Agreement.
5.5 Investment Intent. Buyer is acquiring the AAA Stock for
its own account and not with a view to any public resale or distribution. Buyer
is an "accredited investor" as such term is defined in Regulation D under the
Securities Act of 1933, as amended ("Securities Act"). Buyer acknowledges that
the AAA Stock has not been registered under the Securities Act or registered or
qualified under the securities laws of any state and may not be offered, sold,
pledged, hypothecated or otherwise transferred unless so registered or qualified
or unless an exemption from the registration requirements under the Securities
Act and any applicable state securities laws is available.
6. Covenants and Agreements of the Company and Stockholder
Pending the Closing. The Company and Stockholder covenant and agree as follows:
6.1 Access. Until the earlier of the Closing and the rightful
abandonment or termination of this Agreement pursuant to Section 13 or otherwise
(the "Release Time"), the Company will afford, and Stockholder will cause the
Company to afford, the officers, employees, counsel, agents, investment bankers,
accountants and other representatives of the Buyer and lenders, investors and
prospective lenders and investors free and full access to the plants,
properties, books and records of the Company, will permit them to make extracts
from and copies of such books and records, and will from time to time furnish
Buyer with additional financial and operating data and other information as to
the financial condition, results of operations, businesses, properties, assets,
liabilities or future prospects of the Company as Buyer from time to time may
request.
6.2 Conduct of Business. Until the Release Time, the Company
will, and Stockholder will cause the Company to, conducts its affairs so that at
the Closing no representation or warranty of the Company or Stockholder will be
inaccurate, no covenant or agreement of the Company or Stockholder will be
breached, and no condition in this Agreement will remain unfulfilled by reason
of the actions or omissions of the Company or Stockholder. Except as otherwise
requested by the Buyer in writing, until the Closing, the Company and
Stockholder will cause the Company to use its best efforts to preserve the
business operations of the Company intact to preserve in full force and effect
the contracts and to preserve the goodwill of their suppliers,
Page 6 STOCK PURCHASE AGREEMENT
<PAGE> 7
customers and others having business relations with it. Until the Closing, the
Company will, and Stockholder will cause the Company to, conduct their business
and operations in all respects only in the ordinary course.
6.3 Advice of Changes. Until the Release Time, the Company and
Stockholder will immediately advise the Buyer in a detailed written notice of
any fact or occurrence or any pending or threatened occurrence of which any of
them obtains knowledge and which (if existing and known at the date of the
execution of this Agreement) would have been required to be set forth or
disclosed in or pursuant to this Agreement or a schedule hereto, which (if
existing and known at any time prior to or at the Closing) would make the
performance by any party of a covenant contained in this Agreement impossible or
make such performance materially more difficult than in the absence of such fact
or occurrence, or which (if existing and known at the time of the Closing) would
cause a condition to any party's obligations under this Agreement not to be
fully satisfied.
6.4 Confidentiality. The Company and Stockholder shall insure
that all confidential information which the Company, any of their respective
officers, directors, employees, counsel, agents, investment bankers or
accountants, or Stockholder or any of his counsel, agents, investment bankers or
accountants may now possess or may hereafter create or obtain relating to the
financial condition, results of operations, business, properties, assets,
liabilities or future prospects of the Company, Buyer or any affiliate of any of
them, or any customer or supplier of any of them or any such affiliate shall not
be published, disclosed or made accessible by any of them, except pending the
Closing in the business and for the benefit of the Company, in each case without
the prior written consent of Buyer; provided, however, that the restrictions of
this sentence shall not apply (a) with respect to the obligations of the Company
after the Closing takes place, (b) with respect to the obligations of all such
persons and entities after this Agreement is rightfully terminated, but only to
the extent confidential information relates to the financial condition, results
of operations, business, properties, assets, liabilities or future prospect of
the Company, of any affiliate of it or (insofar as such confidential information
was obtained directly by the Company or any such affiliate from any customer or
supplier of if) of any such customer or supplier, (c) as may otherwise be
required by law, (d) as may be necessary or appropriate in connection with the
enforcement of this Agreement, or (e) to the extent the information shall have
otherwise become publicly available. The Company and Stockholder shall, and
shall cause all other such persons and entities to, deliver to Buyer all
tangible evidence of the confidential information to which the restrictions of
the foregoing sentence apply at the Closing or the earlier rightful termination
of this Agreement.
6.5 Public Statements. Before the Company or Stockholder shall
release any information concerning this Agreement or the transactions
contemplated by this Agreement which is intended for or may result in public
dissemination thereof, they shall cooperate with Buyer, shall furnish drafts of
all documents or proposed oral statements to Buyer for comments and shall not
release any information relating thereto without the written consent of Buyer.
Nothing contained
Page 7 STOCK PURCHASE AGREEMENT
<PAGE> 8
herein shall prevent the Company or Stockholder from releasing any information
to any governmental authority if required to do so by law.
6.6 Voting by Stockholder. Stockholder agrees that until the
Release Time, Stockholder will vote all securities of the Company which he is
entitled to vote against (a) any merger, consolidation, reorganization other
business combination or recapitalization involving the Company, (b) any sale of
assets of the Company, (c) any stock split, stock dividend or reverse stock
split relating to any class or series of the Company's stock, (d) any issuance
of any shares of capital stock of the Company, any option, warrant or other
right calling for the issuance of any such share of capital stock or any
security convertible into or exchangeable for any such share of capital stock,
(e) any authorization of any other class or series of stock of the Company, (f)
the amendment of the Articles of Incorporation (or other charter document) or
the Bylaws of the Company or (g) any proposition the effect of which may be to
inhibit, restrict or delay the consummation of any of the transactions
contemplated by this Agreement or impair the contemplated benefits to the
Company of the transactions contemplated by this Agreement.
6.7 No Solicitation. Until the Release Time, the Company and
Stockholder shall not, and shall neither authorize nor permit any officer,
director, employee, counselor, agent, investment banker, accountant or other
representative of any of them, directly or indirectly, to initiate contact with
any person or entity in an effort to solicit any Takeover Proposal (as such term
is defined in this Section 6.7); cooperate with or furnish or cause to be
furnished any nonpublic information with respect to the financial condition,
results of operation, business, properties, assets, liabilities or future
prospects of the Company to any person or entity in connection with any Takeover
Proposal; negotiate with any person or entity with respect to any Takeover
Proposal; or enter into any agreement or understanding with respect to any
Takeover Proposal. The Company and Stockholder shall immediately give written
notice to Buyer of the details of any Takeover Proposal of which any of them
becomes aware. As used in this Section 6.7, "Takeover Proposal" shall mean any
proposal, other than as contemplated by this Agreement, for a merger,
consolidation, reorganization, other business combination or recapitalization
which involves the Company; for the acquisition of any of the capital stock of
the Company; for the acquisition of all or substantially all of the assets of
the Company other than in the ordinary course of its business; or the effect of
which may be to prohibit, restrict or delay the consummation of any of the
transactions contemplated by this Agreement or impair the contemplated benefits
to Buyer of any of the transactions contemplated by this Agreement.
7. Post-Closing Covenants of the Buyer.
7.1 Access to Books and Records. For a period of two (2) years
after the Closing Date, Buyer agrees that Stockholder and its representatives
shall have reasonable access to all books and records of the Company to the
extent that such access is lawful and may reasonably be required by the
Stockholder in connection with matters relating to or affected by the operations
Page 8 STOCK PURCHASE AGREEMENT
<PAGE> 9
of the Company prior to the Closing Date, including without limitation tax
matters and pending litigation. Such access shall be afforded by Buyer during
normal business hours.
7.2 Assumed Liabilities. Buyer agrees to assume, discharge and
hold Stockholder harmless from any liability for the Assumed Liabilities.
8. Conditions Precedent to Obligations of Buyer. All obligations
of Buyer at the Closing are subject, at Buyer's option, to the fulfillment prior
to or at the Closing by the Stockholder of each of the following:
8.1 Closing Addendum. The execution and delivery by
Stockholder of the Closing Addendum.
8.2 Agreement and Schedules. The execution and delivery by
Stockholder of all schedules and exhibits required by this Agreement to be
delivered on the date hereof and the Closing Date, including the updating of
such schedules and exhibits.
8.3 Corporate Actions of the Company. The receipt by Buyer of
the resignations of all of the directors and officers of the Company as and to
the extent requested by Buyer.
8.4 Authorization of the Company. The Board of Directors and
the stockholders of the Company shall, to the extent required by applicable law,
have approved this Agreement. Certified copies of the Company's Board of
Directors minutes authorizing the transactions contemplated by this Agreement
shall have been delivered to Buyer.
8.5 Good Standing Certificate. Receipt by Buyer of a
certificate from the Corporation Commission of the State of Arizona, dated as
close to the Closing Date as possible, stating that the Company is an existing
Arizona corporation.
8.6 No Pending Litigation. There shall not be pending or
threatened any claim, proceeding, investigation or inquiry, by any person,
governmental body or authority, seeking to prevent or change the terms of, or
obtain damages in connection with, this Agreement or the transaction
contemplated hereby or which questions the validity or legality of the
consummation of the transaction contemplated hereby. No action or proceeding
relating to any item that is not disclosed in SCHEDULE 4, as such schedule may
be updated on the Closing Date in the Closing Addendum, shall have been
instituted or threatened prior to the Closing Date that, if concluded adversely
to the Company, would be materially adverse to Buyer's ownership of the AAA
Stock and operation of the Assets and business of the Company.
8.7 Due Diligence. Buyer shall have completed a due diligence
review of the Assets and the business of the Company satisfactory to Buyer in
its sole discretion.
Page 9 STOCK PURCHASE AGREEMENT
<PAGE> 10
8.8 Transfer of Excluded Assets and Excluded Liabilities.
Buyer shall have received evidence satisfactory to Buyer in its sole discretion
that the Excluded Assets and Excluded Liabilities have been transferred to the
Other Stockholder or to the Other Stockholder's designee.
8.9 AAA Stock Certificates. Receipt by Buyer of the AAA Stock
certificates and executed transfer documents.
8.10 Other Stock Purchase Agreement. The Company and the Other
Stockholder shall have executed and delivered to Buyer the Stock Purchase
Agreement dated concurrently herewith (the "Other Stock Purchase Agreement").
8.11 Agreements With JK Alarms of Arizona, Inc. JK Alarms of
Arizona, Inc. and the Other Stockholder shall have executed and delivered to
Buyer the Ongoing Agreement, the License Agreement and the Maintenance and
Monitoring Agreement as defined in and the form of which is attached to the
Other Stock Purchase Agreement.
8.12 Registration Rights Agreement. The Other Stockholder
shall have executed and delivered to Buyer as of the date of this Agreement the
Registration Rights Agreement and Affidavit and Agreement of Prospective
Investor, as defined in and the form of which is attached to the Other Stock
Purchase Agreement.
8.13 Opinion Letter of Stockholder's Legal Counsel. Receipt by
Buyer of the opinion of Stockholder's legal counsel in a form acceptable to
Buyer.
8.14 Stockholder's Certificate. Receipt by Buyer of a
certificate, dated as of the Closing Date, signed by Stockholder, to the effect
that all of the representations and warranties of the Company and Stockholder
set forth in Section 4 are true and correct as of the Closing Date and that
Stockholder, in all material respects, has complied with and performed the
terms, covenants, agreements and conditions required to be performed by
Stockholder as of the Closing Date under this Agreement.
8.15 Miscellaneous. Receipt by Buyer of all consents and such
additional instruments and documents as may reasonably be required by this
Agreement or to consummate the transactions contemplated herein.
9. Conditions Precedent to Obligations of Stockholder. All
obligations of Stockholder at the Closing are subject, at the option of
Stockholder, to the fulfillment prior to or at the Closing by Buyer of each of
the following:
9.1 Closing Addendum. The execution and delivery by Buyer of
the Closing Addendum.
Page 10 STOCK PURCHASE AGREEMENT
<PAGE> 11
9.2 Closing Payment. Receipt by Stockholder of the Purchase
Price.
9.3 Closing Date QRR. The QRR as of the Closing Date shall
have equaled at least Ninety Thousand Dollars ($90,000).
9.4 Authorization of Buyer. The Board of Directors of Buyer
shall have approved, to the extent required under applicable law or Buyer's
Certificate of Incorporation and Bylaws, (i) the Agreement and the execution and
delivery hereof by the Buyer and (ii) the performance by Buyer of all of its
obligations pursuant to this Agreement. Certified copies of Buyer's Board of
Directors minutes authorizing the transactions contemplated by this Agreement
shall have been delivered to Stockholder.
9.5 Other Stock Purchase Agreement. Buyer shall have executed
and delivered to the Company and the Other Stockholder the Other Stock Purchase
Agreement.
9.6 Agreements with JK Alarms of Arizona, Inc. Buyer shall
have executed and delivered to the Other Stockholder and JK Alarms of Arizona,
Inc., the Ongoing Agreement, the License Agreement and the Maintenance and
Monitoring Agreement.
9.7 Registration Rights Agreement. Protection One, Inc. (the
"Parent") shall have executed and delivered to the Other Stockholder as of the
date of this Agreement the Registration Rights Agreement.
9.8 Registration Statement. Parent shall have filed the
Registration Statement with the Securities and Exchange Commission for the Pro
One Stock (as defined in the Registration Rights Agreement) pursuant to the
Registration Rights Agreement.
9.9 Buyer's Certificate. Receipt by Stockholder of a
certificate, dated as of the Closing Date, signed by Buyer to the effect that
all of the representations and warranties of Buyer set forth in Section 5 are
true and correct as of the Closing Date and that Buyer, in all material
respects, has complied with and performed the terms, covenants, agreements and
conditions required to be performed by Buyer as of the Closing Date under this
Agreement.
9.10 Miscellaneous. Receipt by Stockholder of all consents and
such additional instruments and documents as may reasonably be required by this
Agreement or to consummate the transactions contemplated herein.
10. Closing.
10.1 Closing Date. The Closing of the transaction contemplated
by this Agreement shall take place at the offices of Bryan Cave LLP, 2800 N.
Central Avenue, 21st Floor, Phoenix, Arizona 95004, at 10:00 a.m., local time,
on June 30, 1997. The Closing may occur at such
Page 11 STOCK PURCHASE AGREEMENT
<PAGE> 12
different place, such different time or at such different date or a combination
thereof as Buyer and Stockholder agree in writing.
10.2 Closing Addendum. Buyer and Stockholder shall execute an
addendum to this Agreement at the Closing (the "Closing Addendum") setting forth
the Purchase Price and updating the schedules and exhibits hereto. Except as
otherwise set forth in the Closing Addendum, all covenants, representations,
warranties and agreements made by the parties hereunder shall remain in full
force and effect.
11. Termination.
11.1 Cut-off Date. If Closing does not occur for any reason on
or before July 15, 1997, any party that has been diligent in its efforts to
consummate the transaction contemplated by this Agreement may cancel and
terminate this Agreement.
11.2 Termination for Cause. If, pursuant to the provisions of
Section 8 and 9 of this Agreement, Stockholder or Buyer is not obligated at the
Closing to consummate this Agreement, then the party who is not so obligated may
terminate this Agreement.
11.3 Termination Without Cause. Anything herein or elsewhere
to the contrary notwithstanding, this Agreement may be terminated and abandoned
at any time without further obligation or liability on the part of any party in
favor of any other by mutual consent of Buyer and Stockholder.
11.4 Termination Procedure. Any party having a right to
terminate this Agreement may terminate this Agreement by delivering to the other
parties written notice of the termination, and thereupon, this Agreement shall
be terminated without obligation or liability of any party in favor of any other
party.
12. Expenses. Buyer, the Company and Stockholder shall each pay
all of their own respective expenses incurred by or on behalf of each of them in
connection with this Agreement and the transactions contemplated hereunder,
including, but not limited to, all due diligence, legal and accounting expenses.
13. Nature of Statements and Survival of Representations,
Warranties And Agreements. All statements of fact and only those statements of
facts contained in any written statement, certificate, exhibit, schedule or
other document delivered by or on behalf of the parties pursuant hereto or in
connection with the consummation of the transactions contemplated hereby are
deemed representations and warranties made hereunder. All covenants,
representations, warranties and agreements made by the parties hereunder shall
survive the Closing Date, the delivery of the AAA Stock and the payment of the
Purchase Price therefor and the dissolution and liquidation of any party hereto
and remain effective regardless of any investigation at any time (whether before
or
Page 12 STOCK PURCHASE AGREEMENT
<PAGE> 13
after the date of this Agreement) made by or on behalf of any party or of any
information any party may obtain or have (whether before or after the date of
this Agreement) in respect thereof and regardless of any non-exercise by a party
of any rights hereunder.
14. Nonsolicitation and Confidentiality.
14.1 Nonsolicitation Covenants. Stockholder agrees that for
twenty (20) years following the date of this Agreement, Stockholder will not,
individually or as a director, officer, partner, limited partner, member,
employee, agent, representative, stockholder, creditor or consultant or in any
other capacity with any business, in any manner, directly or indirectly, in or
with regard to any Alarm Accounts in the State of Arizona, solicit, divert or
knowingly accept orders for sale or leasing, installation, maintenance or
monitoring of alarm systems or for providing armed response services from any
Subscribers whose Alarm Accounts are owned by the Company as of the Closing
Date. Notwithstanding the foregoing, Stockholder directly or by and through JK
Alarms of Arizona, Inc. may contact any Subscribers whose Alarm Accounts are
owned by the Company as of the Closing Date for a period of six (6) months
following the date of this Agreement to offer for sale and sell to such
Subscribers radio service; provided, however, that such services must be offered
at prices approved by Buyer and upon such other terms and conditions upon which
Stockholder and Buyer initially agree. Stockholder also agrees that, for five
(5) years following the date of this Agreement, Stockholder will not,
individually or as a director, officer, partner, limited partner, member,
employee, agent, representative, stockholder, creditor or consultant or in any
other capacity with any business, recruit, offer to employ, or otherwise solicit
the employment of any person who was at any time within three (3) months prior
to such action an employee of Buyer or to whom the Company has extended an offer
to continue their employment after the Closing Date; provided however, that a
general classified advertisement which is not directed to Buyer's or the
Company's employees shall not violate the restrictions set forth herein so long
as no offer of employment is made to any employee of Buyer or the Company or to
a person who was an employee of Buyer or the Company within the previous three
(3) months.
14.2 Nondisclosure of Confidential Information. Stockholder
agrees to maintain as secret and confidential all "Confidential Information," as
defined herein, and agrees not to use, disclose, transfer, sell or make such
information available to any successors or third parties, except as authorized
in advance and in writing by Buyer or in the following circumstances: (a) as
required in order to comply with any subpoena, court order or applicable law,
provided that the disclosing party shall use its best efforts to give Buyer
prior written notice of such disclosure or (b) if such information becomes
publicly available not due to the fault of Stockholder. The term "Confidential
Information" means any trade secrets, proprietary or other information which is
either reasonably designated in writing to Stockholder as confidential by Buyer
or reasonably known by Stockholder to be confidential relating to the Alarm
Accounts or Assets, including without limitation, any of the following
information, which is hereby designated as confidential: any customer or
Subscriber lists; any lists, notes, or compilations which contain the names,
addresses, telephone numbers or any contract information for or relating to the
Subscribers; monitoring
Page 13 STOCK PURCHASE AGREEMENT
<PAGE> 14
information and Subscriber codes and passwords; and copies of contracts,
agreements, and related documents between the Company and the Subscribers under
the Alarm Accounts.
14.3 Enforcement. Stockholder acknowledges and agrees that the
time, scope, geographic area and other provisions of Sections 16.1 and 16.2 have
been specifically negotiated by sophisticated parties and specifically hereby
agree that such time, scope, geographic area and other provisions are reasonable
under the circumstances. Stockholder further agrees that if, at any time,
despite the express agreement of the parties hereto, a court of competent
jurisdiction holds that any portion of Sections 16.1 and 16.2 are unenforceable
for any reason, the maximum restrictions of time, scope or geographic area
reasonable under the circumstances, as determined by such court, will be
substituted for any such restrictions held unenforceable. Stockholder agrees
that Buyer will suffer irreparable harm if any of the Stockholder fails to
comply with the provisions of Section 19 this Agreement and that Buyer will be
entitled to injunctive relief to enforce the terms of this Agreement in addition
to any other remedies available to Buyer.
Page 14 STOCK PURCHASE AGREEMENT
<PAGE> 15
15. Miscellaneous.
15.1 Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made to another party if served either
personally or if deposited in the United States mail, certified or registered,
postage prepaid, return receipt requested. If such notice, demand or other
communication is served personally, or by facsimile (with verbal verification of
complete receipt), service shall be conclusively deemed made at the time of such
personal service or facsimile transmission. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
seventy-two (72) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
If to Company or Stockholder: Jeannette Bouvier
Trustee
5007 McGill Way
San Diego, California 92130
Telecopier: (619) 259-6714
With a copy to: Thomas F. Harper
Bryan Cave LLP
2800 N. Central Avenue, 21st Floor
Phoenix, Arizona 95004
Telecopier: (602) 226-5938
If to Buyer: Protection One Alarm Monitoring, Inc.
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005
Attention: John W. Hesse
Telecopier: (503) 520-6099
and
Protection One Alarm Monitoring, Inc.
6011 Bristol Parkway
Culver City, California 90230
Attention: John E. Mack III
Telecopier: (310) 649-3855
Page 15 STOCK PURCHASE AGREEMENT
<PAGE> 16
With a copy to: David R. Ludwig
Farleigh, Wada & Witt, P.C.
121 S.W. Morrison Street, Suite 600
Portland, Oregon 97204
Telecopier: (503) 228-1741
Any party hereto may change its address for the purpose of receiving notices,
demands and other communications as herein provided by a written notice given in
the manner provided hereby to the other party or parties hereto.
15.2 Modifications or Amendments. No amendment, change or
modification of this document shall be valid unless in writing and signed by all
parties hereto.
15.3 Waiver. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof. All waivers must be in writing and signed by the party waiving
compliance.
15.4 Knowledge of Parties. Where any representation or
warranty contained in this Agreement is expressly qualified by a reference to
knowledge, information and/or belief of the party making such representation and
warranty, such party shall have made reasonable inquiry as to the matters that
are the subject of such representations and warranties.
15.5 Binding Effect. All of the terms and provisions contained
herein shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, personal representatives, successors and, to
the extent permitted by Section 17.6, assigns.
15.6 Assignment. The Company and Stockholder may not assign
any rights or delegate any duties under the Agreement with the prior written
consent of Buyer.
15.7 Separate Counterparts. This document may be executed in
one or more separate counterparts, each of which, when so executed, shall be
deemed to be an original. Such counterparts shall, together, constitute and
shall be one and the same instrument.
15.8 Further Assurances. Each of the parties hereto shall
execute and deliver any and all additional papers, documents, and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties hereto.
15.9 Applicable Law; Severability; Attorney's Fees. This
Agreement shall, in all respects, be governed by the laws of the State of
California applicable to agreements executed and to be wholly performed within
the State of California. Nothing contained herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
Page 16 STOCK PURCHASE AGREEMENT
<PAGE> 17
conflict between any provision contained herein and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail but the provision of this
document which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law. In the event any
action or arbitration is instituted by a party hereto to enforce or construe any
term or to recover damages resulting from the breach of any term of this
Agreement, the prevailing party in such action or arbitration shall be entitled
to such reasonable attorney's fees and costs and expenses (including the costs
of the arbitrator) as may be fixed by the court or arbitrator. The jurisdiction
for any arbitration or judicial proceedings brought by either party against the
other party with respect to this Agreement shall be Los Angeles County,
California.
15.10 Arbitration. Either party may elect to require that any
controversy arising out of or relating to this Agreement be determined by
arbitration in accordance with the then effective commercial arbitration rules
of American Arbitration Association. All statutes of limitation which would
otherwise be applicable shall apply to the arbitration proceeding. Any judgment
upon the award rendered pursuant to arbitration may be entered in any court
having jurisdiction. In lieu of using the American Arbitration Association, the
parties may agree to select a single arbitrator who is experienced in the alarm
industry. If any legal action or other proceeding has been brought by either
party to construe, interpret or enforce this Agreement; (i) the party who is the
defendant or respondent in such proceeding shall be deemed to have waived the
option to arbitrate if a general appearance is made in such proceeding prior to
filing a claim in arbitration and (ii) the party who is the plaintiff or
petitioner in such proceeding shall be deemed to have waived the option to
arbitrate if a claim for arbitration is not filed within sixty (60) days after a
general appearance has been made by the adverse party in such proceeding. If
either party exercises the option to arbitrate, arbitration shall be mandatory
and any pending judicial proceeding shall be stayed except to the extent
permitted in this section.
15.11 Provisional Remedies. The following remedies may be
exercised by either party regardless of whether an arbitration proceeding is
then pending and without waiving any right to require arbitration: (i)
injunctive or other equitable relief to the extent such relief does not conflict
with any arbitration award; and/or (ii) set off or recoupment.
15.12 Captions. Any captions to the sections of this Agreement
are solely for the convenience of the parties and are not a part of this
Agreement and shall not be used for the determination of the validity of this
Agreement or any provision therefor.
15.13 Entire Agreement. This document, together with any
exhibits, schedules or documents attached hereto, or delivered and initialed by
the parties in connection herewith, constitutes the entire understanding and
agreement of the parties with respect to the subject matter of this Agreement.
Page 17 STOCK PURCHASE AGREEMENT
<PAGE> 18
15.14 No Third Party Beneficiaries. Nothing contained in this
Agreement shall be construed to give any person other than Buyer, the Company
and Stockholder any legal or equitable right, remedy or claim under or with
respect to this Agreement.
15.15 Confidentiality. Each party shall hold in confidence the
fact of the existence of and all economic and other terms of this Agreement and
the transactions contemplated herein (collectively, "Confidential Terms"). The
parties agree that disclosure of any Confidential Terms shall be limited solely
to management of and advisors to Buyer and Stockholder on a "need to know"
basis, and such management and advisors shall be advised of and agree to be
bound by the provisions of this Section 17.15. In furtherance and not in
limitation of the foregoing, no statements shall be issued regarding this
Agreement or the economic or other terms of the transactions contemplated herein
without the prior written consent of Buyer and Stockholder. Notwithstanding
anything to the contrary set forth in this Agreement or any other documents
executed by the parties, Buyer is authorized to disclose the existence of and
all economic and other terms of this Agreement in connection with any state or
federal securities filings, offering circulars, registration statements, or loan
agreements of Buyer or its parent company, Protection One, Inc.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
COMPANY: ABLE ALARMS OF ARIZONA, INCORPORATED
By:
----------------------------------------
Title:
-------------------------------------
STOCKHOLDER: KERR CHARITABLE TRUST
By:
----------------------------------------
Jeannette Bouvier, Trustee
BUYER: PROTECTION ONE ALARM MONITORING, INC.
By:
----------------------------------------
Its:
----------------------------------------
Page 18 STOCK PURCHASE AGREEMENT
<PAGE> 19
SCHEDULE 1.3(A)
ASSUMED LIABILITIES
(a) Assumed Liabilities Not Deducted from the Purchase Price - The
obligations of the Company to Subscribers described in Section 1.3.
(b) Assumed Liabilities Deducted from the Purchase Price - None.
Page 19 STOCK PURCHASE AGREEMENT
<PAGE> 20
SCHEDULE 4
STOCKHOLDER'S DISCLOSURE SCHEDULE
None.
Page 20 STOCK PURCHASE AGREEMENT
<PAGE> 21
SCHEDULE 5
BUYER'S DISCLOSURE SCHEDULE
None.
Page 21 STOCK PURCHASE AGREEMENT
<PAGE> 22
ADDENDUM TO STOCK PURCHASE AGREEMENT
DATED: June 30, 1997
BETWEEN: Protection One Alarm Monitoring, Inc.,
a Delaware corporation
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005 ("Buyer")
AND: Able Alarms of Arizona, Incorporated,
an Arizona corporation
4114 E. Indian School Road
Phoenix, Arizona 85018 ("Company")
AND: Jeannette Bouvier, the Trustee of the
Kerr Charitable Trust dated May 28, 1997
3433 N. 47th Place
Phoenix, Arizona 85018 ("Stockholder")
On June 20, 1997, the parties executed and delivered a Stock
Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Defined Terms. Unless given a different meaning herein, all
capitalized terms used in this Addendum to Asset Purchase Agreement ("Closing
Addendum") shall have the meanings ascribed to them in the Agreement.
2. Continuing Effectiveness. Except as expressly modified herein,
all of the terms, conditions, covenants and exhibits set forth in the Agreement
remain in full force and effect among the parties.
3. Closing Value. The Closing Value for the shares of Pro One
Stock of Parent issued to Company at Closing is Thirteen and 25/1000 Dollars
($13.025) per share.
4. Closing Date Exhibits. The following Exhibits are attached
hereto and incorporated in this Closing Addendum and the Agreement by this
reference:
a. Schedule 1.1 - Alarm Accounts.
Page 1 ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 23
b. Schedule 1.3(a) - Assumed Liabilities.
c. Schedule 1.3(b) - Excluded Liabilities.
d. Schedule 1.7 - Other Property.
e. Schedule 1.11 - Telephone Lines.
f. Schedule 4 - Stockholder's Disclosure Schedule.
5. Purchase Price. The Purchase Price for the AAA Stock is Two
Million Three Hundred Fifty-Five Thousand Three Hundred Fifty-Seven Dollars
($2,355,357).
6. Payment of Purchase Price. Buyer shall pay to Stockholder the
Purchase Price at the Closing in cash by wire transfer to the account or
accounts designated by Stockholder.
7. Certification of Stockholder. Stockholder certifies that all
representations and warranties of the Company and Stockholder set forth in
Section 4 of the Agreement are true and correct as of the Closing Date and that
the Company and Stockholder has, in all material respects, complied with and
performed the terms, covenants, agreements and conditions required to be
performed by the Company and Stockholder as of the Closing Date under the
Agreement.
8. Certification of Buyer. Buyer certifies that all
representations and warranties of Buyer set forth in Section 5 of the Agreement
are true and correct as of the Closing Date and that Buyer has, in all material
respects, complied with and performed the terms, covenants, agreements and
conditions required to be performed by Buyer as of the Closing Date under the
Agreement.
IN WITNESS WHEREOF, the parties have executed this Closing
Addendum as of the date first written above.
BUYER: PROTECTION ONE ALARM MONITORING, INC.,
a Delaware corporation
By:
--------------------------------------------
John E. Mack III, Executive Vice President
Page 2 -ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 24
STOCKHOLDER: KERR CHARITABLE TRUST
By:
----------------------------------
Jeannette Bouvier, Trustee
COMPANY: ABLE ALARMS OF ARIZONA, INCORPORATED,
an Arizona corporation
By:
----------------------------------
Title:
---------------------------------
Page 3 ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 25
SCHEDULE 1.1
ALARM ACCOUNTS
See attached.
Page 4 ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 26
SCHEDULE 1.3(A)
ASSUMED LIABILITIES
(a) Assumed Liabilities Not Deducted from the Purchase Price -
The obligations of the Company to Subscribers described in Section 1.3 of the
Agreement.
(b) Assumed Liabilities Deducted from the Purchase Price - None.
Page 5 ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 27
SCHEDULE 1.3(B)
EXCLUDED LIABILITIES
1. All real property leases of the Company, including the lease
dated December 1, 1993 for certain real property contiguous to 4114 E. Indian
School Road, Phoenix, Arizona.
2. All personal property leases of the Company, including all
leases with Datronic Rental Corporation (assigned to HLC Financial, Inc.),
INTER-TEL (TOTALEASE) Leasing (assigned to Heller Financial, Inc.), Creative
Communications (assigned to Associates Capital Services Corp.), and Data General
Corporation (assigned to New England Capital Corporation).
3. All loans, notes or other indebtedness of the Company,
including any loans, notes or other indebtedness with Bank One or Bank of
America.
4. All agreements to which the Company is a party, except the
Contracts and related agreements for alarm systems and services between the
Company and Subscribers described in Section 1.1 of the Agreements and the
Assumed Liabilities described in Section 1.3 of the Agreement.
5. All amounts owed to any former employees of the Company or any
other employees of the Company as of the Closing Date, including without
limitation for wages, salary, bonus payments, severance, vacation time, sick
leave, health or pension benefits, medical, life, or disability insurance and
COBRA coverage.
6. The Company's profit-sharing plan.
7. Collection activities of Stockholder or Stockholder's agent in
connection with the Excluded Liabilities.
8. All federal, state and local taxes due for any period though
the Closing Date.
9. Unearned Income.
10. All current liabilities of the Company, including accounts
payable, insurance premiums, sales tax payable, payroll taxes, customer deposits
and unapplied cash.
11. Any other liabilities of the Company not comprising the
Assumed Liabilities described in Section 1.3 of the Agreement.
Page 6 ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 28
SCHEDULE 1.7
OTHER PROPERTY
The names: Able Alarms, Able Alarms of Arizona and Able Alarms of
Arizona, Incorporated.
Page 7 ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 29
SCHEDULE 1.11
TELEPHONE LINES
See attached.
Page 8 ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 30
SCHEDULE 4
STOCKHOLDER'S DISCLOSURE SCHEDULE
None.
Page 9 ADDENDUM TO STOCK PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
DATED: June 20, 1997
BETWEEN: Protection One, Inc.,
a Delaware corporation
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005 ("POI")
AND: Jeffery E. Kerr
4114 E. Indian School Road
Phoenix, Arizona 85018 (the "Shareholder")
RECITALS:
A. Pursuant to that certain Stock Purchase Agreement dated June
20, 1997, between Protection One Alarm Monitoring, Inc. ("Monitoring") and
Shareholder and any amendments thereto (collectively, the "Purchase Agreement"),
POI (i) will issue and sell on the Closing Date (defined in the Purchase
Agreement) to Shareholder, such number of shares of the Common Stock, par value
$.01 per share of POI ("Common Stock"), the Closing Value (defined in the
Purchase Agreement) of which equals Thirteen and 25/1000 Dollars ($13.025) (the
"Registrable Shares"); and (ii) has agreed to file with the Securities and
Exchange Commission, as soon as possible, a registration statement on Form S-3
(as from time to time amended, the "Registration Statement") registering the
offer and sale by Shareholder from time to time of the Registrable Shares
included therein when so registered (the "Registered Shares"); and
B. Section 3.2 of the Purchase Agreement contemplates that
Shareholder will enter into this Registration Rights Agreement (the "Agreement")
to further define his rights and responsibilities with respect to the
Registrable Shares.
NOW, THEREFORE, in consideration of the foregoing and of the
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
1. Certain Definitions. As used in this Agreement, the following
terms have the following respective meanings:
1.1 Business Day: any day that is not a Saturday, Sunday or
bank holiday in California.
Page 1 REGISTRATION RIGHTS AGREEMENT
<PAGE> 2
1.2 Commission: the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
1.3 Exchange Act: the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, as they each may from time to time be in effect.
Reference to a particular section of the Exchange Act shall include a reference
to the comparable section, if any, of any such similar federal statute.
1.4 Registered Shares: the meaning specified in Recital A.
1.5 Registrable Shares: the meaning specified in Recital A.
1.6 Registration Statement: the meaning specified in
Recital A.
1.7 Securities Act: the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, as they may each from time to time be in effect. References to a
particular section of the Securities Act shall include a reference to the
comparable section, if any, of such similar federal statute.
2. Obligations of POI. POI shall:
2.1 Registration. File the Registration Statement with the
Commission within five (5) business days of the date of this Agreement, and
thereafter use all reasonable efforts to cause the Registration Statement to be
declared effective as soon as possible.
2.2 Amendments and Supplements. Use all reasonable efforts to
prepare and file with the Commission all such amendments and supplements to such
Registration Statement and the prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of Registered
Shares for a period of two (2) years or, if earlier, until such time as all of
such Registered Shares either (i) have been disposed of by the seller or sellers
thereof in accordance with the intended methods of disposition thereof or (ii)
are eligible for distribution to the public pursuant to Rule 144 (or any
successor rule) under the Securities Act; provided, however, that such two (2)
year period shall be extended for a period of time equal to the period
Shareholder refrains from selling Registered Shares at the request of POI or of
an underwriter of Common Stock (or other securities of POI) pursuant to the
provisions hereof.
2.3 Copies of Prospectus. Furnish to Shareholder such numbers
of copies of the prospectus contained in such Registration Statement (including
each preliminary prospectus and any summary prospectus) as Shareholder may
reasonably request in order to effect the sale of the Registered Shares to be
offered and sold by Shareholder, but only while POI is required to cause the
Registration Statement to remain effective and usable.
Page 2 REGISTRATION RIGHTS AGREEMENT
<PAGE> 3
2.4 Blue Sky Laws. Use all reasonable efforts to register or
qualify the offering of Registrable Shares covered by the Registration Statement
under the securities laws of such states as the Shareholder shall reasonably
request; provided, however, that POI shall not be required in connection with
this Section 2.4 to qualify generally to do business as a foreign corporation
under the laws of any jurisdiction in which POI is not then otherwise required
to be qualified, or to file any general consent to service of process or to take
any other action that would subject POI to general service of process in any
jurisdiction in which POI is not then so subject.
2.5 Amendment to Prospectus. Notify Shareholder at any time
when a prospectus relating to such registration is required under the Securities
Act to be delivered of the happening of an event that requires the making of a
change in such prospectus as then in effect, or the related Registration
Statement, in order that such document(s) will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
Shareholder thereupon shall immediately cease making offers and sales of
Registrable Shares pursuant to the Registration Statement or deliveries of the
prospectus contained therein for any purpose, and if requested by POI, shall
return to POI all copies of such prospectus not theretofore delivered by
Shareholder to third parties. After securing such approvals as may be necessary,
POI shall promptly prepare, file with Commission and furnish to Shareholder
revised prospectuses or such supplements to or amendments of the prospectus as
POI may deem necessary, and following their receipt of the same, Shareholder
shall be free to resume making offers of the Registered Shares.
2.6 Stop Orders. Notify Shareholder of any stop order or any
similar proceeding initiated by any federal or state regulatory authority with
respect to the Registration Statement.
2.7 Listing. Cause all Registered Shares hereto to be listed
on each securities exchange, if any, on which the Common Stock is then listed or
with the National Association of Securities Dealers, Inc.
3. Conditions to Obligations of POI. The obligations of POI under
Section 2 hereof are subject to the satisfaction of each of the following
conditions:
3.1 Information. Shareholder shall furnish to POI such
information regarding Shareholder, his Registrable Shares (and Shareholder's
other holdings of POI securities, if any) and Shareholder's proposed methods of
distribution of his Registered Shares, and shall execute and deliver to POI such
documents, as POI may reasonably request in order to permit POI to comply with
all applicable requirements of the Securities Act or any applicable state
securities law or to obtain acceleration of the effective date of the
Registration Statement. Without limiting the generality of the foregoing,
Shareholder hereby represents and warrants that all information provided by
Shareholder for inclusion in the prospectus with respect to Shareholder,
Shareholder's
Page 3 REGISTRATION RIGHTS AGREEMENT
<PAGE> 4
Registerable Shares and other holdings of POI's securities (if any) and
Shareholder's proposed methods of distributing the Registrable Shares is and
shall be complete and accurate.
3.2 Compliance with Agreement. Shareholder shall have complied
with all terms and conditions of this Agreement to be complied with by
Shareholder.
3.3 Closing under Purchase Agreement. The Closing (as such
term is defined under the Purchase Agreement) of the purchase and sale of the
AAA Stock (as such term is also defined under the Purchase Agreement) under the
Purchase Agreement shall have occurred at the time and in the manner set forth
in the Purchase Agreement.
3.4 Exchange of Registrable Shares. Shareholder shall not have
elected pursuant to the Purchase Agreement to exchange the stock certificates
for the Registrable Shares which Monitoring delivered to Shareholder at the
Closing in exchange for cash.
4. Allocation of Expenses. All discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals and all fees and expenses of separate counsel and accountants for
Shareholder, if any, with respect to Shareholder's sale, transfer, pledge or
other disposition of the Registered Shares shall be borne by Shareholder. Except
as otherwise required by any federal or state regulatory authority, POI shall
bear all other expenses incurred by POI in performing its obligations hereunder,
including, without limitation, registration and filing fees, fees and expenses
of complying with applicable state securities laws, fees and expenses incurred
in connection with the listing of Registered Shares on any securities exchange
or with the National Association of Securities Dealers, printing expenses, fees
and disbursements of counsel for, and independent certified public accountants
of, POI, and fees and expenses of any other party or parties retained by POI in
connection with the applicable registration.
5. Restrictive Legends; Restrictions on Resale.
5.1 Legend. Each certificate representing Registrable Shares
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. THE SALE,
TRANSFER, PLEDGE OR ANY OTHER DISPOSITION OF THE SHARES REPRESENTED BY
THESE CERTIFICATES IS SUBJECT TO THE TERMS OF A REGISTRATION RIGHTS
AGREEMENT DATED AS OF JUNE 20, 1997, BETWEEN THE ISSUER AND THE HOLDER
THEREOF.
Page 4 EGISTRATION RIGHTS AGREEMENT
<PAGE> 5
5.2 Restrictions on Resale. Shareholder shall not offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, make any short sale or otherwise transfer or dispose of, directly or
indirectly, the Registrable Shares until the effective date of the Registration
Statement. Shareholder may sell, transfer, pledge or otherwise dispose of the
Registered Shares at any time after the effective date of the Registration
Statement. After the effective date of the Registration Statement, shall provide
Shareholder with a new certificate for the Registered Shares without the first
sentence of the legend set forth in Section 5.1 within five (5) business days
after Shareholder has surrendered Shareholder's original certificate with the
legend set forth in Section 5.1.
6. Termination of Agreement. If the Closing of the purchase and
sale of the AAA Stock (as such term is also defined under the Purchase
Agreement) under the Purchase Agreement does not occur for any reason or if
Shareholder elects after the Closing to exchange Shareholder's stock
certificates for the Registrable Shares for cash pursuant to the Purchase
Agreement, then POI may terminate this Agreement by delivering to Shareholder
written notice of termination and this Agreement shall be of no further force
and effect as of the date of such notice, including the obligations of POI set
forth in Section 2 hereof.
7. Miscellaneous.
7.1 Notices. All notices, requests, consents, demands and
other communications provided for by this Agreement shall be in writing and
shall be deemed to have been duly given or made (i) when delivered by hand or by
a courier service, (ii) when sent by telecopier of sent on a Business Day or if
so sent on a day that is not a Business Day, on the first Business Day
thereafter, or (iii) three (3) Business Days after being sent by registered or
certified first-class mail, in each case addressed as follows:
7.1.1 If to Shareholder, at Shareholder's address set
forth on the first page of this Agreement or such other address as specified in
writing to POI.
7.1.2 If to POI, initially at the address set forth in
the Purchase Agreement, and thereafter at such other address notice of which is
given in accordance with the provisions of this Section 7.1.
7.2 Entire Agreement. This Agreement embodies the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof and supersedes all prior discussions, negotiations, understandings
and agreements relating to such subject matter hereof.
7.3 Third Party Beneficiaries. This Agreement is intended to,
and shall, inure to the benefit only of the parties hereto and their respective
successors and permitted assigns.
Page 5 EGISTRATION RIGHTS AGREEMENT
<PAGE> 6
7.4 Assignment. Neither this Agreement nor the rights or
obligations hereunder of any party hereto may be assigned, delegated or
otherwise transferred by any such party.
7.5 Amendments. This Agreement may be amended, supplemented or
(except as hereinafter expressly provided to the contrary) terminated, and the
time for the performance of any of the covenants to be performed by POI
hereunder for the benefit of the Shareholder may be extended, or such
performance may be waived, only by a writing executed by POI and Shareholder.
7.6 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 Headings. The headings of this Agreement have been added
for convenience only and shall not be used in any way to construe or otherwise
affect this Agreement.
7.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to agreements made and wholly performed in such state.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands
as of the day and year first above writing.
POI:
PROTECTION ONE, INC.
By:
----------------------------
Its:
----------------------------
SHAREHOLDER:
-------------------------------
Jeffery E. Kerr
Page 6 REGISTRATION RIGHTS AGREEMENT
<PAGE> 7
ADDENDUM TO REGISTRATION RIGHTS AGREEMENT
DATED: June 30, 1997
BETWEEN: Protection One, Inc.,
a Delaware corporation
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005 ("POI")
AND: Jeffrey E. Kerr
4114 E. Indian School Road
Phoenix, Arizona 85018 (the "Shareholder")
On June 20, 1997, the parties executed and delivered a Registration
Rights Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Defined Terms. Unless given a different meaning herein, all
capitalized terms used in this Addendum to Registration Rights Agreement
("Addendum") shall have the meanings ascribed to them in the Agreement.
2. Continuing Effectiveness. Except as expressly modified herein,
all of the terms, conditions, covenants and exhibits set forth in the Agreement
remain in full force and effect among the parties.
3. Conditions to Obligations of POI. Section 3.4 of the Agreement
is hereby amended in its entirety to provide as follows:
"3.4 Exchange of Registrable Shares. Shareholder shall not have
elected pursuant to the Purchase Agreement either (i) to exchange the
stock certificates for the Registrable Shares which Monitoring delivered
to Shareholder at the Closing in exchange for cash or (ii) to retain the
Registrable Shares as "restricted stock" in lieu of their registration
pursuant to the Agreement.
4. Termination of Agreement. Section 6 of the Agreement is hereby
amended in its entirety to provide as follows:
"If the Closing of the purchase and sale of the AAA Stock (as
such term is also defined under the Purchase Agreement) under the
Purchase Agreement does not occur for any reason or if Shareholder
elects after the Closing either (i) to exchange
<PAGE> 8
Shareholder's stock certificate for the Registrable Shares for cash
pursuant to the Purchase Agreement or (ii) to retain the Registrable
Shares as "restricted stock," in lieu of their registration pursuant to
the Agreement, then POI may terminate this Agreement by delivering to
Shareholder written notice of termination and this Agreement shall be of
no further force and effect as of the date of such notice, including the
obligations of POI set forth in Section 2 hereof."
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above writing.
POI:
PROTECTION ONE, INC.
By: /s/ JOHN B. MACK, III
------------------------
Its: Executive Vice President
------------------------
SHAREHOLDER:
/s/ JEFFREY E. KERR
-----------------------------
Jeffrey E. Kerr
2
