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As filed with the Securities and Exchange Commission on January 2, 1997.
Registration No. 333-18159
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PROTECTION ONE, INC.
(Exact name of registrant as specified in its charter)
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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EXPLANATORY NOTE
This Registration Statement on Form S-3 (the "Registration
Statement"), including the Prospectus forming a part hereof (the "Prospectus"),
relates to the offer and sale from time to time of shares of the Common Stock,
par value $.01 per share (the "Common Stock"), of Protection One, Inc. ("POI")
to be issued to Phillips Electronics, Inc. ("Phillips") in connection with the
acquisition (the "Acquisition") of certain assets of Phillips by Protection One
Alarm Monitoring, Inc., a wholly owned subsidiary of POI. Although it is a
condition precedent to the consummation of the Acquisition that the Registration
Statement be declared effective by the Securities and Exchange Commission, no
shares of Common Stock will be offered or sold by Phillips until after the
Acquisition has been consummated. Accordingly, the Prospectus has been prepared
as if the Acquisition has been consummated. No shares of Common Stock will be
issued by POI or offered or sold by Phillips if the Acquisition is not
consummated.
NOTE:
The Registrant hereby deregisters 46,438 shares of Common
Stock of the Registrant previously registered under this Registration Statement.
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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 January 2, 1997
203,562 Shares
PROTECTION ONE, INC.
Common Stock
The 203,562 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 Phillips Electronics, Inc., an Oregon corporation (the
"Selling Stockholder" or "Phillips"). See "Selling Stockholder." The Selling
Stockholder is acquiring the Shares in connection with the acquisition by
Protection One Alarm Monitoring, Inc., a wholly owned subsidiary of POI
("Monitoring"), of the security alarm accounts and certain other assets of
Phillips (the "Acquisition") pursuant to an Asset Purchase Agreement dated as of
December 17, 1996 (the "Purchase Agreement") among Monitoring, Phillips and,
inter alia, the stockholder of Phillips.
POI is registering the Shares as required by the Purchase Agreement.
POI will not receive any of the proceeds from the sale of Shares by the Selling
Stockholder, but will pay all expenses incident to this offering other than any
underwriting discounts or selling commissions, transfer taxes and fees and
expenses payable to third parties employed by the Selling Stockholder. See "Plan
of Distribution."
The distribution of the Shares by the Selling Stockholder is not
subject to any underwriting agreement. The Selling Stockholder may from time to
time offer and sell the Shares through the Nasdaq National Market System in
ordinary brokerage transactions, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices, either through broker-dealers
acting as agents or brokers for the seller or through broker dealers acting as
agents or principals. Such broker-dealers may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling
Stockholder and/or the purchasers of the Shares for whom such broker-dealers act
as agent, which compensation may be in excess of customary commissions. The
price at which any Shares may be sold, and the underwriting discounts and
agent's commissions, if any, paid in connection with any such sale, are unknown
and may vary from transaction to transaction. To the extent required, the
purchase price, the name of any such underwriter, dealer or agent and applicable
underwriter's discount, dealer's purchase price or agent's commission with
respect to a particular offering, if any, will be set forth in an accompanying
supplement to this Prospectus. The aggregate net proceeds to the Selling
Stockholder from the sale of any Shares will be the price thereof less the
aggregate underwriter's discount or agent's commissions, if any. See "Plan of
Distribution."
The Selling Stockholder and any agent, broker, dealer or underwriter
that participates with the Selling Stockholder in the distribution of the Shares
may be deemed to be an "underwriter" within the meaning of the Securities Act,
and any and all commissions received by them and any profit on the resale of the
Shares purchased by them may be deemed underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution."
(Cover page continues on next page)
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(Continuation of cover page)
The Common Stock is traded on the Nasdaq National Market under the
symbol "ALRM." On December 31, 1996, the last reported sale price for the Common
Stock was $9.875 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______________, 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 SUBSIDIARIES SINCE THE
DATE OF THIS PROSPECTUS OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES THIS PROSPECTUS CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON OR UNDER ANY CIRCUMSTANCE IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by POI with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are incorporated in this Prospectus by
reference:
A. POI's Annual Report on Form 10-K for the year ended
September 30, 1996; and
B. 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.
TABLE OF CONTENTS
Page
Incorporation of Certain Information by Reference..............2
Available Information..........................................3
Forward-Looking Statements.....................................4
The Company....................................................4
Risk Factors...................................................5
The Acquisition...............................................12
Use of Proceeds...............................................12
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Description of Capital Stock..........................................12
Selling Stockholder...................................................13
Plan of Distribution..................................................13
Legal Matters.........................................................15
Experts...............................................................15
AVAILABLE INFORMATION
POI is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected without charge and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and the Commission's public reference facilities in New York, New York,
and Chicago, Illinois at prescribed rates. The Commission also maintains a Web
Site at http://www.sec.gov. that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
The Common Stock is traded on the Nasdaq National Market (Symbol: ALRM).
Reports, proxy statements and other information concerning POI also may be
inspected at the office of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
POI has filed with the Commission a Registration Statement on Form S-3
under the Securities Act with respect to the shares of Common Stock offered
hereby (including all amendments an supplements thereto, the "Registration
Statement"). This Prospectus, which forms a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits filed therewith, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to POI and the Common Stock offered hereby, referenced
is made to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any
agreements, instrument or other document referred to are not necessarily
complete, and with respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of such document. Each such statement is
qualified in its entirety by such reference.
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FORWARD-LOOKING STATEMENTS
This Prospectus and the materials incorporated by reference
herein contains certain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such statements include, but are not limited to, statements of the
Company's or management's intentions, expectations, beliefs or hopes, strategies
regarding the future and statements regarding liquidity, anticipated cash needs
and availability and anticipated expense levels. Forward looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, could differ materially from those set
forth in or contemplated by the forward-looking statements herein as a result of
the factors set forth below under the caption "Risk Factors" and elsewhere in
this Prospectus and the materials incorporated by reference herein. Each
forward-looking statement set forth or incorporated by reference in this
Prospectus are based on information available to the Company at the time such
statement was made, and the Company the Company assumes no obligation to update
any such forward-looking statement.
THE COMPANY
Protection One, Inc. and its subsidiaries (collectively the "Company")
provide security alarm monitoring services for residential and small business
subscribers. The Company monitors digital signals arising from burglaries, fires
and other events through security systems installed at subscribers' premises.
Most of these signals are received and processed at the Company's central
monitoring station located in Portland, Oregon. The Company also sells enhanced
security services, patrol and alarm response services and alarm systems and
provides local field repair services through 11 branch offices. Enhanced
security services provided by the Company include two-way voice communication,
supervised monitoring services, pager services, wireless backup services and
extended service protection. Based on the Company's 196,531 subscribers as of
September 30, 1996 (approximately 80% of which are residential), the Company
believes it is the fourth largest residential security alarm monitoring company
in the United States and the largest in the seven western states of Arizona,
California, Nevada, New Mexico, Oregon, Utah and Washington.
The Company's strategy is to enhance its position as the largest
residential security alarm monitoring company in the western United States by
pursuing a balanced growth plan incorporating the purchase of subscriber
accounts from independent security alarm systems dealers with whom the Company
has exclusive purchase agreements (the "Dealer Program"), acquisitions of
portfolios of subscriber accounts, the sale of enhanced security services and
new alarm systems and possible joint ventures and other strategic alliances.
The Company's executive offices are located at 6011 Bristol Parkway,
Culver City, California 90230 and its telephone number is 310-338-6930.
Protection One(R) is a trademark of Protection One, Inc.
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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
September 30, 1996, the Company's consolidated indebtedness was $225.7 million
(excluding $0.8 million of contingent reimbursement obligations under
outstanding letters of credit), and Monitoring had unused borrowing capacity
under its revolving credit facility (the "Revolving Credit Facility") of $94.7
million. (POI is a holding company with no operations of its own and no
significant assets other than POI's ownership of the capital stock of
Monitoring.) Future additions of subscriber accounts through the purchases from
Company's independent dealers (the "Dealer Program") and future acquisitions of
subscriber account portfolios will require additional borrowings under
Monitoring's revolving credit facility (the "Revolving Credit Facility"),
thereby further increasing the Company's leverage. See "-- Risks Related to
Acquisitions." All borrowings then outstanding under the Revolving Credit
Facility are currently due in full on January 3, 2000. Although Monitoring
believes that it will be able to obtain further extensions of the maturity date
of the Revolving Credit Facility from time to time, or will be able to refinance
the Revolving Credit Facility prior to its present maturity date, there can be
no assurance that Monitoring will be able to do so.
Monitoring will be required to make semiannual cash payments of
interest on Monitoring's 6-3/4% Convertible Senior Subordinated Notes due 2003
(the "Convertible Notes") of $3.5 million beginning March 15, 1997; in addition,
the principal amount of Monitoring's 13-5/8% Senior Subordinated Discount Notes
due 2005 (the "Discount Notes") will accrete in value until June 30, 1998, and
Monitoring will be required to make cash payments of interest on the Discount
Notes beginning on December 31, 1998. Based on the Discount Notes' interest rate
of 13-5/8%, such interest payment will be $11.3 million semiannually, or $22.6
million per year. There can be no assurance that Monitoring's cash flows from
operations will be sufficient to make the required interest payments on the
Convertible Notes, the Discount Notes and borrowings under the Revolving Credit
Facility.
The indentures pursuant to which the Convertible Notes and the Discount
Notes were issued (the "Convertible Notes Indenture" and the "Discount Notes
Indenture," respectively ) do not provide for any current amortization of
principal or require the establishment of any reserves or sinking funds in
respect of the payment of principal. As a result, Monitoring will be required to
repay the full principal amount of the Convertible Notes ($103.5 million) on
September 15, 2003 and the full principal amount of the Discount Notes ($166.0
million) on June 30, 2005. There can be no assurance that Monitoring will have
the cash necessary to repay the Convertible Notes and the Discount Notes at
maturity or will be able to refinance such obligations.
Monitoring's ability to pay the principal of and interest on the
Convertible Notes and the Discount Notes and continue to service its other
indebtedness will be subject to various business, financial and other factors,
many of which are beyond the Company's control. In addition, each of the
Discount Notes Indenture, the agreement governing the Revolving Credit Facility
(the "Credit Agreement") and, to a lesser extent, the Convertible Notes
Indenture includes covenants that restrict the operational and financial
flexibility of the Company. Failure to comply with certain covenants would, in
some instances, permit the holders of the Convertible Notes or the Discount
Notes or the lenders under the Revolving Credit Facility to accelerate the
maturity of Monitoring's obligations thereunder, and in other instances could
result in cross-defaults permitting the acceleration of all such debt and debt
under other agreements.
The Company's high degree of leverage may have important consequences
to holders of the Common Stock, including the following: (i) a substantial
portion of the Company's cash flow from operations is, and will continue to be,
dedicated to the payment of the principal of and interest on the Company's
indebtedness, thereby, reducing the funds available to the Company for its
operations and future growth or other business opportunities; (ii) the Company's
ability to obtain additional financing in the future for working capital, the
Dealer Program, acquisitions of portfolios of subscriber accounts, capital
expenditures, general corporate purposes or other purposes may be impaired;
(iii) the Convertible Notes Indenture, the Discount Notes Indenture and the
Credit Agreement contain, and are expected to continue
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to contain, certain restrictive covenants, including certain covenants that
require the Company to obtain the consent of the lenders under the Revolving
Credit Facility and to maintain certain financial ratios in order to undertake
significant acquisitions of portfolios of subscriber accounts; (iv) Monitoring's
borrowings under the Revolving Credit Facility are at floating rates of
interest, causing the Company to be vulnerable to increases in interest rates;
(v) the Company will be more vulnerable to a downturn in the Company's business
or the economy generally; and (vi) the Company's ability to compete against
other less leveraged companies may be adversely affected.
Risks Related to Acquisitions. A principal element of the Company's
business strategy is to acquire portfolios of alarm monitoring accounts. During
the fiscal 1992-1996 period, the Company completed 117 acquisitions of the
portfolios of subscriber accounts of other alarm service companies, and those
acquisitions were the primary source of the Company's growth during that period.
Although the Dealer Program is anticipated to be an increasingly important
component of the Company's growth, acquisitions of portfolios of subscriber
accounts are expected to continue. The Company faces competition for the
acquisition of portfolios of subscriber accounts, and may be required to offer
higher prices for acquired accounts than the Company has in the past. See
"--Competition." In addition, due to the continuing consolidation of the
security alarm industry and the acquisition by the Company and other alarm
companies of a number of large portfolios of subscriber accounts, there may in
the future be fewer large portfolios of subscriber accounts available for
acquisition. There can be no assurance that the Company will be able to find
acceptable acquisition candidates or, if such candidates are identified, that
acquisitions can be consummated on terms acceptable to the Company.
Acquisitions of portfolios of subscriber accounts involve a number of
special risks, including the possibility of unanticipated problems not
discovered prior to the acquisition, account attrition and the diversion of
management's attention from other business activities in order to focus on the
assimilation of accounts. For acquisitions that are structured as the purchase
of the stock of other alarm companies, the Company may assume unexpected
liabilities and must dispose of the unnecessary assets of the acquired
companies.
Because the Company's primary consideration in acquiring a portfolio of
subscriber accounts is the amount of cash flow that can be derived from the
monthly recurring revenue ("MRR") associated with the purchased accounts, the
price paid by the Company is customarily directly tied to such MRR. The price
paid varies based on the number and quality of accounts being purchased from the
seller, the historical activity of such accounts and other factors. The seller
typically does not have audited historical financial information with respect to
the acquired accounts; thus, in making acquisitions the Company generally has
relied on management's knowledge of the industry, due diligence procedures and
representations and warranties of the sellers. There can be no assurance that
such representations and warranties are true and complete or, if such
representations and warranties are inaccurate, that the Company will be able to
recover damages from the seller in an amount sufficient to fully compensate the
Company for any resulting losses. The Company expects that future acquisitions
will present at least the same risks to the Company as its prior acquisitions.
An important aspect of the Company's acquisition program is the
assimilation of subscriber accounts into the Company's operations after
purchase. Depending on the size, frequency and location of acquisitions, the
assimilation of subscribers may adversely affect the provision of field repair
services to existing subscribers, which may cause subscriber attrition to
increase. In addition, if the Company's corporate or branch operations fail to
assimilate a substantial portion of acquired subscriber accounts, the Company
may experience higher attrition in the future.
History of Losses. The Company incurred losses attributable to common
stock of $15.7 million for fiscal 1996, $18.5 million for fiscal 1995, $9.2
million for fiscal 1994, $4.6 million for fiscal 1993 and $5.0 million for
fiscal 1992. ("Losses attributable to common stock" means the Company's net
loss, less dividends payable on preferred stock.) These losses reflect, among
other factors, the substantial charges incurred by the Company for amortization
of purchased subscriber accounts, interest incurred on the Company's
indebtedness and extraordinary losses on early extinguishment of debt. Such
charges, with the exception of the extraordinary losses, will increase as the
Company continues to purchase subscriber accounts, if the
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Company's indebtedness increases, or if interest rates increase. The Company's
earnings have been insufficient to cover its fixed charges since the Company was
formed, and there can be no assurance that the Company will attain profitable
operations.
Risks Related to the Dealer Program. During fiscal 1995 and fiscal
1996, the Company increased its emphasis on the Dealer Program, which became a
more significant source of growth than in prior years. The Company expects that
this emphasis will continue. Several of the Company's competitors also have
dealer programs, and there can be no assurance that the Company will be able to
retain or expand its current dealer base or that competitive offers to the
Company's dealers will not require the Company to pay higher prices to the
Company's dealers for subscriber accounts than previously paid. The Company's
five highest producing dealers generated 45.2% of the total subscriber accounts
purchased by the Company through the Dealer Program in the fiscal 1996. The loss
of any of such dealers would negatively impact the Company's subscribers,
revenues and cash flows from operations.
Need for Additional Capital. In fiscal 1995 and fiscal 1996, the
Company spent a total of $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 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
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acquired accounts are prepaid on an annual, semiannual or quarterly basis,
attrition may not become evident for some time after an acquisition is
consummated.
At September 30, 1996, the cost of subscriber accounts and intangible
assets, net of previously accumulated amortization, was $257.4 million, which
constituted 88.7% of the book value of the Company's total assets. The Company's
purchased subscriber accounts are amortized on a straight-line basis over the
estimated life of the related revenues. To estimate such life, the Company first
determines gross subscriber attrition, defined by the Company for a period as a
quotient, the numerator of which is equal to the number of subscribers who
disconnect services during such period and the denominator of which is the
average of the number of subscribers at each month end during such period. Gross
subscriber attrition was 19.3% and 18.3% for fiscal 1995 and fiscal 1996,
respectively. The Company offsets gross attrition by adding new accounts from
subscribers who move into premises previously occupied by Company subscribers
and in which security alarm systems are installed, conversions of accounts that
were previously monitored by other alarm companies to the Company's monitoring
services and accounts for which the Company obtains a guarantee from the seller
that provides for the Company to "put" back to the seller canceled accounts. The
resulting figure is used as a guideline to determine the estimated life of
subscriber revenues. It is the Company's policy to review periodically actual
account attrition and, when necessary, adjust the remaining estimated lives of
the Company's purchased accounts to reflect assumed future attrition. In fiscal
1993, the Company made such an adjustment to the estimated life of subscriber
accounts, reducing such estimated life from 12 years to 10 years. There could be
a material adverse effect on the Company's results of operations and financial
condition if actual account attrition significantly exceeds assumed attrition
and the Company has to make further adjustments with respect to the amortization
of purchased subscriber accounts.
Impact of Accounting Differences for Account Purchases and New
Installations. A difference between the accounting treatment of the purchase of
subscriber accounts (including both purchases of subscriber account portfolios
and purchases under ongoing agreements with independent alarm dealers) and the
accounting treatment of the generation of subscriber accounts through direct
sales by the Company's sales force has a significant impact on the Company's
results of operations. All direct external costs associated with purchases of
subscriber accounts are capitalized and amortized over 10 years on a
straight-line basis. Also included in capitalized costs are certain acquisition
transition costs that reflect the Company's estimate of costs associated with
incorporating the purchased subscriber accounts into the Company's operations.
Such costs include costs incurred by the Company in fulfilling the seller's
pre-acquisition obligations to the acquired subscribers, such as providing
warranty repair services. In contrast, all of the Company's costs related to the
marketing, sales and installation of new alarm monitoring systems generated by
the Company's sales force are expensed in the period in which such activities
occur. The Company's marketing, sales and installation expenses for new systems
generally exceed installation revenues.
The Company's purchase activity increased significantly during fiscal
1994, fiscal 1995 and fiscal 1996. See "--Risks Related to Acquisitions." In
addition, during those periods the Company reduced the Company's sales of new
systems and related marketing expenditures. As a result of the difference in the
methods by which such activities are accounted for, the combined effect of these
two factors was to improve operating results during the three years ended
September 30, 1996. The Company does not expect to further reduce sales of new
systems by Company personnel and related marketing expenditures in fiscal 1997.
There can be no assurance that the Company will not increase its emphasis on the
marketing and sales of new alarm system installations in the future,
particularly in connection with a joint venture or other strategic alliance; any
such increase could adversely affect results of operations. The Company
anticipates that subscriber accounts added through the co-branded program with
PacifiCorp will be purchased through the Dealer Program rather than generated
through sales of new alarm systems by Company personnel.
Possible Adverse Effect of "False Alarm" Ordinances. According to
certain data concerning the residential security alarm market prepared in
December 1995 by J.P. Freeman & Co. (the "Freeman Data"), approximately 97% of
alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false alarms." Significant concern
has arisen in certain municipalities about this high incidence of false alarms.
This concern could cause a decrease in the likelihood or
8
<PAGE> 13
timeliness of police response to alarm activations and thereby decrease the
propensity of consumers to purchase or maintain alarm monitoring services.
A number of local governmental authorities have considered or adopted
various measures aimed at reducing the number of false alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms, and (v) requiring further
verification of an alarm signal before the police will respond. Enactment of
such measures could adversely affect the Company's future business and
operations.
Possible Adverse Effect of Future Government Regulations, Risks of
Litigation. The Company's operations are subject to a variety of laws,
regulations and licensing requirements of federal, state and local authorities.
In certain jurisdictions, the Company is required to obtain licenses or permits,
to comply with standards governing employee selection and training, and to meet
certain standards in the conduct of the Company's business. The loss of such
licenses, or the imposition of conditions to the granting or retention of such
licenses, could have a material adverse effect on the Company.
The Company's advertising and sales practices are regulated by both the
Federal Trade Commission and state consumer protection laws. Such regulations
include restrictions on the manner in which the Company promotes the sale of
security alarm systems and the obligation of the Company to provide purchasers
of alarm systems with certain rescission rights. While the Company believes that
it has complied with these regulations in all material respects, there can be no
assurance that none of these regulations was violated in connection with the
solicitation of the Company's existing subscriber accounts, particularly with
respect to accounts acquired from third parties, or that no such violation will
occur in the future.
From time to time, subscribers have submitted complaints to state and
local authorities regarding the Company's sales and billing practices, which in
some instances have resulted in discussions with, or actions by, such
authorities. In August 1994, as a result of certain complaints by subscribers,
three California governmental authorities brought an action against the Company,
and concurrently settled such action. In connection with the settlement of such
action, the Company agreed to the filing of an injunction requiring the Company
to provide notices of certain increases in charges for its services and to
comply with certain restrictions in its marketing, billing and collection
activities, and paid restitution to subscribers in the amount of $31,000 and
civil penalties of $30,000. Any violation by the Company of the terms of such
injunction could have a material adverse effect on the Company.
The Company does not believe that any of the investigations or actions
described herein has had or will have a material adverse effect on the Company.
However, there can be no assurance that other actions that may be taken in the
future by these or other authorities as a result of subscriber complaints will
not have such adverse effect on the Company.
Risks of Liability from Operations. The nature of the services provided
by the Company potentially exposes it to greater risks of liability for employee
acts or omissions or system failure than may be inherent in other businesses.
Most of the Company's alarm monitoring agreements and other agreements pursuant
to which the Company sells its products and services contain provisions limiting
liability to subscribers in an attempt to reduce this risk. However, in the
event of litigation with respect to such matters there can be no assurance that
these limitations will be enforced, and the costs of such litigation could have
an adverse effect on the Company.
The Company's alarm response and patrol services require Company
personnel to respond to emergencies that may entail risk of harm to such
employees and to others. In most cities in which the Company provides such
services, the Company's patrol officers carry firearms, which may increase such
risk. Although the Company screens and trains its employees, the provision of
alarm response service subjects the Company to greater risks related to
accidents or employee behavior than other types of
9
<PAGE> 14
businesses. Reduction of police participation in the handling of emergencies
could expose the Company's patrol officers to greater hazards and further
increase the Company's risk of liability.
The Company carries insurance of various types, including general
liability and errors and omissions insurance providing coverage of $15.0 million
on both an aggregate and a per claim basis. The loss experience of the Company
and other security service companies may affect the availability and cost of
such insurance. Certain of the Company's insurance policies and the laws of some
states may limit or prohibit insurance coverage for punitive or certain other
types of damages, or liability arising from gross negligence.
Geographic Concentration. The Company's existing subscriber base is
geographically concentrated in certain metropolitan areas and surrounding
suburbs in the seven western states in which the Company operates. Accordingly,
the performance of the Company may be adversely affected by regional or local
economic conditions.
As a result of acquisitions or strategic alliances, the Company may
from time to time expand its operations into regions outside of the Company's
current operating area. The acquisition of subscriber accounts in other regions,
or in metropolitan areas in which the Company does not currently have
subscribers, requires an investment by the Company in local branches and
personnel necessary to service such accounts. In order for the Company to expand
successfully into a new area, the Company must obtain a sufficient number, and
density, of subscriber accounts in such area to support the additional
investment. There can be no assurance that an expansion into new geographic
areas would generate operating profits.
Competition. The security alarm industry is highly competitive and
highly fragmented. The Company competes with larger national companies, as well
as smaller regional and local companies, in all of the Company's operations.
Furthermore, new competitors are continuing to enter the industry and the
Company may encounter additional competition from such future industry entrants.
Certain of the Company's current competitors have, and new competitors
may have, greater financial resources than the Company. In addition, other alarm
services companies have adopted a strategy similar to the Company's that entails
the aggressive purchase of alarm monitoring accounts both through acquisitions
of account portfolios and through dealer programs. Some of these companies may
be willing to offer higher prices than the Company is prepared to offer to
purchase subscriber accounts. The effect of such competition may be to reduce
the purchase opportunities available to the Company, thus reducing the Company's
rate of growth, or to increase the price paid by the Company for subscriber
accounts, which would adversely affect the Company's return on investment in
such accounts and the Company's results of operations.
Dependence Upon Senior Management. The success of the Company's
business is largely dependent upon the active participation of the Company's
executive officers. The loss of the services of one or more of such officers for
any reason may have a material adverse effect on the Company's business.
Effect of Change of Control, Fundamental Change and Delaware
Anti-takeover Law. At the option of the holders of the Convertible Notes,
Monitoring is required to purchase the Convertible Notes at a price initially
equal to 106.75% of the principal amount thereof plus accrued and unpaid
interest upon the occurrence of any "Fundamental Change" as defined in the
Convertible Notes Indenture. In addition, Monitoring is required to make an
offer to purchase all of the Discount Notes at a price equal to 101% of their
Accreted Value (as defined in the Discount Notes Indenture) on any repurchase
date prior to June 30, 1998, or at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to any repurchase date
on or after June 30, 1998, upon the occurrence of any "Change of Control" as
defined in the Discount Notes Indenture. A "Fundamental Change" and a "Change of
Control" also constitute events of default under the Revolving Credit Facility.
If such an event were to occur, the Company may not be able to repay all of its
obligations that would then become payable. Such provisions, together with
certain provisions of Delaware law, could delay or prevent a change in control
of the Company, could discourage acquisition proposals and could diminish the
opportunities for a stockholder
10
<PAGE> 15
to participate in tender offers, including tender offers at a price above the
then current market value of the Common Stock or over a stockholder's cost basis
in the Common Stock. In addition, the Board of Directors, without further
stockholder approval, may issue preferred stock, which could have the effect of
delaying, deferring or preventing a change in control of POI. The issuance of
preferred stock could also adversely affect the voting power of the holders of
Common Stock, including the loss of voting control to others.
Shares Eligible for Future Sale. Of the 13,466,671 shares of Common
Stock outstanding at December 30, 1996, 9,797,136 shares were freely tradeable
in the public market without any restriction whatsoever, an additional 2,950,000
shares were eligible for sale subject to the volume limitations of Rule 144
under the Securities Act and 719,535 additional shares were subject to
contractual restrictions on transfer expiring on January 6, 1997. In addition,
as of December 30, 1996, (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 1,351,158 shares of Common Stock
were issuable upon the exercise of outstanding warrants with a weighted
average exercise price of $3.19 per share, (iii) an aggregate of 1,300,060
shares of Common Stock were issuable upon the exercise of outstanding options
and management performance warrants with a weighted average exercise price of
$5.97 per share, and (iv) an aggregate of 34,265 shares were issuable in
connection with certain acquisitions of portfolios of alarm accounts, all of
which shares are currently registered for sale or resale under the Securities
Act. Certain stockholders of the Company also have certain demand and
"piggyback" registration rights pursuant to a stockholders' agreement among such
stockholders and POI. Sales and potential sales of substantial amounts of Common
Stock in the public market could adversely affect the prevailing market price of
the Common Stock.
Dividend Policy, Restrictions on Dividends. POI has never paid any cash
dividends on the Common Stock and does not intend to pay any cash dividends in
the foreseeable future. POI is dependent upon the receipt of dividends or other
distributions from Monitoring to fund POI's operations, and the Credit Agreement
and the Discount Notes Indenture restrict POI's ability to declare or pay any
dividend on, or make any other distribution in respect of, the Common Stock and
do not permit distributions from Monitoring to POI other than for certain
specified purposes.
Possible Volatility of Prices of the Common Stock. The stock market has
from time to time experienced extreme price and volume fluctuations that have
been unrelated to the operating performance of particular companies. The market
prices of the Common Stock may be significantly affected by quarterly variations
in the Company's operating results, litigation involving the Company, general
trends in the security alarm industry, actions by governmental agencies,
national economic and stock market conditions, industry reports and other
factors, many of which are beyond the control of the Company. Due to all of the
foregoing factors, it is likely that the Company's operating results will fall
below the expectations of the Company, securities analysts or investors in some
future quarter. In such event, the trading price of the Common Stock would
likely be materially and adversely affected.
11
<PAGE> 16
THE ACQUISITION
On December 17, 1996, Monitoring entered into the Purchase Agreement,
which provides for the acquisition by Monitoring of the security alarm accounts,
equipment, telephone lines and certain other assets of Phillips. Pursuant to the
Purchase Agreement, in consideration of the Acquisition, Monitoring (i) will
assume certain operating obligations of Phillips, (ii) will pay to Phillips
approximately $12,500,000 in cash, 11.6% of which will be held in escrow for 90
days pending certain purchase price adjustments, (iii) will deliver to Phillips
203,562 shares of Common Stock, which number was derived by dividing $2,000,000
by an average of the closing price of the Common Stock on the Nasdaq National
Market during the period of the 10 most recent trading days ending on the second
trading day prior to the Acquisition. Pursuant to the Purchase Agreement, the
consummation of the Acquisition is conditioned upon, among other things, the
Registration Statement having been declared effective by the Commission. The
parties anticipate that the Acquisition will be consummated on or shortly after
the date on which the Registration Statement is so declared effective.
In connection with the Acquisition, POI and the Selling Stockholder
entered into Registration Rights Agreement (the "Registration Rights Agreement")
that provides for the filing of the Registration Statement of which this
Prospectus is a part and for the payment by POI of the expenses incurred in
connection therewith, other than underwriting discounts and selling commissions,
if any, transfer taxes and fees and expenses payable to third parties employed
by the Selling Stockholder.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale from time to
time of any of the Shares. All proceeds from the sale of the Shares will be for
the account of the Selling Stockholder, as described below. See "Selling
Stockholder" and "Plan of Distribution."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of POI consists of 24,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock, par value $.10 per share
("Preferred Stock").
COMMON STOCK
As of December 30, 1996, there were 13,466,671 shares of Common Stock
issued and outstanding.
Each share of Common Stock entitles the holder of record thereof to
cast one vote on all matters submitted for a vote of stockholders. The holders
of Common Stock do not possess cumulative voting rights, and members of the
Board of Directors of POI are elected by a plurality vote. As a result, the
holders of a majority of outstanding shares of Common Stock voting for the
election of directors of POI can elect all directors then being elected.
Each share of Common Stock has an equal and ratable right to receive
such dividends as may be declared by the Board of Directors of POI out of funds
legally available therefor, subject to the rights of the holder(s) of any one or
more series of Preferred Stock then outstanding.
Upon the liquidation, dissolution or winding up of POI, the assets of
POI legally available for distribution to stockholders are distributable equally
and ratably among the holders of Common Stock, subject to prior distribution
rights of creditors of POI and to the preferential rights of the holders of any
one or more series of Preferred Stock then outstanding.
The holders of shares of Common Stock have no preemptive, subscription,
redemption or conversion rights and are not liable for further calls or
assessments. All outstanding shares of Common Stock are fully paid and
nonassessable.
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<PAGE> 17
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, Seattle, Washington.
PREFERRED STOCK
POI is authorized to issue up to an aggregate of 5,000,000 shares of
Preferred Stock in such series and with such designations, rights and
preferences as may be determined from time to time by the Board of Directors of
POI. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. In the event of such issuance, the
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of POI. As of the date
of this Prospectus, there are no shares of Preferred Stock outstanding, and POI
has no present intention to issue any additional such shares.
DELAWARE ANTI-TAKEOVER LAW
POI is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. Pursuant to Section 203, certain "business
combinations" (as defined) between a Delaware corporation and an "interested
stockholder" (defined generally as a stockholder who becomes the beneficial
owner of 15% or more of a Delaware corporation's outstanding voting stock) are
prohibited for three years following the date such stockholder became an
interested stockholder, unless: (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203; (ii) the
business combination or the transaction in which the interested stockholder
became an interested stockholder was approved by the corporation's board of
directors before the other party to the business combination became an
interested stockholder; (iii) upon consummation of the transaction that resulted
in the interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding voting stock owned
by directors who are also officers of the corporation or held in employee
benefit plans that do not provide employees a confidential right to determine
whether to tender (or how to vote) stock held by the plan; or (iv) the business
combination was approved by the board of directors of the corporation and by the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. The three-year prohibition also does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions that
increase an interested stockholder's percentage ownership of stock. The
provisions of Section 203 requiring a "supermajority" vote to approve certain
corporate transactions could enable certain of the Company's stockholders to
exercise veto power over such transactions.
SELLING STOCKHOLDER
All of the Shares are owned, and may offered and sold from time to
time, by the Selling Stockholder. The Selling Stockholder has advised the
Company that as of the date of this Prospectus, the Selling Stockholder does not
own any shares of Common Stock other than the Shares and that if all of the
Shares are sold as described herein, the Selling Stockholder will not own any
shares of Common Stock.
The parties to the Purchase Agreement have agreed that upon
consummation of the Acquisition, company formed by the Selling Stockholder
become a participant in the Company's independent dealer program. Subject to the
foregoing and except for the transactions contemplated by the Purchase
Agreement, the Selling Stockholder has not had any material relationship with
the Company or any of its affiliates within the three-year period ending on the
date of this Prospectus.
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<PAGE> 18
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 for their own account and resell
such shares in one or more transactions, including negotiated transactions, at a
fixed price or at varying prices determined at the time of sale, with any
initial public offering price and any discount or concession allowed or
re-allowed or paid to dealers subject to change from time to time; (ii) through
brokers or dealers, acting as principal or agent, in transactions (which may
involve block transactions) on the Nasdaq National Market in ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or otherwise (including without limitation sales in
transactions that comply with the volume and manner of sale provisions contained
in paragraphs (e) and (f) of Rule 144 under the Securities Act ("Rule 144")); or
(iii) directly or indirectly through brokers or agents in private sales at
negotiated prices, or in any combination of such methods of sale. This
Prospectus may be supplemented or amended from time to time to describe a
specific plan of distribution.
In connection with the distribution of the Shares or otherwise, the
Selling Stockholder may: (a) enter into hedging transactions with broker-dealers
or other financial institutions, and in connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of
Common Stock in the course of hedging the positions they assume with the Selling
Stockholder; (b) sell shares of Common Stock short and redeliver the Shares to
close out such short positions; and/or (c) enter into option or other
transactions with broker-dealers or other financial institutions that require
the delivery to such broker-dealer or other financial institution of the Shares,
which Common Stock such broker-dealer or other financial institution may
(subject to any applicable transfer restriction contained in an agreement
between the Selling Stockholder and the Company) resell pursuant to this
Prospectus as supplemented or amended to reflect such transaction. The Selling
Stockholder also may loan or pledge the Shares to a broker-dealer or other
financial institution and, upon a default, such broker-dealer or other financial
institution may effect sales of the pledged Shares pursuant to this Prospectus
as supplemented or amended to reflect such transaction. In addition to the
foregoing, the Selling Stockholder may, from time to time, enter into other
types of hedging transactions.
Underwriters participating in any offering may receive underwriting
discounts and commissions, discounts or concessions may be allowed or re-allowed
or paid to dealers, and brokers or agents participating in such transactions may
receive brokerage or agent's commissions or fees, all in amounts to be
negotiated in connection with sales pursuant hereto. The underwriter, agent or
dealer utilized in the sale of Common Stock will not confirm sales to accounts
of which such persons exercise discretionary authority. In effecting sales of
the Shares, brokers or dealers engaged by the Selling Stockholder may arrange
for other brokers or dealers to participate. Brokers or dealers may receive
compensation in the form of commissions or discounts from the Selling
Stockholder and may receive commission from the purchases of Shares for whom
such broker-dealers may act as agents, all in amounts to be negotiated,
including immediately prior to the sale.
The Selling Stockholder and all underwriters, dealers or agents, if
any, who participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any profit on the sale of such Shares by such stockholders, and all
discounts, commissions or concessions received by such underwriters, dealers or
agents, if any (whether received from the Selling Stockholder and/or from the
purchasers of the Shares for whom those dealers or agents may act as agents),
may be deemed to be underwriting discounts and commissions under the Securities
Act.
Certain of the above-described underwriters, dealers, brokers or agents
may engage in transactions with, or perform services for, with the Company and
its affiliates in the ordinary course of business.
Upon POI being notified by the Selling Stockholder that any arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering or secondary distribution or a purchase by a
broker-dealer, to the extent required by applicable law, a supplement to this
Prospectus
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<PAGE> 19
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 dealers, if any, and, if applicable, the purchase price
to be paid by any underwriter for shares of Common Stock purchases from the
Selling Stockholder.
The Selling Stockholder and other persons participating in the
distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations of the Commission thereunder,
including, without limitation, Rules 10b-2, 10b-5, 10b-6 and 10b-7, which
provisions may limit the timing of the purchase and sale of shares of Common
Stock by the Selling Stockholder.
Shares that qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for POI by Mitchell, Silberberg & Knupp LLP, Los
Angeles, California.
EXPERTS
The consolidated balance sheets of Protection One, Inc. and
subsidiaries as of September 30, 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> 20
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.................................. $ 719.70
Legal (Including blue sky) fees and expenses.......... 3,000.00
Accounting fees and expenses.......................... 2,000.00
Miscellaneous......................................... 2,500.00
---------
Total $8,219.70
=========
</TABLE>
All of the foregoing expenses other than the SEC registration fee are estimates.
Item 15. Indemnification of Directors of and Officers.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a corporation has the power to indemnify a director,
officer, employee or agent of the corporation and certain other persons serving
at the request of the corporation in related capacities against amounts paid and
expenses incurred in connection with an action or proceeding to which he is or
is threatened to be made party by reason of such position, if such person shall
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful, provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances. The Fifth Restated
Certificate of Incorporation of the Registrant, as amended (the "Certificate of
Incorporation") provides that the Registrant shall indemnify its directors and
officers to the fullest extent permitted the DGCL.
The Certificate of Incorporation also provides, as permitted by Section
102(b) of the DGCL, that no director shall be liable to the Registrant or its
stockholders for monetary damages for breach of his fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction in which the director derived an improper personal benefit.
The By-laws of the Registrant contain provisions to the effect that
each director, officer and employee of the Registrant shall be indemnified by
the Registrant against liabilities and expenses in connection with any legal
proceedings to which he may be made a party or with which he may become involved
or threatened by reason of having been an officer, director or employee of the
company or of any other organization at the request of the company. The
provisions include indemnification with respect to matters covered by a
settlement. Under Delaware law, any such indemnification shall be made only if
the Board determines by a majority vote of a quorum consisting of disinterested
directors (or, if such quorum is not obtainable, or if the Board of Directors
directs, by independent legal counsel) or by stockholders, that indemnification
is proper in the circumstances because the person seeking indemnification has
met the applicable standards of conduct. In addition, it must be determined that
the director, officer or employee acted in good faith with the reasonable belief
that his action was in or not opposed to the best interests of the company, and,
with respect to any criminal action or proceeding, that he had no reasonable
cause to believe his conduct was unlawful.
The Registrant maintains a directors and officers liability insurance
policy providing for the insurance on behalf of any person who is or was a
director or officer of the Registrant and its subsidiary companies against any
liability incurred by such person in any such capacity or arising out of such
person's status as such. The insurer's limit of liability under the policy is $5
million in the aggregate for all insured
II-1
<PAGE> 21
losses. The policy contains various reporting requirements and is subject to
certain exclusions and limitations.
Item 16. Exhibits.
Exhibit
Number Description of Exhibit
2.1 Asset Purchase Agreement dated as of December 17, 1996, among
Protection One Alarm Monitoring, Inc. and, inter alia,
Phillips Electronics, Inc. ("Phillips Electronics")
4.1 Fifth Restated Certificate of Incorporation of Protection One,
Inc. ("POI"), as amended (1)
4.2 Bylaws of POI, as amended (2)
4.3 Registration Rights Agreement dated as of December 17, 1996,
between POI and Phillips Electronics
5.1 Opinion of Mitchell, Silberberg & Knupp LLP
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included in
Exhibit 5.1)
24.1 Power of attorney (included on signature page)*
- ---------------
* Previously filed.
(1) Incorporated by reference to Exhibit 3.1 to the Annual Report
on Form 10-K filed by Protection One, Inc. for the year ended
September 30, 1994.
(2) Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q filed by Protection One, Inc. for the
quarter ended March 31, 1996.
Item 17. Undertakings.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
II-2
<PAGE> 22
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if this
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) If the Registrant is a foreign private issuer, to file a
post-effective amendment to the Registration Statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the Registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to be signed on its behalf by the undersigned, thereto duly authorized, in
the City of Beaverton, State of Oregon, on January 2, 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 January 2, 1997
------------------------ Officer and Director
James M. Mackenzie, Jr.
/s/ JOHN W. HESSE Executive Vice President, January 2, 1997
------------------------ Chief Financial Officer
John W. Hesse (principal financial officer)
and Secretary
*
Director January 2, 1997
------------------------
Robert M. Chefitz
*
Director January 2, 1997
------------------------
Ben Enis
*
Director January 2, 1997
------------------------
James Q. Wilson
* By: /s/ JOHN W. HESSE
------------------------
John W. Hesse
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 24
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Asset Purchase Agreement dated as of December 17, 1996, among
Protection One Alarm Monitoring, Inc. and, inter alia,
Phillips Electronics, Inc. ("Phillips Electronics")
4.1 Fifth Restated Certificate of Incorporation of Protection One,
Inc. ("POI"), as amended (1)
4.2 Bylaws of POI, as amended (2)
4.3 Registration Rights Agreement dated as of December 17, 1996,
between POI and Phillips Electronics
5.1 Opinion of Mitchell, Silberberg & Knupp LLP
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included in
Exhibit 5.1)
24.1 Power of attorney (included on signature page)*
- ---------------
* Previously filed.
(1) Incorporated by reference to Exhibit 3.1 to the Annual Report
on Form 10-K filed by Protection One, Inc. for the year ended
September 30, 1994.
(2) Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q filed by Protection One, Inc. for the
quarter ended March 31, 1996.
II-5
<PAGE> 1
Exhibit 2.1
ASSET PURCHASE AGREEMENT
DATED: December 17, 1996
BETWEEN: Protection One Alarm Monitoring, Inc.,
a Delaware corporation
3900 S.W. Murray Blvd.
Beaverton, Oregon 97005 ("Buyer")
AND: Phillips Electronics, Inc.
1110 N.W. Flanders Street
Portland, Oregon 97209 ("Seller")
AND: Robert L. Poznanski and Dorothy V. Poznanski, Trustees
of the POZNANSKI LIVING TRUST dated November 21, 1989,
and any amendments thereto
7700 Arbor Lake Court
Wilsonville, Oregon 97070 ("Stockholder")
AND: Robert L. Poznanski, also known as
Robert L. Phillips
7700 Arbor Lake Court
Wilsonville, Oregon 97070 ("Chairman")
Seller owns and operates a business engaged in the sale or
leasing, installation, maintenance and monitoring of alarm systems (the "Alarm
Systems") for residential and commercial customers (the "Business"). Buyer
desires to acquire certain of Seller's assets used in connection with the
Business, and Seller desires to sell such assets, all on the terms and subject
to the conditions contained in this Agreement. In addition, Seller and
Chairman are willing to enter into nonsolicitation and noncompetition covenants
as set forth in this Agreement.
Therefore, the parties agree as follows:
1. Definitions. The following terms shall be defined as follows:
1.1 The term "Accounts Receivable" means all obligations
for alarm, fire, surveillance, monitoring or access services invoiced by Seller
to Customers as of the Closing, created in the ordinary course of Seller's
business. An aging of Accounts Receivable, including the next billing date for
each Customer, which is current through not more than five (5) days prior to
the Closing Date will be attached to the Addendum to this Agreement as EXHIBIT
1.1 and incorporated herein.
1.2 The term "Assets" means the Customer Accounts,
Telephone Lines, Equipment, Buyer's Work in Progress and Other Property being
sold to Buyer by Seller. Accounts Receivable shall be retained by Seller and
are not included in the Assets.
1.3 The term "Closing" or "Closing Date" means January 3,
1997, or such later date which immediately follows the effective date of the
Registration Statement described in Section 2.5, when the closing of the
purchase and sale of the Assets is consummated.
Page 1 - ASSET PURCHASE AGREEMENT
<PAGE> 2
1.4 The term "Closing Value" means the average per share
closing price of Protection One, Inc.'s shares of common stock for the ten (10)
trading days ending two (2) trading days prior to the Closing Date.
1.5 The term "Customer" means any person, business,
corporation or other entity that has a Customer Account with the Seller for the
provision of alarm, fire, surveillance, monitoring or access services.
1.6 The term "Customer Accounts" means alarm contracts,
including all Alarm System equipment for the provision of alarm, fire,
surveillance, monitoring or access services owned by Seller, and goodwill
related thereto, and any and all related agreements, records and files for
sale, deferred purchase, installation, maintenance, servicing and/or monitoring
of Alarm Systems between Seller and its Customers. The Alarm System equipment
for each Customer Account has been installed and to the best of Seller's
knowledge is operational, except as to the Buyer's Work in Progress described
in EXHIBIT 1.13. All of the Customer Accounts which are included in the
determination of the QRR are described in EXHIBIT 1.6A, which is attached
hereto and incorporated herein. The Customer Accounts described in EXHIBIT
1.6B, which will be attached hereto and incorporated herein, are not included
in the determination of QRR and may also be referred to as the "Unqualified
Accounts." The Unqualified Accounts will include the agreements and records
for those Customers of Seller for which Seller does not perform monitoring
services, but for which Seller performs repair and other service work on a time
and materials basis. Unless expressly stated to the contrary, all other
references in this Agreement to the "Customer Accounts" shall mean the Customer
Accounts described in EXHIBITS 1.6A AND 1.6B.
1.7 The term "Equipment" means all vehicles, inventory
and equipment which are owned by Seller and described in EXHIBIT 1.7, which is
attached hereto and incorporated herein.
1.8 The term "Execution Date" means the date on which
this Agreement is signed by the parties, which is anticipated to be December
17, 1996, or such other date mutually agreed to by the parties.
1.9 The term "Other Property" means Seller's trademarks,
patents, tradenames and intellectual property rights.
1.10 The term "Qualified Recurring Revenue" ("QRR") means
the gross monthly recurring revenue of the Customer Accounts for the deferred
purchase or servicing of Alarm Systems and for providing monitoring, fire,
surveillance and access control services as of the Execution Date. QRR shall
only include those recurring amounts derived from Customer Accounts that are:
(i) provided service pursuant to Seller's standard contract forms to which
there have been no material alterations as to any Customer; (ii) billed as
stipulated in the applicable written agreement between Seller and its Customer;
(iii) not more than ninety (90) days past due as of the Execution Date;
provided however, that certain regular slow paying Customer Accounts which are
more than ninety (90) days past due shall be acceptable to Buyer for inclusion
in QRR and shall be identified in EXHIBIT 1.6A as "Slow Pay Accounts;" (iv)
assignable to Buyer without the consent of any third party or for which consent
has been obtained prior to the Execution Date; and (v) in effect on the Closing
Date, and as of the Closing Date had not been canceled and with respect to
which no notice of cancellation had been received. QRR shall not include any
amounts derived from or which are expected to be derived from: (a)
reimbursement for or prepayment of private line telephone line charges
associated with any monitored Customer
Page 2 - ASSET PURCHASE AGREEMENT
<PAGE> 3
Account; (b) reimbursement for or prepayment of any false alarm assessment; (c)
reimbursement for or prepayment of any amounts equal to taxes, fees, monitoring
charges or other charges imposed by any governmental authority relative to the
furnishing of alarm services; (d) services to be provided under any written
agreement, which by its terms is terminable and has been terminated by Seller's
Customer as a result of the consummation of the transaction contemplated
hereby; (e) time and material service revenue, or other revenues that are not
received on a regular and recurring basis; or (f) charges paid to Seller or
third party response agencies for patrol or alarm response.
1.11 The term "Telephone Lines" means Seller's interest in
all of the telephone lines, voice service lines, call back lines and numbers on
which the Customer Accounts are being monitored or which are otherwise used or
owned by Seller in connection with the Business. The telephone line accessed
by (503) 227-0571, which is not used for monitoring any of the Customer
Accounts, will be referred to herein as the "Business Line." All of the
telephone numbers for the Telephone Lines are listed in EXHIBIT 1.11, which
will be attached hereto and incorporated herein.
1.12 The term "Unearned Revenue" means (i) all Accounts
Receivable billed by Seller for services to be rendered after the Closing Date
to the Customer Accounts by Buyer; (ii) all payments and deposits received by
Seller prior to the Closing for services to be rendered or work to be performed
after the Closing Date for the Customer Accounts by Buyer. Unearned Revenue
will be prorated as of the close of business on the Closing Date. The Unearned
Revenue is set forth in EXHIBIT 1.12, which will be attached hereto and
incorporated herein.
1.13 The term "Buyer's Work in Progress" means the orders
for servicing, repair or maintenance of alarm systems or for providing alarm
services received by Seller as of the Closing Date and such upgrades, add-ons
or replacements of alarm system equipment which Seller in the normal course of
its business does not schedule its installation department to perform and which
have not been completed by Seller as of the Closing Date. The Buyer's Work in
Progress as of the Closing Date, including a description of all further work
which needs to be performed by Buyer after the Closing Date, all amounts
received by Seller prior to the Closing Date relating to the Buyer's Work in
Progress and all amounts which will be due and owing after the Closing Date
relating to the Buyer's Work in Progress are described in EXHIBIT 1.13, which
will be attached to the Addendum to this Agreement and incorporated herein.
1.14 The term "Seller's Work in Progress" means the sales
leads, referrals and orders for the installation, upgrades, add- ons and
replacements of alarm system equipment which Seller in the normal course of its
business schedules its installation department to perform and is described in
EXHIBIT 1.14, which will be attached to the Addendum to this Agreement and
incorporated herein.
1.15 The term "Prepaid Expenses" means the expenses
described in EXHIBIT 1.15, which will be attached to the Addendum to this
Agreement and incorporated herein, which have been paid by Seller prior to the
Closing Date in relation to Assets and which will benefit Buyer after the
Closing Date. The Prepaid Expenses will be prorated as of the Closing Date.
2. Purchase and Sale of Assets.
2.1 Sale of Assets. Seller agrees to sell to Buyer, and
Buyer agrees to purchase from Seller, in accordance with the terms of this
Agreement on the Closing Date all of Seller's right, title and interest in all
Assets.
Page 3 - ASSET PURCHASE AGREEMENT
<PAGE> 4
2.2 Assumption of Monitoring, Support Services and Other
Obligations.
2.2.1 Assumption. As of the Closing, Buyer agrees
to assume and accept the assignment of Seller's duties and obligations (i) to
perform monitoring services and support services described in Section 2.2.2
("Support Services"), pursuant to the Customer Accounts to the extent such
obligations relate to performance after the Closing Date and agrees to perform
such obligations when due for all Customer Accounts; and (ii) to complete
performance of all Buyer's Work in Progress described in EXHIBIT 1.13 to the
extent such obligations relate to performance after the Closing Date. In
addition, Buyer agrees to sublease Seller's business premises located at 1110
N.W. Flanders Street, Portland, Oregon 97209 from and after the Closing Date
for six (6) months, at the end of which Buyer shall have the option to continue
to sublease the premises on a month-to-month basis for up to one year after the
Closing Date. The form of sublease agreement is attached hereto as EXHIBIT
2.2.1.
2.2.2 Support Services. Except as otherwise set
forth herein, Buyer shall provide the following Support Services after the
Closing Date with regard to the Customer Accounts: (a) install additional
equipment as requested by any Customer; (b) provide all warranty services
requested by the Customer for equipment located on the premises of each
Customer after the Closing Date in accordance with the applicable warranty
terms of the Customer Account; (c) respond to notices of equipment failure or
requests for service from the Customer; (d) monitor each Customer Account; and
(e) any other duties and obligations arising on or after the Closing Date
pursuant to the written agreements with the Customers.
2.2.3 No Other Liabilities. Except as provided in
Section 2.2.1, Buyer does not, and will not, assume, or be deemed to assume,
under this Agreement or otherwise, any debt, liability or obligation of Seller
or Stockholder of any nature whatsoever, whether arising by tort or contract or
otherwise, including, without limitation, (a) liability arising out of actions
or omissions of Seller prior to or after the applicable Closing Date; (b)
liability resulting from breach of contract arising out of actions of Seller or
as a result of the sale of the Assets pursuant to this Agreement; (c) liability
in connection with contracts not assumed by Buyer under this Agreement or in
connection with obligations under the Customer Accounts where performance was
required prior to the applicable Closing Date; (d) liability of Seller for any
taxes, including sales or use taxes arising in connection with the sale or
leasing of Alarm System equipment by Seller prior to the Closing Date; (e) any
liability in connection with representations, promises or warranties made by
Seller to Customers which are not described in the written Contracts with
Customers, forms of which are attached hereto in EXHIBIT 4; and (f) subject to
the provisions contained in Section 7.2 hereof, liability in connection with
any of Seller's employees, including salaries, benefits, commissions or any
employee benefit plan of Seller. All liabilities of Seller that are not
assumed by Buyer hereunder shall be paid, performed and discharged by Seller.
2.3 Purchase Price; Payment; Adjustments.
2.3.1 Amount. At the Closing the purchase price
("Purchase Price") for the Assets purchased hereunder shall be calculated as
follows:
(a) The base purchase price is $15,000,000.00;
(b) Less: Unearned Revenue determined on the Execution Date
in the sum of $530,000;
Page 4 - ASSET PURCHASE AGREEMENT
<PAGE> 5
(c) Plus: Sublease payments for the
six-month term in the sum of $24,000.00;
(d) Less: The value of Seller's Work in
Progress, determined at the Closing based upon the formula set forth in Section
2.3.3;
(e) Less: The amount of salary, wages
and other compensation which Buyer shall pay to the employees of Seller who are
hired by Buyer for the period starting as of January 1, 1997 through the
Closing Date; and
(f) Plus: The amount of the Prepaid
Expenses determined at the Closing.
Subject only to Seller's inability to transfer the Assets to Buyer at Closing
or the material breach of Seller's representations and warranties, the portion
of the Purchase Price set forth in subsections (a) through (c) of this Section
2.3.1. shall not be changed or reduced after the Execution Date, except for
adjustments, if any, pursuant to Sections 2.6 and 13. The amount of the
Purchase Price as of the Closing Date shall be documented in an Addendum to
this Agreement and signed by all of the parties. Notwithstanding anything to
the contrary contained herein, this Agreement is a valid and binding agreement
of the parties as of the Execution Date, subject only to the conditions to
Closing set forth in this Agreement and determination of the Purchase Price on
the Closing Date.
2.3.2 Allocation. The Purchase Price shall be
allocated among the Assets as specified in the attached EXHIBIT 2.3.2, which
will be attached to the Addendum and incorporated herein. After the Closing,
the parties agree to make consistent use of the allocation, fair market value
and useful life specified in EXHIBIT 2.3.2 in any and all filings, declarations
and reports with the Internal Revenue Service in respect thereof, including
without limitation the reports required to be filed under Section 1060 of the
Internal Revenue Code of 1986, as amended, if applicable.
2.3.3 Seller's Work in Progress. The value of the
Seller's Work in Progress retained by Seller will be subtracted from the base
purchase price amount and will be determined at Closing, in accordance with the
following formula:
Installation, add-on and upgrade revenue minus sales
commission, labor and material costs (hook-up costs) = Net
Installation Revenue
Determine the QRR for the new installations and the increase
in QRR from the upgrades or add-ons multiplied by 28 = Gross
QRR Revenue
(Gross QRR Revenue plus Net Installation Revenue) multiplied
by two-thirds = Amount of the Base Purchase Price Reduction.
Seller's Work in Progress will be retained by Seller and will not be sold to
Buyer pursuant to this Agreement; however, upon completion of the Seller's Work
in Progress, those customer accounts will be sold to Buyer pursuant to the
Dealer Agreement described in Section 16 hereof.
Page 5 - ASSET PURCHASE AGREEMENT
<PAGE> 6
2.4 Payment of Purchase Price. The Purchase Price shall
be paid as follows:
2.4.1 Closing Date Payment. On the Closing Date,
Buyer shall pay to Seller ninety percent (90%) of the Purchase Price (the
"Closing Date Payment") as follows:
(a) On execution of the Letter of Intent
for this transaction, Buyer paid to Seller a deposit in the sum of $100,000.00
by check (the "Deposit"), which shall be credited against the Purchase Price.
(b) On the Closing Date, Buyer shall pay
to Seller the sum of $2,000,000.00 in common stock of Protection One, Inc. (the
"Pro One Stock") based upon the Closing Value for such stock, which Pro One
Stock shall be subject to an effective Registration Statement. Rather than
issue fractional shares of Pro One Stock, Buyer will pay to Seller in cash the
amount of any fractional shares to which Seller would be entitled.
(c) On the Closing Date, Buyer shall pay
to Seller the balance of the Closing Date Payment by wire transfer.
2.4.2 Deferred Payment. On the Closing Date, Buyer
shall pay to Kennedy, King & Zimmer ("Escrow Agent"), in trust, the remaining
ten percent (10%) of the Purchase Price. Escrow Agent shall pay such amount
to Seller, subject to adjustments in accordance with Section 2.6 (the
"Deferred Payment") on or before the ninetieth (90th) day after the Closing
Date (the "Deferred Payment Date") in accordance with the terms and conditions
set forth herein and in the Escrow Agreement, which shall be mutually agreed to
by Seller, Buyer and Escrow Agent.
2.5 Registration of Pro One Stock. Prior to the Closing
Date, Buyer shall cause Protection One, Inc. ("Parent") to file a Registration
Statement on Form S-3 registering the offer and sale by Seller from time to
time of the Pro One Stock delivered to Seller under this Agreement. To
evidence the obligation of Parent to register the Pro One Stock, Parent and
Seller shall enter into a Registration Rights Agreement defining their
respective rights and responsibilities with respect to the Pro One Stock and
Seller shall execute and deliver to Buyer an Affidavit verifying the status of
Seller 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 EXHIBIT 2.5 and by this reference incorporated herein.
2.6 Closing Date Adjustments. Within sixty (60) days
after the Closing, Buyer will deliver to Seller a schedule setting forth its
calculation of the Unearned Revenue ("Closing Unearned Revenue"), calculated as
of the Closing Date, and the basis for any set offs based on the
indemnification provisions set forth in Section 13 hereof, together with a
certificate signed by an officer of Buyer that the schedule has been prepared
in accordance with the terms and provisions of the Agreement. The parties
agree that any adjustments to the Unearned Revenue shall be based upon either
human or mathematical errors in the calculations made as of the Execution Date,
and not on any change in the formula for calculating Unearned Revenue. Seller
and Stockholder shall provide to Buyer, in Seller's office, any books and
records in their possession, which are reasonably requested by Buyer within
thirty (30) days after the Closing in order to prepare such schedule. Buyer
shall be entitled to an extension of time in which to deliver the schedule
required hereunder to Seller for each day after the forty-fifth (45th) day
after the Closing Date that Seller delays in providing information, books or
records requested by Buyer. The Purchase Price, Closing Date Payment and
Deferred Payment shall be adjusted upwards or
Page 6 - ASSET PURCHASE AGREEMENT
<PAGE> 7
downwards accordingly based upon any changes in the Closing Unearned Revenue
compared to the Unearned Revenue used to calculate the Purchase Price at
Closing and on any set offs under the indemnification provisions set forth in
Section 13 hereof. If Seller has any questions or raises any disputes
regarding any of the adjustments in the Purchase Price, Seller and Buyer shall
use their best efforts to resolve such questions or disputes, and Buyer shall,
at Seller's request, provide to Seller within 15 days its work papers and
supporting documents relating to any adjustments and make available to Seller
all material information and documents relied upon by Buyer in its calculations
as reasonably requested by Seller.
2.7 Instruments of Conveyance and Transfer. Seller shall
deliver to Buyer at the Closing such instruments of transfer, including bills
of sale and assignments in form and substance reasonably satisfactory to Buyer
as shall be effective to vest in Buyer all of the right, title and interest of
Seller in and to the Assets and letters of agency and supersedure forms for
transfer to Buyer of the Telephone Lines on which the Customer Accounts are
currently being monitored and on which the Business of Seller is carried on.
Seller will execute such other documents reasonably requested by Buyer and do
any further acts or things reasonably necessary to cause all of the Customer
Accounts to be connected to Buyer's central monitoring station within six (6)
months after the Closing and to put Buyer in possession and control of the
Assets.
2.8 Invoicing, Servicing, and Collection by Buyer. After
the Closing Date, Buyer is authorized to notify the Customer Accounts and
Buyer's Work in Progress customers to make all further payments for services to
be rendered or performed on and after the Closing Date directly to Buyer and
payable to the order of Buyer, except as to billings of Seller for Accounts
Receivable or other invoices which comprise the Unearned Revenue. If payments
due to Buyer are made payable to the order of Seller, Buyer is hereby
irrevocably appointed as Seller's attorney-in-fact to endorse any checks,
orders or other payment instruments in connection with each Customer Account or
Buyer's Work in Progress customer. If any payment or portion of a payment
received by Buyer is due to Seller for payment of any invoice for the Customer
Account issued by Seller prior to the Closing Date, then Buyer shall remit to
Seller the amount due to Seller within ten (10) days of receipt of the payment.
Seller shall remit to Buyer any payment or any portion of a payment due to
Buyer and made to Seller after the Closing Date within ten (10) days of receipt
of the payment. Buyer is also authorized to bill or invoice Customers for all
amounts due and to become due to Buyer under the Customer Accounts for services
to be rendered or performed after the Closing Date or due to Buyer under the
Buyer's Work in Progress agreements; except that Buyer shall not bill, invoice,
compromise, adjust or grant extensions as to any amounts due to Seller. Seller
is also authorized to bill or invoice Customers to collect all invoices issued
prior to the Closing Date and due to Seller under the Customer Accounts or
Buyer's Work in Progress agreements and to take reasonable collection action in
compliance with all material laws, statutes and regulations; provided however,
that in connection with its collection activities, Seller shall not threaten or
imply that a Customer Account can be canceled or terminated by Seller and
Seller agrees to consult with Buyer in connection with collecting Accounts
Receivable which are more than 120 days past due. Except as to any amounts due
to Seller, Seller shall not from and after the Closing Date have authority to,
and will not, without Buyer's prior written consent, accept, negotiate or
deposit payments or other amounts due in connection with the Customer Accounts.
3. Bulk Sales. Buyer hereby waives compliance by Seller with
respect to any applicable bulk sales or similar laws of any jurisdiction in
connection with the sale of the Assets to Buyer, and Seller agrees to indemnify
Buyer and to save and hold Buyer harmless from, for and against any liability,
damage, loss or deficiency (including reasonable attorney's fees) which Buyer
may suffer or sustain as a result of any claims made by creditors of Seller
against Buyer
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("Creditor's Claim"). In the event of a Creditor's Claim, Buyer shall so
notify Seller in writing and Seller shall have thirty (30) days in which to
satisfy or discharge the Creditor's Claim if it can be satisfied or discharged
within thirty (30) days. If the Seller disputes the Creditor's Claim, Seller
shall proceed to resolve such dispute with reasonable diligence, keeping Buyer
informed of Seller's progress. If the Creditor's Claim interferes with or
restricts Buyer's use of any of the Assets, and it is not resolved or
discharged within thirty (30) days by Seller, Buyer may resolve or discharge
such Creditor's Claim and shall be indemnified by Seller.
4. Representations, Warranties and Agreements of Seller. Except
as otherwise set forth or described on EXHIBIT 4 ("Seller's and Stockholder's
Disclosure Exhibit") or any other Schedule or Exhibit attached hereto,
Stockholder represents and warrants as to Sections 4.2, 4.15 and 4.27 and
Seller agrees, represents and warrants as follows:
4.1 Corporate Status of Seller and Status of Stockholder.
Seller is a corporation duly organized and validly existing under the laws of
the State of Oregon, does not have any subsidiaries and does not own any
securities of, or have any proprietary interest in, any other entity. Seller,
as a result of the character and location of the Assets and the nature of the
business conducted by it, will qualify to conduct business in Washington as a
foreign corporation within thirty (30) days after the Execution Date. Seller
has full corporate power and corporate authority to own, or hold under lease,
the Assets. Stockholder is a trust validly existing under the laws of the
State of Oregon. Robert Poznanski and Dorothy Poznanski are the sole trustees
of the trust, which owns all of the issued and outstanding shares of stock of
Seller.
4.2 Authorization of Seller and Stockholder; No Adverse
Consequences. This Agreement has been duly executed and delivered by Seller
and Stockholder and constitutes a valid obligation legally binding on Seller
and Stockholder and is enforceable against Seller and 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 Seller and Stockholder and the consummation of
the transactions contemplated hereby by Seller and 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 Seller and Stockholder in connection with the
operation of the Business or any of the Assets; do not and will not require the
consent or permission of any person or governmental agency; and do not and will
not violate any law, rule or regulation of any agency or governmental body to
which Seller is, or Stockholder are, subject and that is individually or in the
aggregate material to the transactions contemplated hereby. No registration,
declaration or filing with any governmental or administrative authority is
required on the part of Seller and Stockholder in connection with the
execution, delivery and performance of this Agreement.
4.3 Title to Assets. Seller has good and valid title to
the Assets, 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 Assets 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 of the
Assets. At the Closing, Buyer will receive good and valid title to the Assets,
free and clear of all liens, claims, charges or other encumbrances of any
nature whatsoever.
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4.4 Financial Statements. Seller has heretofore
delivered to Buyer a copy of Seller's balance sheet dated as of December 31,
1995 and an internally prepared income statement for the month of October, 1996
("Financial Statements"), copies of which are included in EXHIBIT 4. The
Financial Statements accurately present the financial position, results of the
operations and the changes in financial position of Seller for the periods
indicated; were accurately prepared from the books and records of Seller 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.
4.5 Changes in Business. Except as expressly allowed or
contemplated by this Agreement, since the date of the Financial Statements,
Seller has conducted its business in the ordinary course and there has not
occurred:
(i) 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
Seller, 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 Seller thereafter.
(ii) Any acquisition, sale or disposition of
property or assets by or of Seller, except in the ordinary course of business;
(iii) Any entry into, amendment of, relinquishment,
termination or non-renewal by Seller of any Contracts, lease transaction,
commitment or other right or obligation other than in the ordinary course of
business; or
(iv) Any agreement or arrangement made by Seller
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 4.5 untrue or incorrect as of the date hereof.
4.6 Taxes. Seller has duly and timely filed all tax
reports and returns required to have been filed on or before the Closing Date,
and such returns as filed are true and correct in all material respects. All
federal, state, local and foreign income, receipts, profits, franchise, sales,
use, occupation, real and personal property, excise, employment or other taxes
(including interest and penalties of Seller) required to have been paid on or
before the Closing Date, whether or not assessed, have been or shall be fully
paid on or prior to the due date thereof. The accrual for taxes reflected in
the most recent balance sheet included in the Financial Statements shall be in
the aggregate adequate to cover any and all federal, state, local or foreign
tax liabilities (including interest and penalties), whether or not disputed,
for which Seller may be liable for the period ended as of the Closing Date and
all prior periods. Seller has never filed a consolidated, combined or unitary
tax return with any other person or entity. There is no unpaid interest,
penalty or addition to tax due or claimed to be due from, or any unpaid tax
deficiency, determination or assessment outstanding against Seller or any basis
therefor known to Seller. There are no tax liens on, pending against or, to
the best knowledge of Stockholder, threatened against Seller or its Assets.
Seller has not filed a consent under Section 341(f)(1) of the Internal Revenue
Code of 1986, as amended.
4.7 No UL Deficiencies. Seller's central station located
at 1110 N.W. Flanders Street, Portland, Oregon 97209, has been approved and
listed by Underwriters' Laboratory ("UL") and is not subject to any
deficiencies with respect thereto, including but not limited to any
deficiencies in any verbal or written report received by Seller in connection
with an inspection
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of such central station facility and UL certificated systems, if any, on or
about September 1, 1996. All required fire inspections with respect to each
fire alarm system installed at the premises of Seller's Customers have been
performed as required in accordance with the obligations and commitments of
Seller to UL and/or to any applicable insurance rating organization. All UL
certificates issued by Seller for alarm systems installed at the premises of
Seller's Customers have been properly issued and the systems for which such
certificates have been issued comply in all material respects with all of the
UL specifications and standards for such systems and Stockholder are not aware
of any outstanding deficiencies.
4.8 Employees. Seller does not have any collective
bargaining agreement with any labor union, and no labor union has requested or,
to the knowledge of Seller, has sought to represent any of the employees,
representatives or agents of Seller. Seller has provided Buyer with a complete
list of all of Seller's employees, including their base compensation and bonus
compensation.
4.9 Form Contracts. Included in EXHIBIT 4 is a true and
correct copy of each type of form contract Seller has in effect with each of
its Customers for alarm system sales, deferred purchases and alarm monitoring,
surveillance, access and other alarm services (the "Contract" or "Contracts").
Seller has not modified, except in a writing disclosed to Buyer, any of the
Contracts and has not undertaken any obligations or made any warranties,
agreements or guarantees to any Customers other than those set forth in the
Contracts. Seller has not entered into any other type of service or purchase
contract with its Customers nor is Seller obligated to render monitoring,
surveillance, access or extended maintenance services to any of its Customers
other than pursuant to a Contract, except time and materials service. Each
Contract which Seller has with its current Customers is fully executed, valid,
in full force and effect and enforceable in accordance with its terms and meet
all of the requirements for purchase set forth in the definition of QRR set
forth in Section 1.10 (less any applicable deductions required thereunder).
Seller is not in default or material violation of any Contracts with its
Customers. Except as disclosed in EXHIBIT 4 and except for the deferred
purchase agreements, Seller does not have any warranty obligations which exceed
in time or scope a one (1) year parts and labor warranty which commence from
the date of installation of each alarm system. On the Closing Date, Seller
shall have possession of all original monitoring and deferred purchase
contracts with Customers and such other documents and information which Buyer
will need and may reasonably require to perform monitoring, surveillance,
access, repair, servicing and other alarm services requested by Customers or
required to be provided pursuant to the Contracts.
4.10 Increase in Fees. Since September 1, 1996, Seller
has not increased recurring monitoring charges or service charges payable by
Seller's retail Customers, other than for additions or changes in services or
protection.
4.11 No Defaults. Seller is not in default, or alleged to
be in default under any material agreement, license or obligation relating to
the Assets. Except for delinquent payments by some of the Customers, 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.
4.12 License and Permits. Seller 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 Seller, and
such licenses are in full force and effect. Copies of all of Seller's licenses
are included in EXHIBIT 4. No violations are or have been recorded and Seller
is not aware of any unrecorded violations in respect of any such licenses or
permits of
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Seller and no proceedings are pending or to Stockholder's knowledge threatened
concerning the revocation or limitation of any such license or permit of
Seller.
4.13 Compliance With Laws. Seller has complied with all
material laws, rules, regulations and orders applicable to the operation of the
business conducted by the Seller. Seller has not received notice nor taken any
action or failed to take any action which action or failure will or would, in
any way, preclude or prevent Buyer from using the Assets after the Closing in
the same manner as theretofore used by the Seller.
4.14 Litigation. There are no claims, litigation,
proceedings or investigations pending or threatened against Seller. Included
on EXHIBIT 4 is a list of all the incidents in the past two (2) 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
Seller's service, and whether Seller has reported such incident to its
insurance carrier. 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.
4.15 Brokers. Seller and Stockholder have 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.
4.16 Insurance. Seller has in full force and effect the
policies of automobile liability insurance and commercial general liability
insurance including errors and omissions coverage ("Liability Insurance"), a
copy of which Liability Insurance policy is included in EXHIBIT 4. All of the
Contracts are covered by Seller's Liability Insurance for negligence claims.
Seller is 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 Seller under any such policy of insurance, or would entitle the
insurer under such insurance to deny coverage of any claim against Seller.
Seller has had uninterrupted Liability Insurance coverage in full force and
effect for at least two years prior to the Closing Date.
4.17 Receivables. The Accounts Receivable arose in the
ordinary course of business and are valid receivables reflecting sums due for
the provision of goods and services by Seller pursuant to the Customer Accounts
or agreements for performing Buyer's Work in Progress or Seller's Work in
Progress.
4.18 Monitoring. All of the Customer Accounts that are
monitored are being monitored on the Telephone Lines which are owned and
controlled by Seller and no other alarm accounts owned by any third parties are
monitored on the Telephone Lines. Seller is currently performing the
monitoring for all of the Customer Accounts and none of the Customer Accounts
are being monitored by a third party, except (a) the Scan Alert Customer
Accounts which are being monitored by Alltec Security Systems on a
month-to-month oral contract; (b) less than 10 Customer Accounts are being
monitored by Alarm Central Station pursuant to an agreement which is terminable
upon giving 30 days notice; (c) less than 10 Customer Accounts which have
Module Alarm Systems equipment and are monitored by Seller; and (d) 2 radio
accounts which are monitored by Seller. Except for the Customer Accounts
described in subsections (a), (b), (c) and (d) of this Section 4.18, none of
the Customer Accounts need to be reprogrammed in order for Seller to transfer
the monitoring to Buyer's monitoring facility. Seller also has a few elevator
phone lines which Seller is monitoring.
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4.19 Equipment. All of the Equipment is in good working
order and condition, ordinary wear and tear excepted. All of the inventory
included in the Assets is new, and not used or refurbished.
4.20 Location of Alarm Account Customers. All of the
Alarm Account Customers are located in Idaho, Arizona, California, Nevada, New
Mexico, Oregon and Washington ("Buyer's Existing Market").
4.21 Consents and Approvals. Seller has obtained all
consents, authorizations or approvals of any third parties required in
connection with the execution, delivery or performance of this Agreement by
Seller and the consummation of the transactions contemplated hereby.
4.22 Alarm System Equipment. To the best of Seller's
knowledge, Seller has completed installation of the Alarm System equipment on
the premises of each Customer Account for which Seller was responsible for
completing the installation, and such equipment meets all specifications
required by the applicable Customer Account. To the best of Seller's
knowledge, the Alarm System equipment installed by Seller for the Customer
Accounts and for the Buyer's Work in Progress and Seller's Work in Progress has
been installed in substantial accordance with good and workmanlike practices
prevailing in the industry at the time of installation and in compliance in all
material respects with applicable laws, rules, regulations and codes at the
time of its installation.
4.23 Intangibles. Included in EXHIBIT 4 is a list of the
Intangibles presently owned or utilized by Seller and included in the Assets.
As used herein, the term "Intangibles" means fictitious business names,
trademarks, service marks, trade names, patents, copyrights, registrations,
software licenses or applications with respect thereto and licenses or rights
under the same. Seller has not granted any license or other permission to
anyone else with respect to any Intangible. No claim has been asserted against
the Seller alleging infringement of any Intangible, nor, to Seller's knowledge,
does there exist any basis on which such a claim for infringement could
reasonably be based.
4.24 Accredited Investor Status. Seller 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.
4.25 Reliance. Seller recognizes and agrees that,
notwithstanding any investigation, Buyer is relying upon the representations
and warranties of Seller made herein.
4.26 Schedules Delivered at Execution. All of the
schedules described in this Agreement and prepared by Seller which are being
delivered to Buyer upon execution hereof (i) are true, accurate and complete,
as of the Closing Date; and (ii) have been prepared in conformity with the
provisions of this Agreement.
4.27 No Material Misstatements. No representation or
warranty by Seller or 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 EXHIBIT 5 ("Buyer's Disclosure Exhibit"), Buyer agrees,
represents and warrants as follows:
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<PAGE> 13
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 States of
Oregon, Nevada, Idaho and Washington as a foreign corporation. Buyer has full
corporate power and corporate authority to purchase and acquire the Assets 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.
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 No Material Misstatements. No representation or
warranty by Buyer 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.
5.6 Consents and Approvals. Buyer has obtained all
consents, authorizations or approvals of any third parties required in
connection with the execution, delivery or performance of this Agreement by
Buyer and the consummation of the transactions contemplated hereby.
6. Covenants of Seller.
6.1 Announcement Letter. Seller and Buyer have prepared
a mutually satisfactory announcement letter, the form of which is attached
hereto as EXHIBIT 6.1 and by this reference incorporated herein, with respect
to the sale of the Customer Accounts pursuant to this Agreement. Seller shall,
if its computer system is capable of doing so, deliver to Buyer at the Closing
address labels for all of the Customers and a sufficient amount of Seller's
envelopes and sheets of letterhead to enable Buyer to mail the announcement
letter to all of the Customers.
6.2 Corporate and Trade Names. The names "Phillips
Electronics," "Phillips Electronic Alarm Systems" and other assumed business
names and trade names of Seller are included in the Other Property sold to
Buyer hereunder. Within thirty (30) days after the Closing, Seller shall amend
its Articles of Incorporation in order to change its corporate name to a name
which is not similar to any of the corporate or trade names transferred to
Buyer.
6.3 Assignment of Nonsolicitation Agreements. Seller
hereby assigns to Buyer all of Seller's right, title and interest in and to any
nonsolicitation and noncompetition covenants and agreements, if any, with
respect to the Customer Accounts under which Seller's employees or other third
parties have agreed not to solicit the Customers or compete with Seller. Buyer
does
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<PAGE> 14
not assume any of Seller's duties or obligations under any of the
nonsolicitation and noncompetition covenants and agreements with respect to the
Customer Accounts. Seller has provided to Buyer true copies of all agreements
with respect to Seller's acquisition of any of the Customer Accounts from any
third party, including without limitation any acquisition by way of asset
purchase, stock purchase or merger.
6.4 Transfer to Buyer of Codes and Customer Information.
On or before the Closing Date, Seller shall deliver to Buyer all Customer
names, location of Alarm System equipment in the Customers' locations, Customer
contact lists, Alarm System zone information for each Customer location, and
any and all other information reasonably required by Buyer to provide
monitoring services from its central monitoring facility. On or before the
Closing Date, Seller shall also provide to Buyer the central station
identification number and installer codes for each Alarm System control panel,
all download programs and master codes necessary to connect the Alarm System to
Buyer's monitoring facility, and all other information reasonably required by
Buyer in order to remotely program the Alarm System equipment of the Customers
that is remotely programmable.
6.5 Conduct of Business from Execution Date Through
Closing Date. From the Execution Date through the Closing Date, Seller and
Stockholder shall operate Seller's business only in the ordinary course and
scope and in a manner consistent with its normal business practices and the
representations, warranties and agreements of Seller and Stockholder set forth
herein. From the Execution Date through the Closing Date, Seller and
Stockholder shall not, without the prior consent of Buyer, do any of the
following: (i) dispose of any of the Assets, other than inventory and supplies
consumed in the ordinary course of the Seller's business; or (ii) commit any
act that will have a materially adverse effect on the Assets or its lease of
its business premises.
7. 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 Seller and Stockholder and
their representatives shall have reasonable access to all books and records of
Seller to the extent that such access is lawful and may reasonably be required
by Seller and Stockholder in connection with matters relating to or affected by
the operations of Seller 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 Consent to Interview and Hire Employees. At least
five (5) business days prior to the Closing Date, Buyer shall be given the
opportunity to interview Seller's employees and hire those employees who meet
the following criteria effective as of 12:01 a.m. on the day following the
Closing Date: a) the employee passes Buyer's drug screening test; b) a
satisfactory criminal background check; and c) the employee must possess or be
qualified to obtain any licenses or permits required by the State of Oregon for
the work which such employee performed for Seller. Subject to such employees
meeting the foregoing hiring criteria, Buyer agrees to employ Seller's
employees (excluding those employees hired by the Dealer described in Section
16 hereof) for a period of not less than six (6) months after the Closing Date,
beginning on 12:01 a.m. on the day after the Closing Date, to perform
reasonably similar job duties as they performed for Seller at the same salary
(not including any bonus or incentive compensation) paid by Seller. If the
drug screening test cannot be performed by the Closing Date as to any
employees, then such employees will be hired, subject to a later drug screening
test. Buyer agrees that it will pay wages, salaries and other compensation due
to the employees which it hires beginning on
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<PAGE> 15
January 1, 1997, and the amount of such payments from January 1, 1997 through
the Closing Date shall be a reduction against the Purchase Price; provided,
however, that such employees will not be deemed to be Buyer's employees until
hired by Buyer effective after the Closing Date. Seller will continue to
provide its existing health and medical plan coverage for its former employees
hired by Buyer for the month of January, 1997, the cost of which is
attributable to the period after the Closing Date shall be added to the
Purchase Price as a Prepaid Expense. Buyer agrees that it will pay thirty
(30) days' severance payments to any of Seller's former employees who were
hired by Buyer on or after the Closing Date and whose employment is terminated
for other than cause prior to or upon the expiration of the first six (6) month
period after the Closing Date; provided, however, that if such employee is
terminated for other than cause by Buyer prior to the expiration of the first
six (6) month period after the Closing Date, then in addition to the severance
payment required hereunder, Buyer shall also pay to the employee the remaining
salary and wages due for the balance of the first six (6) month period after
the Closing Date. If such employee voluntarily terminates his or her
employment with Buyer or is terminated for cause during the first six (6) month
period, or, if applicable, the second six (6) month period after the Closing
Date, then Buyer shall not be obligated to pay any severance payments to such
employee. After the end of the first six (6) month period following the
Closing Date, Buyer agrees to continue to employ the majority of Seller's
former employees who were employed by Buyer for the first six (6) month period
after the Closing Date (excluding those who are employed by the Dealer after
the Closing Date) for an additional six (6) month period. If Buyer terminates
the employment for other than cause of any of Seller's former employees during
the second six (6) month period after the Closing Date, then Buyer shall pay to
such employee the remaining salary and wages due for the balance of the second
six (6) month period after the Closing Date. During the second six (6) month
period following the Closing Date, Buyer may make any changes in the employee's
functions, job title and work place location it deems necessary or advisable in
exercise of its business judgment, but shall not change such employee's salary
during such time period. Notwithstanding anything to the contrary set forth in
this Agreement, the employees hired by Buyer after the Closing Date shall be
subject to Buyer's personnel policies and procedures and shall perform their
jobs in a reasonably satisfactory manner, and Buyer shall not assume any
obligations owed by Seller to such employees, including without limitation, any
salary, bonus payments, vacation, sick pay, pension or health benefits. Any of
Seller's former employees who continue to be employed by Buyer after the end of
the twelve (12) month period following the Closing Date shall be "at will"
employees and may be terminated at any time by Buyer without cause.
Subject to the other terms and conditions contained in this
Section 7.2, Buyer agrees that as to Percilla Brown and Lorraine Vale, who are
currently on medical leave, Buyer will hire these employees on a full-time
basis at such time as the employees are cleared by their respective doctors to
return to work full-time. When they are able to return to work and are hired
by Buyer, their employment with Buyer will continue for the remainder of the
first six (6) month period after the Closing Date, and they shall be eligible
for thirty (30) days' severance payments if their employment is terminated for
other than cause upon the expiration of the first six (6) month period after
the Closing Date. If these employees are not cleared by their doctors to
return to work full-time until after the end of the first six (6) month period
after the Closing Date, then Buyer may, but shall not be obligated to, hire
such employees in the second six (6) month period after the Closing Date, and
they shall become at-will employees after the end of the twelve (12) period
following the Closing Date.
Janet DeVore, Kathy Gilley and Ron Stift will be employed by
either Seller or Dealer, and Ms. DeVore will be reasonably available to assist
Buyer with the transition of the monitoring of the Customer Accounts to Buyer's
Central Station and Mr. Stift will be reasonably
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<PAGE> 16
available to assist Buyer in connection with handling parts and other service
inventory. Janet DeVore's salary shall be prorated between Buyer and either
Seller or Dealer, based upon the mutual agreement of the parties hereto or, if
the parties are unable to agree, based upon the amount of time which such
employee works for each of the parties during each pay period at an hourly rate
of $14.00 per hour. Buyer will pay all of Kathy Gilley's salary and Seller
will pay all of Ron Stift's salary and there shall be no proration based on the
amount of services performed for Buyer, Seller or Dealer. The obligations of
Seller under this section may be assigned to the Dealer.
7.3 Addition of Call Processor to Business Line. Within
20 days after the Closing, Buyer shall arrange for AT&T to install a call
processor feature to be added to the Business Line, so that questions or
inquiries relating to new installations will be routed to the Dealer described
in Section 16 hereof and all other calls will be routed to Buyer. The
structure for the call processor feature and the script will be mutually agreed
to by Buyer and Chairman, or his assignee, in writing, and any future changes
in the structure for the call processor or script shall be mutually agreed to
by the parties in writing. If Buyer terminates the Dealer Agreement without
cause or if Buyer no longer wants to retain ownership or control over the
Business Line, then Dealer shall take ownership and control over the Business
Line and Buyer will execute such supersedure or letter of agency forms required
by the telephone company to transfer ownership and control of the Business Line
to the Dealer. If the Dealer Agreement is terminated for any reason other than
by Buyer without cause, then Buyer shall be immediately authorized to
unilaterally remove the call processor feature and exercise sole control over
the Business Line.
8. Nonsolicitation, Noncompetition and Nondisclosure of
Confidential Information
8.1 Nonsolicitation. For twenty (20) years following the
date of this Agreement, neither Seller, Chairman nor Stockholder will, directly
or indirectly, as a partner, limited partner, agent, representative,
stockholder, creditor or consultant or in any other capacity with any business,
in any manner, in or with respect to any Customer Accounts in the States of
Oregon, Washington, Idaho and Nevada, solicit, divert or accept orders for the
sale, deferred purchase, installation, maintenance or monitoring of alarm
systems or for providing surveillance, access, armed response or repair
services from any Customers whose Customer Accounts Buyer purchased from Seller
under this Agreement or who within one (1) year prior to such solicitation,
diversion or acceptance of orders, were or are customers of Buyer, including
Buyer's subsidiaries or affiliated corporations. For five (5) years following
the date of this Agreement, neither Seller, Chairman nor Stockholder will
directly or indirectly or as a partner, limited partner, 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; provided, however, that a general classified advertisement which Seller,
Chairman or Stockholder does not direct to Buyer's employees shall not violate
the restrictions set forth herein so long as Seller, Chairman or Stockholder
does not offer employment to any employee of Buyer or to a person who was an
employee of Buyer within the previous three (3) months.
8.2 Nondisclosure of Confidential Information. Seller,
Chairman and Stockholder agree to maintain as secret and confidential all
"Confidential Information," as defined herein, and agree 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; (b) if such
information becomes publicly available not due to
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<PAGE> 17
the fault of Seller, Chairman or Stockholder; and (c) as such use of
Confidential Information is reasonably required for any reason set forth in
Section 7.1 hereof. From and after the Closing Date, Seller, Chairman and
Stockholder shall also use their best efforts to restrict their agents and
employees from having access to or using any Confidential Information. The
term "Confidential Information" means any trade secrets, proprietary or other
information reasonably known by Seller, Chairman or Stockholder to be
confidential or reasonably designated in writing to Seller, Chairman and
Stockholder as confidential by Buyer with respect to the Customer Accounts or
the Assets, including, without limitation, any of the following information:
any customer or Customer lists; any lists, notes or compilations which contain
the names, addresses, telephone numbers or any contract information for or with
respect to the Customers; and copies of contracts, agreements and related
documents between Seller and the Customers under the Customer Accounts.
8.3 Noncompetition. Except as otherwise provided in this
Section 8.3, Chairman agrees that, for five (5) years following the date of
this Agreement, Chairman will not, without the prior written consent of Buyer,
which may be given or withheld in its sole and absolute discretion, (a) compete
in the States of Oregon or Washington in any manner, whether individually or as
a director, officer, partner, limited partner, member, employee, agent,
representative, stockholder, creditor, consultant, or in any other capacity,
with the business of Buyer or any subsidiary or affiliate of Buyer, which
business consists of selling, leasing, installing, servicing, and monitoring
residential and commercial alarm systems and providing surveillance, access and
patrol and armed response services to residential and commercial customers; or
(b) in any manner, directly or indirectly, engage in selling, promoting the use
of, leasing, installing, maintaining, or monitoring of any product or service
which performs the same function or use as alarm systems and security services
to customers or potential customers in the States of Oregon and Washington.
The parties agree that notwithstanding anything contained herein to the
contrary, that Chairman shall be entitled to work for the Dealer (defined in
Section 16 hereof) of Buyer without violating this covenant, so long as the
company remains a Dealer of Buyer. Notwithstanding anything to the contrary
set forth herein, if Buyer terminates the Dealer Agreement (defined in Section
16 hereof) without cause, then this Section 8.3 shall be null and void from and
after such termination date. The parties have agreed that One Million Dollars
($1,000,000.00) of the Purchase Price is allocated to the noncompete of
Chairman and will be paid directly to Chairman. If the Dealer described in
Section 16 is terminated as a Dealer of Buyer for any reason, then the purchase
or installment buyout of Chairman's interest in such Dealer shall not violate
this Section 8.3.
8.4 Enforcement. Seller, Chairman and Stockholder
acknowledge and agree that the time, scope and other provisions of Sections
8.1, 8.2 and 8.3 have been specifically negotiated by sophisticated parties and
specifically hereby agree that such time, scope and other provisions are
reasonable under the circumstances. Seller, Chairman and Stockholder further
agree that if, at any time, despite the express agreement of the parties
hereto, a court of competent jurisdiction holds that any portion of Sections
8.1, 8.2 and 8.3 is unenforceable for any reason, the maximum restrictions of
time, scope or other provisions reasonable under the circumstances, as
determined by such court, will be substituted for any such restrictions held
unenforceable. Seller, Chairman and Stockholder agree that Buyer will suffer
irreparable harm if Seller, Chairman or Stockholder fails to comply with the
provisions of this Section 8 and that Buyer will be entitled to injunctive
relief to enforce the terms of this Section 8 in addition to any other remedies
available to Buyer.
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9. Conditions Precedent to Obligations of Buyer. All obligations
of Buyer at the Closing are subject to the fulfillment prior to or at the
Closing by Seller, Chairman and Stockholder of each of the following:
9.1 Deliveries on the Execution Date. On or prior to the
Execution Date, Seller and Stockholder shall: (a) execute and deliver this
Agreement and the exhibits hereto; and (b) deliver a certified copy of the
resolution of the Board of Directors and stockholders of Seller authorizing the
execution, delivery and performance of this Agreement and all other actions to
be taken by Seller in connection therewith and an incumbency certificate with
respect to the officers of Seller. On or prior to the Execution Date, Chairman
shall also execute and deliver this Agreement. On or prior to the Execution
Date, Seller shall (c) execute and deliver the Affidavit and Agreement of
Prospective Investor; (d) execute and deliver the Registration Rights
Agreements; and (e) provide to Buyer a certificate of good standing from the
Secretary of State for the State of Oregon.
9.2 Deliveries on the Closing Date and Closing Date
Conditions. On or prior to the Closing Date, Seller shall: (a) execute, along
with Chairman and Stockholder, and deliver an Addendum to the Agreement and the
exhibits thereto; (b) execute and deliver an original bill of sale and
assignment agreement in the form attached as EXHIBIT 9.2 and other instruments
of transfer, in the form and substance reasonably satisfactory to counsel to
Buyer, necessary to transfer or convey all of the Assets to Buyer; and (c)
deliver to Buyer originals of all agreements and documents for the Customer
Accounts and all files and records relating to the Assets sold on the Closing
Date, including, without limitation, all computer records, data and information
stored on electronic media, and downloading codes. In addition, Buyer's
obligations at the Closing are subject to fulfillment of the following prior to
or at the Closing:
9.2.1 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 EXHIBIT 4 shall have been
instituted or threatened prior to the Closing Date that, if concluded adversely
to the Seller, would be materially adverse to Buyer's ownership of and
operation of the Assets.
9.2.2 Sublease. Seller shall have executed the
sublease agreement in the form attached hereto as EXHIBIT 2.2.1.
9.2.3 Seller's Certificate. At the Closing, Buyer
shall have received a Certificate, dated as of the Closing Date, signed by the
Seller, to the effect that all of the representations and warranties of Seller
and Stockholder set forth in Section 4 are true and correct as of the Closing
Date and that Seller has, in all material respects, complied with and performed
the terms, covenants, agreements and conditions required to be performed by
Seller as of the Closing Date under the Agreement.
9.2.4 Miscellaneous. Delivery to 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.
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<PAGE> 19
10. Conditions Precedent to Obligations of Seller, Chairman and
Stockholder. All obligations of Seller, Chairman and Stockholder at the
Closing are subject to the fulfillment prior to or at the Closing by Buyer of
each of the following:
10.1 Deliveries on Execution Date. On or prior to the
Execution Date, Buyer shall: (a) execute and deliver this Agreement and the
exhibits hereto; and (b) deliver a certified copy of the resolution of the
Board of Directors of Buyer authorizing the execution, delivery and performance
of this Agreement and all other actions to be taken by Buyer in connection
therewith. On or prior to the Execution Date, Parent shall execute and deliver
the Registration Rights Agreement.
10.2 Deliveries on Closing Date and Closing Date
Conditions. On or prior to the Closing Date, Buyer shall deliver to Seller,
Chairman and Stockholder an Addendum to the Agreement and the exhibits thereto.
In addition, Seller's, Chairman's and Stockholder's obligations at Closing are
subject to fulfillment of the following prior to or at the Closing:
10.2.1 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 EXHIBIT 5 shall have been
instituted or threatened prior to the Closing Date that, if concluded adversely
to the Buyer, would have a material adverse effect on Buyer's performance of
its obligations hereunder.
10.2.2 Payments. Payment to Seller of the Closing Date Payment due at Closing
pursuant to this Agreement.
10.2.3 Registration Statement. Parent shall have
filed the Registration Statement with the Securities and Exchange Commission
("SEC"), and the SEC shall have declared the Registration Statement for the Pro
One Stock to be effective.
10.2.4 Sublease. Buyer shall have executed and
delivered the sublease agreement in the form attached hereto as EXHIBIT 2.2.1.
10.2.5 Buyer's Certificate. At the Closing, Buyer
shall have delivered to Seller and Stockholder a Certificate, dated as of the
Closing Date, signed by the 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 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.
10.2.6 Miscellaneous. Delivery to Seller and
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.
11. Expenses. Buyer, Seller, Chairman 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.
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<PAGE> 20
12. 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 Assets, 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.
13. Indemnification By Seller, Chairman and Stockholder.
13.1 Indemnification. Notwithstanding any investigation
by Buyer, Seller, Chairman and Stockholder jointly and severally agree 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 Seller
and Stockholder 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 Seller, Chairman and Stockholder under this Agreement; (iii) any
liabilities of Seller to third parties of any nature arising out of any act
performed or state of facts suffered to exist by Seller on or prior to the
Closing Date, other than the performance of the duties and obligations under
the Contracts after the Closing Date; and (iv) the failure by Seller or its
predecessors to comply with, prior to the Closing Date, any "three (3) day
right of rescission" law or similar right of rescission statute covering any of
the Customer 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 13.1, 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
13.1 shall hereinafter be referred to as a "Buyer's Claim."
13.2 Survivability. In order for any Buyer Parties to be
entitled to indemnification for a Buyer's Claim as provided for in Section
13.1, a notice of Buyer's Claim must be submitted to Seller, Chairman and
Stockholder within the following applicable time limitations:
(a) Except as provided in Section 13.2(b) or in
cases of fraud or intentional misrepresentation, a Buyer's Claim pursuant to
Section 13.1(i) must be submitted on or before December 31, 1998;
(b) A Buyer's Claim pursuant to Section 13.1(i)
for a breach of Sections 4.1, 4.2, 4.3 and 4.6 must be submitted before the
expiration of the applicable statute of limitations with respect to such
Buyer's Claim; and
(c) All other Buyer's Claims must be submitted
before the expiration of the applicable statute of limitations with respect to
such Buyer's Claims.
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<PAGE> 21
13.3 Buyer's Claim Basket and Liability Limit. Seller's,
Chairman's and 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"). In no event shall the total liability of Seller, Chairman and
Stockholder for all Buyer's Claims exceed the Purchase Price ("Seller's
Liability Limit").
13.4 Notice; Tendering Defense to Seller and Stockholder.
Seller's, Chairman's and 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 Seller, Chairman and Stockholder with notice of such
litigation within twenty (20) days after receipt of such complaint by Buyer;
provided, however, that Seller, Chairman and Stockholder shall have the right
to defend any Buyer's Claim made by a third party and Seller, Chairman 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 Seller's
Liability Limit, as such term is defined in Section 13.3, 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; provided however, that Seller, Chairman or Stockholder
shall have the option to defend, at their cost and expense, any Buyer's Claim
which does not exceed the Claim Basket and to settle and compromise such
Buyer's Claim on terms approved in advance by Buyer and at Buyer's expense (if
within the Buyer's Claim Basket) or to settle and compromise such Buyer's Claim
at Seller's, Chairman's or Stockholder's expense. It is also agreed, however,
that if Buyer, in the reasonable exercise of its discretion, wishes to settle
or compromise the Buyer's Claim within the Buyer's Claim Basket, it may do so
at any time. 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 Seller, Chairman and
Stockholder shall have no right to be kept informed or to participate in such
litigation. Seller, Chairman and Stockholder shall also 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 Seller,
Chairman and Stockholder hereunder.
13.5 Right of Setoff. In addition to the rights of Buyer
under Sections 13.1 through 13.4, Seller, Chairman and Stockholder agree that
Buyer shall have the right at any time following the Closing Date to setoff
against any amounts payable to Seller 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 13.1 through 13.4.
14. Indemnification by Buyer.
14.1 Indemnification. Notwithstanding any investigation
by Stockholder, Buyer agrees to indemnify, hold harmless and defend Seller,
Chairman and Stockholder, including
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<PAGE> 22
Seller's, Chairman's and Stockholder's agents (collectively, the "Seller
Parties"), from and against, and to reimburse the Seller Parties with respect
to, any and all losses, damages, liabilities, costs and expenses, including
interest, penalties and reasonable attorney's fees, incurred by the Seller
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, or (ii) the nonfulfillment
or inadequate performance of any covenant or agreement on the part of Buyer
under this Agreement. This indemnification extends to any losses suffered or
costs incurred by the Seller Parties arising out of or relating to claims
pursuant to this Section 14.1, 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 Seller Parties pursuant to this Section
14.1 shall hereinafter be referred to as a "Seller's Claim."
14.2 Survivability. In order for any Seller Parties to be
entitled to indemnification for a Seller's Claim as provided for in Section
14.1, a notice of Seller's Claim must be submitted to Buyer within the
following applicable time limitations:
(a) Except in cases of fraud or intentional
misrepresentation, a Seller's Claim pursuant to Section 14.1(i) must be
submitted on or before December 31, 1998; and
(b) All other Seller's Claims must be submitted
before the expiration of the applicable statute of limitations with respect to
such Seller's Claims.
14.3 Seller'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 Seller's Claims must first exceed
Fifty Thousand Dollars ($50,000) ("Seller's Claim Basket"). In no event shall
the total liability of the Buyer for all Seller's Claims exceed the Purchase
Price ("Buyer's Liability Limit").
14.4 Notice; Tendering Defense to Buyer. Buyer's
obligation to indemnify and reimburse Seller, Chairman and Stockholder
hereunder is subject to prior written thirty (30) day notice by Seller,
Chairman or Stockholder of a Seller's Claim, unless the Seller's Claim involves
litigation, in which case Seller, Chairman or Stockholder shall provide Buyer
with notice of such litigation within twenty (20) days after receipt of such
complaint by Seller, Chairman or Stockholder; provided, however, that Buyer
shall have the right to defend any Seller's Claim made by a third party, and
Buyer shall have the right to control the defense, settlement or compromise of
such Seller's Claim and Seller, Chairman 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 Seller's, Chairman's
and 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 Seller'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. Notwithstanding
anything to the contrary contained in this Agreement, Seller, Chairman and
Stockholder shall control the defense, settlement or compromise of any Seller'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 Seller's Claim) do not exceed
the Seller's Claim Basket, and after the Seller's Claim Basket has been
exceeded, Seller, Chairman and Stockholder shall control the defense,
settlement or compromise of any Seller's Claim where the damages alleged or
prayed for in the complaint do not exceed the sum of Two Thousand Five Hundred
Dollars ($2,500), and Buyer shall have no right to be kept informed or to
participate in such litigation. Buyer shall also
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<PAGE> 23
indemnify and hold harmless Seller, Chairman and 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.
15. Transition Support. After the Closing Date and continuing for
a period of no less than ninety (90) days and no more than one hundred twenty
(120) days, Chairman, at no cost to Buyer, shall 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.
16. Dealer. It is anticipated that certain employees of Seller
and Chairman will form a limited liability company which will engage in the
alarm system sales, installation and service business as a dealer of Buyer on
or about the Closing Date (the "Dealer"). Buyer is willing to enter into a
mutually acceptable agreement for licensing the Seller's trade and corporate
names (the "License Agreement") and for the ongoing purchase of customer
accounts by Buyer ("Dealer Agreement") with such Dealer; provided however, that
if the parties are not able to execute a mutually satisfactory Dealer Agreement
within sixty (60) days after the Closing Date, Buyer may license the Other
Property and enter into a Dealer Agreement with any party it chooses.
17. Interest. In the event any party fails to pay any payment
when due hereunder, such party shall also pay interest to the other party at
the rate of nine percent (9%) per annum on the outstanding balance of the
past-due or delinquent payment from the date such payment is due, until paid.
Payment or accrual of interest does not excuse default or limit the exercise of
remedies hereunder.
18. Miscellaneous.
18.1 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 Seller: Phillips Electronics, Inc.
1110 N.W. Flanders
Portland, Oregon 97209
Attention: Robert L.
Phillips, President
If to Stockholder Robert L. Poznanski
or Chairman: 7700 Arbor Lake Court
Wilsonville, Oregon 97070
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<PAGE> 24
With a copy to: Philip N. Jones
Duffy, Kekel, Jones & Bernard
1100 S.W. Sixth Ave., Suite 1200
Portland, Oregon 97204
If to Buyer: Protection One Alarm
Monitoring, Inc.
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005
Attention: John W. Hesse
and
Protection One Alarm
Monitoring, Inc.
6011 Bristol Parkway
Culver City, California 90230
Attention: John E. Mack, III
With a copy to: Mark R. Wada
Farleigh, Wada & Witt, P.C.
121 S.W. Morrison Street,
Suite 600
Portland, Oregon 97204
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.
18.2 Modifications or Amendments. No amendment, change or
modification of this document shall be valid unless in writing and signed by
all parties hereto.
18.3 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.
18.4 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.
18.5 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 16.6 assigns.
18.6 Assignment. Seller and Stockholder may not assign
any rights or delegate any duties under this Agreement without the prior
written consent of Buyer.
18.7 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.
18.8 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
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<PAGE> 25
things reasonably necessary in connection with the performance of their
obligations hereunder and to carry out the intent of the parties hereto.
18.9 Applicable Law; Severability; Attorney's Fees. This
Agreement shall, in all respects, be governed by the laws of the State of
Oregon applicable to agreements executed and to be wholly performed within the
State of Oregon. Nothing contained herein 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 fees,
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 Multnomah County, Oregon.
18.10 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.
18.11 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) setoff or recoupment.
18.12 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.
18.13 Entire Agreement; Waiver; Further Assurances. This
Agreement, together with any related documents referred to in this Agreement,
constitutes the entire understanding and agreement of the parties with respect
to the subject matter of this Agreement, and any and all prior agreements,
understandings or representations are hereby terminated and canceled in their
entirety. 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 assigns. No reliance upon or
waiver of one or more provisions of this Agreement shall constitute a waiver of
any other provisions hereof. Each of the parties hereto shall execute
Page 25 - ASSET PURCHASE AGREEMENT
<PAGE> 26
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.
18.14 No Third Party Beneficiaries. Nothing contained in
this Agreement shall be construed to give any person other than Buyer, Seller
and Stockholder any legal or equitable right, remedy or claim under or with
respect to this Agreement, except that the employees described in Section 7.2
shall, from and after the Closing of the transaction, be third party
beneficiaries under Section 7.2 only.
18.15 Time is of the Essence. Time is of the essence for
each and every provision of this Agreement.
18.16 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, Seller 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 18.16. 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, Seller and Stockholder.
Notwithstanding anything to the contrary set forth in this Agreement or any
other documents executed by the parties, Buyer and Seller are 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, Seller or Parent.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
SELLER: PHILLIPS ELECTRONICS, INC.
By: ROBERT L. POZNANSKI
-------------------------------------
Name: Robert L. Poznanski
-----------------------------------
Its: Chairman
------------------------------------
STOCKHOLDER: ROBERT L. POZNANSKI AND DOROTHY V.
POZNANSKI, TRUSTEES OF THE POZNANSKI
LIVING TRUST DATED NOVEMBER 21, 1989
ROBERT L. POZANSKI
----------------------------------------
Robert L. Poznanski, Trustee
DOROTHY V. POZNANSKI
----------------------------------------
Dorothy V. Poznanski, Trustee
Page 26 - ASSET PURCHASE AGREEMENT
<PAGE> 27
CHAIRMAN: ROBERT L. POZNANSKI
----------------------------------------
Robert L. Poznanski,
aka Robert L. Phillips
BUYER: PROTECTION ONE ALARM MONITORING, INC.
By: JOHN E. MACK, III
----------------------------------------
John E. Mack, III, Executive Vice
President
Page 27 - ASSET PURCHASE AGREEMENT
<PAGE> 28
EXHIBITS
TO
ASSET PURCHASE AGREEMENT
Each of the following exhibits has been omitted. The Registrant
hereby agrees to furnish supplementally a copy of any omitted exhibit to the
Commission upon request.
<TABLE>
<CAPTION>
Exhibit Number
--------------
<S> <C>
1.1 Aging of Accounts Receivable1
1.6A Customer Accounts Included in Calculating QRR
1.6B Unqualified Accounts
1.7 Equipment
1.11 Telephone Lines
1.12 Unearned Revenue
1.13 Disclosures re Buyer's Work in Progress1
1.14 Disclosures re Seller's Work in Progress1
1.15 Prepaid Expenses1
2.2.1 Form of Sublease Agreement
2.3.2 Allocation of Purchase Price1
2.5 Forms of Accredited Investor Affidavit and Registration Rights Agreement
4 Seller's and Stockholder's Disclosure Exhibit
5 Buyer's Disclosure Exhibit
6.1 Form of Announcement Letter
9.2 Form of Bill of Sale
</TABLE>
___________
1 To be attached to the Asset Purchase Agreement
Addendum at Closing 18.16.0.0.0.0.0.1
Page 28 - ASSET PURCHASE AGREEMENT
<PAGE> 1
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
DATED: December 17, 1996
BETWEEN: Protection One, Inc.,
a Delaware corporation
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005 ("POI")
AND: Phillips Electronics, Inc.
1110 N.W. Flanders Street
Portland, Oregon 97209 (the "Shareholder")
RECITALS:
A. Pursuant to that certain Asset Purchase Agreement
dated December 17, 1996, among Protection One Alarm Monitoring, Inc.
("Monitoring"), Shareholder, Robert L. Poznanski and Dorothy V. Poznanski,
Trustees of the POZNANSKI LIVING TRUST dated November 21, 1989, and any
amendments thereto, and Robert L. Poznanski, also known as Robert L. Phillips
(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 Two Million Dollars
($2,000,000) (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 (the "Registered Shares"); and
B. Section 2.5 of the Purchase Agreement contemplates
that the Shareholder will enter into this Agreement to further define its
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 Registration Rights Agreement (the
"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.
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.
Page 1 - REGISTRATION RIGHTS AGREEMENT
<PAGE> 2
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.
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(s) 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 so 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
Page 2 - REGISTRATION RIGHTS AGREEMENT
<PAGE> 3
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, its Registrable Shares (and
Shareholder's other holdings of POI securities, if any) and Shareholder's
proposed methods of distribution of its 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 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.
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:
Page 3 - REGISTRATION RIGHTS AGREEMENT
<PAGE> 4
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 DECEMBER 17, 1996, BETWEEN
THE ISSUER AND THE HOLDER THEREOF.
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; provided, however, that Shareholder shall sell the
Registered Shares only through broker-dealers designated by POI. 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 (as such
term is defined under the Purchase Agreement) of the purchase and sale of the
Assets (as such term is also defined under the Purchase Agreement) under the
Purchase Agreement does not occur for any reason immediately following the
effective date of the Registration Statement through no fault of Monitoring,
then POI may terminate this Agreement by delivering to Shareholder written
notice of termination.
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 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 as it shall then appear in the books and records of the transfer agent
for the Common Stock.
7.1.2 If to POI, initially at the address
set forth in the Stock 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.
Page 4 - REGISTRATION RIGHTS AGREEMENT
<PAGE> 5
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.
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 Oregon 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: JOHN E. MACK, III
------------------------------------
Its: Executive Vice President
------------------------------------
SHAREHOLDER:
PHILLIPS ELECTRONICS, INC.
By: ROBERT L. POZNANSKI
------------------------------------
Its: Chairman
------------------------------------
Page 5 - REGISTRATION RIGHTS AGREEMENT
<PAGE> 1
Exhibit 5.1
[MITCHELL, SILBERBERG & KNUPP LLP LETTERHEAD]
December 27, 1996
Protection One, Inc.
6011 Bristol Parkway
Culver City, CA 90230
Re: Registration Statement on Form S-3
-Commission File No. 333-18159
----------------------------------
Gentlemen and Ladies:
We have acted as counsel for Protection One, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to the above-captioned
registration statement (the "Registration Statement"), of the offer and sale by
the Company of up to 250,000 shares (the "Shares") of the Common Stock, par
value $.01 per share, of the Company issuable pursuant to an Asset Purchase
Agreement dated December 17, 1996, among Protection One Alarm Monitoring, Inc.,
Phillips Electronics, Inc., Robert L. Poznanski and Dorothy V. Poznanski,
Trustees of the Poznanski Living Trust dated November 21, 1989, and Robert L.
Poznanski (the "Purchase Agreement").
In our capacity as counsel for the Company and for purposes of
this opinion letter, we have examined the originals, or copies identified to
our satisfaction as being true copies of the originals, of the following
documents:
1. The Purchase Agreement;
2. The Registration Statement;
3. The Fifth Restated Certificate of Incorporation
and the By-laws of the Company as presently in effect, each as certified
to us by a public official or an officer of the Company; and
4. Certain resolutions adopted by the Board of
Directors of the Company relating the issuance and sale of the Shares
and related matters.
We have also examined originals, or copies certified or
otherwise identified to our satisfaction, of such records of the Company and
such other agreements, instruments and documents as we have considered
necessary or appropriate to enable us to render the opinions expressed below.
<PAGE> 2
Protection One, Inc.
December 27, 1996
Page 2
In the course of our examinations and investigations, we have
assumed the legal capacity of all natural persons, the genuineness of all
signatures on original documents, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power,
corporate, partnership or other, to enter into and perform all obligations
thereunder and we have also assumed the due authorization by all requisite
action, corporate, partnership or other, the due execution and delivery by such
parties of such documents and the validity, binding effect and enforceability
thereof. As to all facts material to the opinions expressed herein that we
have not independently established or verified, we have relied upon statements
and representations of officers and other representatives of the Company and
others.
Based upon and subject to the foregoing, it is our opinion that
the Shares have been duly authorized, and when issued and delivered in
accordance with the terms of the Purchase Agreement will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion letter as an
exhibit to the Registration Statement and to the reference to our firm under
the caption "Legal Matters" in the Registration Statement. In giving such
consent, we do not hereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations thereunder. The opinions expressed
herein are given as of the date hereof, and we assume no obligation to advise
you of changes that may hereafter be brought to our attention.
Very truly yours,
/s/ MITCHELL, SILBERBERG & KNUPP LLP
MITCHELL, SILBERBERG & KNUPP LLP
LAL/ALP
<PAGE> 1
[Coopers & Lybrand Letterhead]
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Protection One, Inc. and Subsidiaries in this Amendment No. 1 to Registration
Statement on Form S-3 (File No. 333-18159) of our report, which includes an
explanatory paragraph with respect to a change in method of accounting for
certain subscriber account acquisition and transition costs, dated December 10,
1996, on our audits of the consolidated financial statements and financial
statement schedule of Protection One, Inc. and Subsidiaries as of September 30,
1996 and 1995, and for each of the three years in the period ended September
30, 1996. We also consent to the reference to our firm under the caption
"Experts."
/s/ Coopers & Lybrand L.L.P.
-----------------------------
COOPERS & LYBRAND L.L.P.
Portland, Oregon
January 2, 1997
