<PAGE> 1
As filed with the Securities and Exchange Commission on June 20, 1997.
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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PROTECTION ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-1063818
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
---------------
6011 Bristol Parkway
Culver City, California 90230
(310) 338-6930
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
James M. Mackenzie, Jr.
President and Chief Executive Officer
Protection One, Inc.
6011 Bristol Parkway
Culver City, California 90230
(310) 338-6930
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copy to:
Laura A. Loftin, Esq.
Mitchell, Silberberg & Knupp LLP
11377 West Olympic Boulevard
Los Angeles, California 90064
(310) 312-2000
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Approximate date of commencement of proposed sale to the public: From time
to time after the date this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered solely in connection with dividend or
interest reinvestment plans, check the following box. [X]
(Facing page continued on next page)
<PAGE> 2
(Continuation of facing page)
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]_______________
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Aggregate Price Aggregate
Title of Shares Amount to be Per Offering Amount of
to be Registered Registered (1) Unit (2) Price (2) Registration Fee
------------------ ---------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.01 per share 80,000 shares $13.1875 $1,055,000.00 $319.70
- ---------------------- ---------------- ---------------- -------------- -----------------
</TABLE>
(1) 80,000 shares represents the maximum number of shares expected to be
issued to the Selling Stockholder named herein in connection with the
acquisition by a wholly owned subsidiary of the Registrant of shares of
stock owned by such Selling Stockholder. The actual number of shares
issued to the Selling Stockholder will be determined at the time such
acquisition is consummated, as more fully described herein.
(2) Pursuant to Rule 457(c) promulgated under the Securities Act of 1933, the
offering price per share, the aggregate offering price and the
registration fee were calculated based on the average of the high and low
sale prices of the Common Stock on the Nasdaq National Market on June
18, 1997.
--------------------
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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<PAGE> 3
EXPLANATORY NOTE
This Registration Statement on Form S-3 (the "Registration
Statement"), including the Prospectus forming a part hereof (the "Prospectus"),
relates to the offer and sale from time to time of shares of the Common Stock,
par value $.01 per share (the "Common Stock"), of Protection One, Inc. ("POI")
to be issued to Mr. Jeffrey E. Kerr (the "Selling Stockholder") in connection
with the acquisition (the "Acquisition") from such stockholder and the Kerr
Charitable Trust of all of the outstanding stock of Able Alarms of Arizona,
Incorporated by Protection One Alarm Monitoring, Inc., a wholly owned subsidiary
of POI. Although POI has agreed to use its best efforts to cause the
Registration Statement be declared effective by the Securities and Exchange
Commission, no shares of Common Stock will be offered or sold by the Selling
Stockholder 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 the Selling
Stockholder if the Acquisition is not consummated.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE SECURITIES,
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS Subject to Completion - Issued June 20, 1997
_______ Shares
PROTECTION ONE, INC.
Common Stock
The _______ shares of Common Stock, $.01 par value per share ("Common
Stock"), of Protection One, Inc., a Delaware corporation ("POI"), covered by
this Prospectus (the "Shares") may be offered for sale from time to time by and
for the account of Mr. Jeffrey E. Kerr (the "Selling Stockholder"). See "Selling
Stockholder." The Selling Stockholder is acquiring the Shares in connection with
the acquisition by Protection One Alarm Monitoring, Inc., a wholly owned
subsidiary of POI ("Monitoring"), of all of the outstanding stock of Able Alarms
of Arizona, Incorporated, an Arizona corporation ("Able" and such acquisition
the "Acquisition") pursuant to two Stock Purchase Agreements each dated as of
June 20, 1997 (the "Purchase Agreements"), one between Monitoring, on the one
hand, and the Selling Stockholder and Able, on the other, and one between
Monitoring, on the one hand, and the Kerr Charitable Trust and Able, on the
other.
POI is registering the Shares as required by the Purchase Agreements. POI
will not receive any of the proceeds from the sale of Shares by the Selling
Stockholder, but will pay all expenses incident to this offering other than any
underwriting discounts or selling commissions, transfer taxes and fees and
expenses payable to third parties employed by the Selling Stockholder. See
"Plan of Distribution."
The distribution of the Shares by the Selling Stockholder is not subject
to any underwriting agreement. The Selling Stockholder may from time to time
offer and sell the Shares through the Nasdaq National Market System in ordinary
brokerage transactions, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices, either through broker-dealers acting as
agents or brokers for the seller or through broker dealers acting as agents or
principals. Such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholder
and/or the purchasers of the Shares for whom such broker-dealers act as agent,
which compensation may be in excess of customary commissions. The price at which
any Shares may be sold, and the underwriting discounts and agent's commissions,
if any, paid in connection with any such sale, are unknown and may vary from
transaction to transaction. To the extent required, the purchase price, the name
of any such underwriter, dealer or agent and applicable underwriter's discount,
dealer's purchase price or agent's commission with respect to a particular
offering, if any, will be set forth in an accompanying supplement to this
Prospectus. The aggregate net proceeds to the Selling Stockholder from the sale
of any Shares will be the price thereof less the aggregate underwriter's
discount or agent's commissions, if any. See "Plan of Distribution."
The Selling Stockholder and any agent, broker, dealer or
underwriter that participates with the Selling Stockholder in the distribution
of the Shares may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any and all commissions received by them and any profit on
the resale of the Shares purchased by them may be deemed underwriting
commissions or discounts under the Securities Act. See "Plan of
Distribution."
<PAGE> 5
(Continuation of cover page)
The Common Stock is traded on the Nasdaq National Market under the symbol
"ALRM." On June 19, 1997, the last reported sale price for the Common Stock
was $13.125 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.
<PAGE> 6
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN
MADE TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY POI, THE SELLING STOCKHOLDERS 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. POI's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996 and March 31, 1997; 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.
2
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Incorporation of Certain Information by Reference............................2
Available Information........................................................3
Forward-Looking Statements...................................................4
The Company..................................................................4
Risk Factors.................................................................5
The Acquisition.............................................................12
Use of Proceeds.............................................................12
Description of Capital Stock................................................12
Selling Stockholder.........................................................13
Plan of Distribution........................................................13
Legal Matters...............................................................15
Experts.....................................................................15
</TABLE>
AVAILABLE INFORMATION
POI is subject to the informational requirements of the Exchange Act, and
in accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information may be
inspected without charge and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's public reference facilities in New York, New York, and Chicago,
Illinois at prescribed rates. The Commission also maintains a Web Site at
http://www.sec.gov. that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
The Common Stock is traded on the Nasdaq National Market (Symbol: ALRM).
Reports, proxy statements and other information concerning POI also may be
inspected at the office of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
POI has filed with the Commission a Registration Statement on Form S-3
under the Securities Act with respect to the shares of Common Stock offered
hereby (including all amendments and supplements thereto, the "Registration
Statement"). This Prospectus, which forms a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits filed therewith, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to POI and the Common Stock offered hereby, referenced
is made to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any
agreement, instrument or other document referred to are not necessarily
complete, and with respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of such document. Each such statement is
qualified in its entirety by such reference.
3
<PAGE> 8
FORWARD-LOOKING STATEMENTS
This Prospectus and the materials incorporated by reference herein
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such statements include, but are not limited to, statements of the
Company's or management's intentions, expectations, beliefs or hopes, strategies
regarding the future and statements regarding liquidity, anticipated cash needs
and availability and anticipated expense levels. Forward looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, could differ materially from those set
forth in or contemplated by the forward-looking statements herein as a result of
the factors set forth below under the caption "Risk Factors" and elsewhere in
this Prospectus and the materials incorporated by reference herein. Each
forward-looking statement set forth or incorporated by reference in this
Prospectus are based on information available to the Company at the time such
statement was made, and the Company the Company assumes no obligation to update
any such forward-looking statement.
THE COMPANY
Protection One, Inc. and its subsidiaries (collectively the "Company")
provide security alarm monitoring services for residential and small business
subscribers. The Company monitors digital signals arising from burglaries, fires
and other events through security systems installed at subscribers' premises.
Most of these signals are received and processed at the Company's central
monitoring station located in Portland, Oregon. The Company also sells enhanced
security services, patrol and alarm response services and alarm systems and
provides local field repair services through 13 branch offices. Enhanced
security services provided by the Company include two-way voice communication,
supervised monitoring services, pager services, wireless backup services and
extended service protection. Based on the Company's 228,825 subscribers as of
March 31, 1997 (approximately 80% of which are residential), the Company
believes it is the fourth largest residential security alarm monitoring company
in the United States and the largest in the seven western states of Arizona,
California, Nevada, New Mexico, Oregon, Utah and Washington.
The Company's strategy is to enhance its position as the largest
residential security alarm monitoring company in the western United States by
pursuing a balanced growth plan incorporating the purchase of subscriber
accounts from independent security alarm systems dealers with whom the Company
has exclusive purchase agreements (the "Dealer Program"), acquisitions of
portfolios of subscriber accounts, the sale of enhanced security services and
new alarm systems and possible joint ventures and other strategic alliances.
The Company's executive offices are located at 6011 Bristol Parkway,
Culver City, California 90230 and its telephone number is 310-338-6930.
Protection One(R) is a trademark of Protection One, Inc.
4
<PAGE> 9
RISK FACTORS
In addition to the other information set forth and incorporated by
reference in this Prospectus, the following risk factors should be considered
carefully in evaluating an investment in the Common Stock offered hereby:
Risks Related to High Leverage. The Company is highly leveraged. At March
31, 1997, the Company's consolidated indebtedness was $264.3 million (excluding
$0.8 million of contingent reimbursement obligations under outstanding letters
of credit), and Monitoring had unused borrowing capacity under its revolving
credit facility (the "Revolving Credit Facility") of $78.7 million. (POI is a
holding company with no operations of its own and no significant assets other
than POI's ownership of the capital stock of Monitoring.) Future additions of
subscriber accounts through the purchases from Company's independent dealers
(the "Dealer Program") and future acquisitions of subscriber account portfolios
will require additional borrowings under Monitoring's revolving credit facility
(the "Revolving Credit Facility"), thereby further increasing the Company's
leverage. See "-- Risks Related to Acquisitions." All borrowings then
outstanding under the Revolving Credit Facility are currently due in full on
January 3, 2000. Although Monitoring believes that it will be able to obtain
further extensions of the maturity date of the Revolving Credit Facility from
time to time, or will be able to refinance the Revolving Credit Facility prior
to its present maturity date, there can be no assurance that Monitoring will be
able to do so.
Monitoring is required to make semiannual cash payments of interest on
Monitoring's 6-3/4% Convertible Senior Subordinated Notes due 2003 (the
"Convertible Notes") of $3.5 million; in addition, the principal amount of
Monitoring's 13-5/8% Senior Subordinated Discount Notes due 2005 (the "Discount
Notes") will accrete in value until June 30, 1998, and Monitoring will be
required to make cash payments of interest on the Discount Notes beginning on
December 31, 1998. Based on the Discount Notes' interest rate of 13-5/8%, such
interest payment will be $11.3 million semiannually, or $22.6 million per year.
There can be no assurance that Monitoring's cash flows from operations will be
sufficient to make the required interest payments on the Convertible Notes, the
Discount Notes and borrowings under the Revolving Credit Facility.
The indentures pursuant to which the Convertible Notes and the Discount
Notes were issued (the "Convertible Notes Indenture" and the "Discount Notes
Indenture," respectively ) do not provide for any current amortization of
principal or require the establishment of any reserves or sinking funds in
respect of the payment of principal. As a result, Monitoring will be required to
repay the full principal amount of the Convertible Notes ($103.5 million) on
September 15, 2003 and the full principal amount of the Discount Notes ($166.0
million) on June 30, 2005. There can be no assurance that Monitoring will have
the cash necessary to repay the Convertible Notes and the Discount Notes at
maturity or will be able to refinance such obligations.
Monitoring's ability to pay the principal of and interest on the
Convertible Notes and the Discount Notes and continue to service its other
indebtedness will be subject to various business, financial and other factors,
many of which are beyond the Company's control. In addition, each of the
Discount Notes Indenture, the agreement governing the Revolving Credit Facility
(the "Credit Agreement") and, to a lesser extent, the Convertible Notes
Indenture includes covenants that restrict the operational and financial
flexibility of the Company. Failure to comply with certain covenants would, in
some instances, permit the holders of the Convertible Notes or the Discount
Notes or the lenders under the Revolving Credit Facility to accelerate the
maturity of Monitoring's obligations thereunder, and in other instances could
result in cross-defaults permitting the acceleration of all such debt and debt
under other agreements.
The Company's high degree of leverage may have important consequences to
holders of the Common Stock, including the following: (i) a substantial portion
of the Company's cash flow from operations is, and will continue to be,
dedicated to the payment of the principal of and interest on the Company's
indebtedness, thereby, reducing the funds available to the Company for its
operations and future growth or other business opportunities; (ii) the Company's
ability to obtain additional financing in the future for working capital, the
Dealer Program, acquisitions of portfolios of subscriber accounts, capital
expenditures, general corporate purposes or other purposes may be impaired;
(iii) the Convertible Notes Indenture, the Discount Notes Indenture and the
Credit Agreement contain, and are expected to continue
5
<PAGE> 10
to contain, certain restrictive covenants, including certain covenants that
require the Company to obtain the consent of the lenders under the Revolving
Credit Facility and to maintain certain financial ratios in order to undertake
significant acquisitions of portfolios of subscriber accounts; (iv) Monitoring's
borrowings under the Revolving Credit Facility are at floating rates of
interest, causing the Company to be vulnerable to increases in interest rates;
(v) the Company will be more vulnerable to a downturn in the Company's business
or the economy generally; and (vi) the Company's ability to compete against
other less leveraged companies may be adversely affected.
Risks Related to Acquisitions. A principal element of the Company's
business strategy is to acquire portfolios of alarm monitoring accounts. During
the fiscal 1992-1996 period, the Company completed 117 acquisitions of the
portfolios of subscriber accounts of other alarm service companies, and those
acquisitions were the primary source of the Company's growth during that period.
Although the Dealer Program is anticipated to be an increasingly important
component of the Company's growth, acquisitions of portfolios of subscriber
accounts are expected to continue. The Company faces competition for the
acquisition of portfolios of subscriber accounts, and may be required to offer
higher prices for acquired accounts than the Company has in the past. See
"--Competition." In addition, due to the continuing consolidation of the
security alarm industry and the acquisition by the Company and other alarm
companies of a number of large portfolios of subscriber accounts, there may in
the future be fewer large portfolios of subscriber accounts available for
acquisition. There can be no assurance that the Company will be able to find
acceptable acquisition candidates or, if such candidates are identified, that
acquisitions can be consummated on terms acceptable to the Company.
Acquisitions of portfolios of subscriber accounts involve a number of
special risks, including the possibility of unanticipated problems not
discovered prior to the acquisition, account attrition and the diversion of
management's attention from other business activities in order to focus on the
assimilation of accounts. For acquisitions that are structured as the purchase
of the stock of other alarm companies, the Company may assume unexpected
liabilities and must dispose of the unnecessary assets of the acquired
companies.
Because the Company's primary consideration in acquiring a portfolio of
subscriber accounts is the amount of cash flow that can be derived from the
monthly recurring revenue ("MRR") associated with the purchased accounts, the
price paid by the Company is customarily directly tied to such MRR. The price
paid varies based on the number and quality of accounts being purchased from the
seller, the historical activity of such accounts and other factors. The seller
typically does not have audited historical financial information with respect to
the acquired accounts; thus, in making acquisitions the Company generally has
relied on management's knowledge of the industry, due diligence procedures and
representations and warranties of the sellers. There can be no assurance that
such representations and warranties are true and complete or, if such
representations and warranties are inaccurate, that the Company will be able to
recover damages from the seller in an amount sufficient to fully compensate the
Company for any resulting losses. The Company expects that future acquisitions
will present at least the same risks to the Company as its prior acquisitions.
An important aspect of the Company's acquisition program is the
assimilation of subscriber accounts into the Company's operations after
purchase. Depending on the size, frequency and location of acquisitions, the
assimilation of subscribers may adversely affect the provision of field repair
services to existing subscribers, which may cause subscriber attrition to
increase. In addition, if the Company's corporate or branch operations fail to
assimilate a substantial portion of acquired subscriber accounts, the Company
may experience higher attrition in the future.
History of Losses. The Company incurred losses attributable to common
stock of $ 8.8 million for the six months ended March 31, 1997, $15.7 million
for fiscal 1996, $18.5 million for fiscal 1995, $9.2 million for fiscal 1994,
$4.6 million for fiscal 1993 and $5.0 million for fiscal 1992. ("Losses
attributable to common stock" means the Company's net loss, less dividends
payable on preferred stock.) These losses reflect, among other factors, the
substantial charges incurred by the Company for amortization of purchased
subscriber accounts, interest incurred on the Company's indebtedness and
extraordinary losses on early extinguishment of debt. Such charges, with the
exception of the extraordinary losses, will increase as the
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<PAGE> 11
Company continues to purchase subscriber accounts, if the Company's indebtedness
increases, or if interest rates increase. The Company's earnings have been
insufficient to cover its fixed charges since the Company was formed, and there
can be no assurance that the Company will attain profitable operations.
Risks Related to the Dealer Program. During fiscal 1995 and fiscal 1996,
the Company increased its emphasis on the Dealer Program, which became a more
significant source of growth than in prior years. This emphasis has continued in
fiscal 1997. Several of the Company's competitors also have dealer programs, and
there can be no assurance that the Company will be able to retain or expand its
current dealer base or that competitive offers to the Company's dealers will not
require the Company to pay higher prices to the Company's dealers for subscriber
accounts than previously paid. The Company's five highest producing dealers
generated 45.2% of the total subscriber accounts purchased by the Company
through the Dealer Program in the fiscal 1996 and 32.5% of the total subscriber
accounts purchased by the Company in the six months ended March 31, 1997. The
loss of any of such dealers would negatively impact the Company's subscribers,
revenues and cash flows from operations.
Need for Additional Capital. In fiscal 1995 and fiscal 1996, the Company
spent a total of $170.7 million in investing activities, including acquisitions
of portfolios of subscriber accounts and purchases of subscriber accounts
through the Dealer Program. Net cash provided by operating activities during
such period totaled $32.6 million, and the Company used borrowings under the
Revolving Credit Facility and proceeds from offerings of debt and equity
securities to fund the remainder of the Company's investing activities. The
Company has continued in fiscal 1997, and intends to continue, to pursue
subscriber account growth through the Dealer Program and acquisitions. As a
result, the Company will be required to seek additional funding from additional
borrowings under the Revolving Credit Facility and the sale of additional
securities in the future, which may lead to higher leverage or the dilution of
then existing holders' investment in the Common Stock. See "--Risks Related to
High Leverage." Any inability of the Company to obtain funding through external
financings is likely to adversely affect the Company's ability to increase its
subscribers, revenues and cash flows from operations. There can be no assurance
that external funding will be available to the Company on attractive terms or at
all.
Management of Growth. The Company's business strategy is to grow rapidly
through the addition of subscriber accounts. This expansion has placed and will
continue to place substantial demands on the Company's management and
operational resources and system of financial and internal controls. The
Company's future operating results will depend in part on the Company's ability
to continue to implement and improve the Company's operating and financial
controls and to expand, train and manage the Company's employee base.
Significant changes in quarterly revenues and costs may result from the
Company's execution of its business strategy, resulting in fluctuating financial
results. Additionally, management of growth may limit the time available to the
Company's management to attend to other operational, financial and strategic
issues.
Attrition of Subscriber Accounts. The Company experiences attrition of
subscriber accounts as a result of, among other factors, relocation of
subscribers, adverse financial and economic conditions, and competition from
other alarm service companies. In addition, the Company loses certain accounts,
particularly acquired accounts, to the extent the Company does not service those
accounts adequately or does not assimilate new accounts into the Company's
operations. An increase in such attrition could have a material adverse effect
on the Company's revenues and earnings.
When acquiring accounts, the Company seeks to withhold a portion of the
purchase price as a partial reserve against excess subscriber attrition. If the
actual attrition rate for the accounts acquired is greater than the rate assumed
by the Company at the time of the acquisition, and the Company is unable to
recoup its damages from the portion of the purchase price held back from the
seller, such attrition could have a material adverse effect on the Company's
financial condition or results of operations. There can be no assurance that the
Company will be able to obtain purchase price holdbacks in future acquisitions,
particularly acquisitions of large portfolios. The Company is not aware of any
reliable historical data relating to account attrition rates prepared by
companies from whom the Company has acquired accounts, and the Company has no
assurance that actual account attrition for acquired accounts will not be
greater than the attrition rate assumed or historically incurred by the Company.
In addition, because some
7
<PAGE> 12
acquired accounts are prepaid on an annual, semiannual or quarterly basis,
attrition may not become evident for some time after an acquisition is
consummated.
At March 31, 1997, the cost of subscriber accounts and intangible assets,
net of previously accumulated amortization, was $299.2 million, which
constituted 86.9% of the book value of the Company's total assets. The Company's
purchased subscriber accounts are amortized on a straight-line basis over the
estimated life of the related revenues. To estimate such life, the Company first
determines gross subscriber attrition, defined by the Company for a period as a
quotient, the numerator of which is equal to the number of subscribers who
disconnect services during such period and the denominator of which is the
average of the number of subscribers at each month end during such period. Gross
subscriber attrition was 19.3% and 18.3% for fiscal 1995 and fiscal 1996,
respectively, and 17.6% for the twelve months ended March 31, 1997. The Company
offsets gross attrition by adding new accounts from subscribers who move into
premises previously occupied by Company subscribers and in which security alarm
systems are installed, conversions of accounts that were previously monitored by
other alarm companies to the Company's monitoring services and accounts for
which the Company obtains a guarantee from the seller that provides for the
Company to "put" back to the seller canceled accounts. The resulting figure is
used as a guideline to determine the estimated life of subscriber revenues. It
is the Company's policy to review periodically actual account attrition and,
when necessary, adjust the remaining estimated lives of the Company's purchased
accounts to reflect assumed future attrition. In fiscal 1993, the Company made
such an adjustment to the estimated life of subscriber accounts, reducing such
estimated life from 12 years to 10 years. There could be a material adverse
effect on the Company's results of operations and financial condition if actual
account attrition significantly exceeds assumed attrition and the Company has to
make further adjustments with respect to the amortization of purchased
subscriber accounts.
Impact of Accounting Differences for Account Purchases and New
Installations. A difference between the accounting treatment of the purchase of
subscriber accounts (including both purchases of subscriber account portfolios
and purchases under ongoing agreements with independent alarm dealers) and the
accounting treatment of the generation of subscriber accounts through direct
sales by the Company's sales force has a significant impact on the Company's
results of operations. All direct external costs associated with purchases of
subscriber accounts are capitalized and amortized over 10 years on a
straight-line basis. Also included in capitalized costs are certain acquisition
transition costs that reflect the Company's estimate of costs associated with
incorporating the purchased subscriber accounts into the Company's operations.
Such costs include costs incurred by the Company in fulfilling the seller's
pre-acquisition obligations to the acquired subscribers, such as providing
warranty repair services. In contrast, all of the Company's costs related to the
marketing, sales and installation of new alarm monitoring systems generated by
the Company's sales force are expensed in the period in which such activities
occur. The Company's marketing, sales and installation expenses for new systems
generally exceed installation revenues.
The Company's purchase activity increased significantly during fiscal
1994, fiscal 1995 and fiscal 1996. See "--Risks Related to Acquisitions." In
addition, during those periods the Company reduced the Company's sales of new
systems and related marketing expenditures. As a result of the difference in the
methods by which such activities are accounted for, the combined effect of these
two factors was to improve operating results during the three years ended
September 30, 1996. The Company has not further reduced, and does not expect to
further reduce, sales of new systems by Company personnel and related marketing
expenditures in fiscal 1997. There can be no assurance that the Company will not
increase its emphasis on the marketing and sales of new alarm system
installations in the future, particularly in connection with a joint venture or
other strategic alliance; any such increase could adversely affect results of
operations. The Company anticipates that subscriber accounts added through the
co-branded program with PacifiCorp will be purchased through the Dealer Program
rather than generated through sales of new alarm systems by Company personnel.
Possible Adverse Effect of "False Alarm" Ordinances. According to certain
data concerning the residential security alarm market prepared in December 1995
by J.P. Freeman & Co. (the "Freeman Data"), approximately 97% of alarm
activations that result in the dispatch of police or fire department personnel
are not emergencies, and thus are "false alarms." Significant concern has arisen
in certain municipalities about this high incidence of false alarms. This
concern could cause a decrease in the likelihood or
8
<PAGE> 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 __________ shares of Common Stock
outstanding at June 27, 1997, __________ shares were freely tradeable in the
public market without any restriction whatsoever, and an additional _________
shares were eligible for sale subject to the volume limitations of Rule 144
under the Securities Act. In addition, as of June 27, 1997, (i) an aggregate of
5,766,017 shares of Common Stock were issuable upon conversion of the
Convertible Notes at a conversion price of $17.95 per share, (ii) an aggregate
of __________ shares of Common Stock were issuable upon the exercise of
outstanding warrants with a weighted average exercise price of $_________ per
share, (iii) an aggregate of _________ shares of Common Stock were issuable upon
the exercise of outstanding options and management performance warrants with a
weighted average exercise price of $_______ per share, and (iv) an aggregate of
_________ shares were issuable in connection with certain acquisitions of
portfolios of alarm accounts, all of which shares are currently registered for
sale or resale under the Securities Act. Various stockholders of the Company
also have certain demand and "piggyback" registration rights pursuant to a
stockholders' agreement among such stockholders and POI. Sales and potential
sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Common Stock.
Dividend Policy, Restrictions on Dividends. POI has never paid any cash
dividends on the Common Stock and does not intend to pay any cash dividends in
the foreseeable future. POI is dependent upon the receipt of dividends or other
distributions from Monitoring to fund POI's operations, and the Credit Agreement
and the Discount Notes Indenture restrict POI's ability to declare or pay any
dividend on, or make any other distribution in respect of, the Common Stock and
do not permit distributions from Monitoring to POI other than for certain
specified purposes.
Possible Volatility of Prices of the Common Stock. The stock market has
from time to time experienced extreme price and volume fluctuations that have
been unrelated to the operating performance of particular companies. The market
prices of the Common Stock may be significantly affected by quarterly variations
in the Company's operating results, litigation involving the Company, general
trends in the security alarm industry, actions by governmental agencies,
national economic and stock market conditions, industry reports and other
factors, many of which are beyond the control of the Company. Due to all of the
foregoing factors, it is likely that the Company's operating results will fall
below the expectations of the Company, securities analysts or investors in some
future quarter. In such event, the trading price of the Common Stock would
likely be materially and adversely affected.
11
<PAGE> 16
THE ACQUISITION
On June 20, 1997, Monitoring entered into the Purchase Agreements, which
provide for the acquisition by Monitoring of all of the outstanding capital
stock of Able Alarms of Arizona, Incorporated. Pursuant to the Purchase
Agreements, in consideration of the Acquisition, Monitoring will (i) pay to the
Selling Stockholder approximately $1,131,000 in cash, $538,200 of which will be
deferred for 90 days pending certain purchase price adjustments, and (ii) will
deliver to the Selling Stockholder _________ shares of Common Stock, which
number was derived by dividing $____________ by an average of the closing price
of the Common Stock on the Nasdaq National Market during the period of the 10
most recent trading days ending on the second trading day prior to the signing
of the Purchase Agreements, and will pay to the Kerr Charitable Trust
approximately $2,300,000 in cash. The Purchase Agreements also require
Monitoring to pay approximately $269,500 to JK Alarms of Arizona, Inc., a
company affiliated with the Selling Stockholder. The Purchase Agreements provide
that POI will file the Registration Statement of which this Prospectus is a
part, and POI has agreed to use its best efforts to have the Registration
Statement declared effective by June 30, 1997, the date on which the Acquisition
is scheduled to close.
In connection with the Acquisition, POI and the Selling Stockholder
entered into a Registration Rights Agreement (the "Registration Rights
Agreement") that provides for the payment by POI of the expenses incurred in
connection therewith, other than underwriting discounts and selling commissions,
if any, transfer taxes and fees and expenses payable to third parties employed
by the Selling Stockholder.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale from time to time
of any of the Shares. All proceeds from the sale of the Shares will be for the
account of the Selling Stockholder, as described below. See "Selling
Stockholder" and "Plan of Distribution."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of POI consists of 40,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock, par value $.10 per share
("Preferred Stock").
COMMON STOCK
As of June 27, 1997, there were ______________ shares of Common Stock
issued and outstanding.
Each share of Common Stock entitles the holder of record thereof to cast
one vote on all matters submitted for a vote of stockholders. The holders of
Common Stock do not possess cumulative voting rights, and members of the Board
of Directors of POI are elected by a plurality vote. As a result, the holders of
a majority of outstanding shares of Common Stock voting for the election of
directors of POI can elect all directors then being elected.
Each share of Common Stock has an equal and ratable right to receive such
dividends as may be declared by the Board of Directors of POI out of funds
legally available therefor, subject to the rights of the holder(s) of any one or
more series of Preferred Stock then outstanding.
Upon the liquidation, dissolution or winding up of POI, the assets of POI
legally available for distribution to stockholders are distributable equally and
ratably among the holders of Common Stock, subject to prior distribution rights
of creditors of POI and to the preferential rights of the holders of any one or
more series of Preferred Stock then outstanding.
The holders of shares of Common Stock have no preemptive, subscription,
redemption or conversion rights and are not liable for further calls or
assessments. All outstanding shares of Common Stock are fully paid and
nonassessable.
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, Seattle, Washington.
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<PAGE> 17
PREFERRED STOCK
POI is authorized to issue up to an aggregate of 5,000,000 shares of
Preferred Stock in such series and with such designations, rights and
preferences as may be determined from time to time by the Board of Directors of
POI. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. In the event of such issuance, the
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of POI. As of the date
of this Prospectus, there are no shares of Preferred Stock outstanding, and POI
has no present intention to issue any additional such shares.
DELAWARE ANTI-TAKEOVER LAW
POI is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. Pursuant to Section 203, certain "business
combinations" (as defined) between a Delaware corporation and an "interested
stockholder" (defined generally as a stockholder who becomes the beneficial
owner of 15% or more of a Delaware corporation's outstanding voting stock) are
prohibited for three years following the date such stockholder became an
interested stockholder, unless: (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203; (ii) the
business combination or the transaction in which the interested stockholder
became an interested stockholder was approved by the corporation's board of
directors before the other party to the business combination became an
interested stockholder; (iii) upon consummation of the transaction that resulted
in the interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding voting stock owned
by directors who are also officers of the corporation or held in employee
benefit plans that do not provide employees a confidential right to determine
whether to tender (or how to vote) stock held by the plan; or (iv) the business
combination was approved by the board of directors of the corporation and by the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. The three-year prohibition also does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions that
increase an interested stockholder's percentage ownership of stock. The
provisions of Section 203 requiring a "supermajority" vote to approve certain
corporate transactions could enable certain of the Company's stockholders to
exercise veto power over such transactions.
SELLING STOCKHOLDER
All of the Shares are owned, and may offered and sold from time to time,
by the Selling Stockholder. The Selling Stockholder has advised the Company
that as of the date of this Prospectus, the Selling Stockholder does not own any
shares of Common Stock other than the Shares and that if all of the Shares are
sold as described herein, the Selling Stockholder will not own any shares of
Common Stock.
POI, Monitoring and Mr. Kerr have agreed that upon consummation of the
Acquisition, a company formed by Mr. Kerr will become a participant in the
Company's independent dealer program. Subject to the foregoing and except for
the transactions contemplated by the Purchase Agreements, the Selling
Stockholder has not had any material relationship with the Company or any of
its affiliates within the three-year period ending on the date of this
Prospectus.
PLAN OF DISTRIBUTION
The Selling Stockholder may from time to time sell the shares of Common
Stock covered by this Prospectus in one or more of the following transactions:
(i) to underwriters who will acquire the shares
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<PAGE> 18
for their own account and resell such shares in one or more transactions,
including negotiated transactions, at a fixed price or at varying prices
determined at the time of sale, with any initial public offering price and any
discount or concession allowed or re-allowed or paid to dealers subject to
change from time to time; (ii) through brokers or dealers, acting as principal
or agent, in transactions (which may involve block transactions) on the Nasdaq
National Market in ordinary brokerage transactions, in negotiated transactions
or otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, at negotiated prices or otherwise (including
without limitation sales in transactions that comply with the volume and manner
of sale provisions contained in paragraphs (e) and (f) of Rule 144 under the
Securities Act ("Rule 144")); or (iii) directly or indirectly through brokers or
agents in private sales at negotiated prices, or in any combination of such
methods of sale. This Prospectus may be supplemented or amended from time to
time to describe a specific plan of distribution.
In connection with the distribution of the Shares or otherwise, the
Selling Stockholder may: (a) enter into hedging transactions with
broker-dealers or other financial institutions, and in connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of Common Stock in the course of hedging the positions they assume with
the Selling Stockholder; (b) sell shares of Common Stock short and redeliver
the Shares to close out such short positions; and/or (c) enter into option or
other transactions with broker-dealers or other financial institutions that
require the delivery to such broker-dealer or other financial institution of the
Shares, which Common Stock such broker-dealer or other financial institution may
(subject to any applicable transfer restriction contained in an agreement
between the Selling Stockholder and the Company) resell pursuant to this
Prospectus as supplemented or amended to reflect such transaction. The Selling
Stockholder also may loan or pledge the Shares to a broker-dealer or other
financial institution and, upon a default, such broker-dealer or other financial
institution may effect sales of the pledged Shares pursuant to this Prospectus
as supplemented or amended to reflect such transaction. In addition to the
foregoing, the Selling Stockholder may, from time to time, enter into other
types of hedging transactions.
Underwriters participating in any offering may receive underwriting
discounts and commissions, discounts or concessions may be allowed or re-allowed
or paid to dealers, and brokers or agents participating in such transactions may
receive brokerage or agent's commissions or fees, all in amounts to be
negotiated in connection with sales pursuant hereto. The underwriter, agent or
dealer utilized in the sale of Common Stock will not confirm sales to accounts
of which such persons exercise discretionary authority. In effecting sales of
the Shares, brokers or dealers engaged by the Selling Stockholder may arrange
for other brokers or dealers to participate. Brokers or dealers may receive
compensation in the form of commissions or discounts from the Selling
Stockholder and may receive commissions from the purchases of Shares for whom
such broker-dealers may act as agents, all in amounts to be negotiated,
including immediately prior to the sale.
The Selling Stockholder and all underwriters, dealers or agents, if any,
who participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any profit on the sale of such Shares by such stockholders, and all
discounts, commissions or concessions received by such underwriters, dealers or
agents, if any (whether received from the Selling Stockholder and/or from the
purchasers of the Shares for whom those dealers or agents may act as agents),
may be deemed to be underwriting discounts and commissions under the Securities
Act.
Certain of the above-described underwriters, dealers, brokers or agents
may engage in transactions with, or perform services for, with the Company and
its affiliates in the ordinary course of business.
Upon POI being notified by the Selling Stockholder that any arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering or secondary distribution or a purchase by a
broker-dealer, to the extent required by applicable law, a supplement to this
Prospectus will be distributed that will set forth the name(s) of the
participating underwriters, dealers or agents, the aggregate amount of Shares
being so offered and the terms of the offering, including all underwriting
discounts, commissions and other items constituting compensation from, and the
resulting net proceeds to, the Selling Stockholder, all discounts, commissions
or concessions allowed or re-allowed or paid to
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<PAGE> 19
dealers, if any, and, if applicable, the purchase price to be paid by any
underwriter for shares of Common Stock purchased from the Selling Stockholder.
The Selling Stockholder and other persons participating in the
distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations of the Commission thereunder,
including, without limitation, Regulation M, which provisions may limit the
timing of the purchase and sale of shares of Common Stock by the Selling
Stockholder.
Shares that qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to this Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
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.......................................... $ 319.70
Legal (Including blue sky) fees and expenses.................. 3,000.00
Accounting fees and expenses.................................. 1,000.00
Miscellaneous................................................. 680.30
---------
Total $5,000.00
=========
</TABLE>
All of the foregoing expenses other than the SEC registration fee are estimates.
Item 15. Indemnification of Directors of and Officers.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation has the power to indemnify a director,
officer, employee or agent of the corporation and certain other persons serving
at the request of the corporation in related capacities against amounts paid and
expenses incurred in connection with an action or proceeding to which he is or
is threatened to be made party by reason of such position, if such person shall
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful, provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances. The Fifth Restated
Certificate of Incorporation of the Registrant, as amended (the "Certificate of
Incorporation") provides that the Registrant shall indemnify its directors and
officers to the fullest extent permitted the DGCL.
The Certificate of Incorporation also provides, as permitted by Section
102(b) of the DGCL, that no director shall be liable to the Registrant or its
stockholders for monetary damages for breach of his fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction in which the director derived an improper personal benefit.
The By-laws of the Registrant contain provisions to the effect that each
director, officer and employee of the Registrant shall be indemnified by the
Registrant against liabilities and expenses in connection with any legal
proceedings to which he may be made a party or with which he may become involved
or threatened by reason of having been an officer, director or employee of the
company or of any other organization at the request of the company. The
provisions include indemnification with respect to matters covered by a
settlement. Under Delaware law, any such indemnification shall be made only if
the Board determines by a majority vote of a quorum consisting of disinterested
directors (or, if such quorum is not obtainable, or if the Board of Directors
directs, by independent legal counsel) or by stockholders, that indemnification
is proper in the circumstances because the person seeking indemnification has
met the applicable standards of conduct. In addition, it must be determined that
the director, officer or employee acted in good faith with the reasonable belief
that his action was in or not opposed to the best interests of the company, and,
with respect to any criminal action or proceeding, that he had no reasonable
cause to believe his conduct was unlawful.
The Registrant maintains a directors and officers liability insurance
policy providing for the insurance on behalf of any person who is or was a
director or officer of the Registrant and its subsidiary companies against any
liability incurred by such person in any such capacity or arising out of such
person's status as such. The insurer's limit of liability under the policy is $5
million in the aggregate for all insured
II-1
<PAGE> 21
losses. The policy contains various reporting requirements and is subject to
certain exclusions and limitations.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2.1 Stock Purchase Agreement dated as of June 20, 1997, among
Monitoring, Jeffrey E. Kerr and Able Alarms of Arizona,
Incorporated.*
2.2 Stock Purchase Agreement dated as of June 20, 1997, among
Monitoring, The Kerr Charitable Trust and Able Alarms of
Arizona, Incorporated.*
4.1 Fifth Restated Certificate of Incorporation of POI, as amended. (1)
4.2 Bylaws of POI, as amended. (2)
4.3 Registration Rights Agreement dated as of June 20, 1997, between
POI and Jeffrey E. Kerr.*
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).
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q filed by POI for the quarter ended December 31, 1996.
(2) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q filed by Protection One, Inc. for the quarter ended March
31, 1996.
Item 17. Undertakings.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if,
II-2
<PAGE> 22
in the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if this
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the Registrant is a foreign private issuer, to file a
post-effective amendment to the Registration Statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the Registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Beaverton, State of Oregon, on June 20, 1997.
PROTECTION ONE, INC.
By: /s/ JOHN W. HESSE
-------------------------------------
John W. Hesse
Executive Vice President
and Chief Financial Officer
Power of Attorney. KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints James M. Mackenzie, Jr.
and John W. Hesse, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and re-substitution and each with power
to act alone, for the undersigned and in his name, place and stead, and in any
and all capacities, to sign and execute any and all amendments (including
post-effective amendments) to this Registration Statement on Form S-3 and to
file the same with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this 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>
/s/ JAMES M. MACKENZIE, JR.
- ---------------------------------- President, Chief Executive June 20, 1997
James M. Mackenzie, Jr. Officer and Director
/s/ JOHN W. HESSE
- ---------------------------------- Executive Vice President, June 20, 1997
John W. Hesse Chief Financial Officer
(principal financial officer)
and Secretary
/s/ ROBERT M. CHEFITZ
- ---------------------------------- Director June 20, 1997
Robert M. Chefitz
/s/ BEN ENIS
- ---------------------------------- Director June 20, 1997
Ben Enis
- ---------------------------------- Director June __, 1997
James Q. Wilson
</TABLE>
II-4
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
2.1 Stock Purchase Agreement dated as of June 20, 1997, among
Protection One Alarm Monitoring, Inc. ("Monitoring"),
Jeffrey E. Kerr and Able Alarms of Arizona, Incorporated.*
2.2 Stock Purchase Agreement dated as of June 20, 1997, among
Monitoring, The Kerr Charitable Trust and Able Alarms of
Arizona, Incorporated.*
4.1 Fifth Restated Certificate of Incorporation of Protection One,
Inc. ("POI"), as amended. (1)
4.2 Bylaws of POI, as amended. (2)
4.3 Registration Rights Agreement dated as of June 20, 1997, between
POI and Jeffrey E. Kerr.*
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).
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q filed by POI for the quarter ended December 31, 1996.
(2) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on
Form 10-Q filed by Protection One, Inc. for the quarter ended March
31, 1996.
<PAGE> 1
EXHIBIT 5.1
[MITCHELL, SILBERBERG & KNUPP LLP LETTERHEAD]
June 20, 1997
Protection One, Inc.
6011 Bristol Parkway
Culver City, CA 90230
Re: Registration Statement on Form S-3
Commission File No. 333-
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 80,000 shares (the "Shares") of the Common Stock, par value $.01 per
share, of the Company issuable pursuant to a Stock Purchase Agreement dated June
20, 1997, between Protection One Alarm Monitoring, Inc., Jeffrey E. Kerr and
Able Alarms of Arizona, Incorporated (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 Agreements;
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.
June 20, 1997
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/AAA
<PAGE> 1
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Protection One, Inc. and Subsidiaries on Form S-3 (File No. 333-_____) 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, which report is included in the Annual
Report on Form 10-K for the year ended September 30, 1996. We also consent to
the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Portland, Oregon
June 19, 1997
