As filed with the Securities and Exchange Commission on September 30, 1998
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM S-2
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
----------------
Protection One, Inc.
(Exact name of registrant as specified in its charter)
Delaware 92-1063818
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Protection One Alarm Monitoring, Inc.
(Exact name of registrant as specified in its charter)
Delaware 93-1064579
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6011 BRISTOL PARKWAY
CULVER CITY, CALIFORNIA 90230
(310) 342-6300
(Address, including zip code, and telephone number, including
area code, of principal executive offices)
----------------
JAMES M. MACKENZIE, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROTECTION ONE, INC.
6011 BRISTOL PARKWAY
CULVER CITY, CALIFORNIA
(310) 342-6300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. |X|
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof, pursuant to item 11(a)(1) of
this Form, check the following box. |_|
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 Securi-ties 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(d) under
the Securities Act, check the following box and list the Securi-ties 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. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of registration
securities to be registered registered offering price per unit aggregate fee (1) (2)
(1) offering price (1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Subordinated $13,001,000 115-1/4% $14,983,652.5 $4,420
Discount Notes
Guarantees
$13,001,000 N/A N/A None
=============================================================================================================================
</TABLE>
(1) Pursuant to Rule 457(c) the registration fee was based on the average of
the bid and asked price as of September 29, 1998.
(2) Pursuant to Rule 457 (n) under the Securities Act, no separate fee is
payable for the Guarantees.
THE REGISTRANTS HEREBY AMEND 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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE>
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 these 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.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1998
$ 13,001,000
PROTECTION ONE ALARM MONITORING, INC.
13 5/8% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2005
-----------------------
The 13-5/8% Senior Subordinated Discount Notes due 2005 offered hereby (the
"Offered Notes") consist of $13,001,000 aggregate principal amount of
$107,900,000 outstanding 13-5/8% Senior Subordinated Discount Notes due 2005
(the "Notes") of Protection One Alarm Monitoring, Inc. (the "Company"), a
Delaware corporation. The Offered Notes are being sold by Western Resources,
Inc. (the "Selling Noteholder"), who will receive all of the proceeds from the
sale thereof. Protection One, Inc. (the "Parent Company"), the Company's direct
parent and a guarantor of the Notes, is an 82.4% owned subsidiary of the Selling
Noteholder. The Notes are not obligations of and are not guaranteed by the
Selling Noteholder. See "Description of the Notes."
As of June 30, 1998, the aggregate principal amount of Notes outstanding was
$107,900,000. The Notes are redeemable, in whole or in part, at the option of
the Company, at any time on or after June 30, 2000, initially at 106.813% of
their principal amount at maturity, plus accrued interest, declining to 100% of
their principal amount, plus accrued interest on or after June 30, 2003.
The Notes are unsecured senior subordinated indebtedness of the Company, ranking
junior in right of payment to the Company's senior indebtedness. The Indenture
governing the Notes prohibits the incurrence of subordinated indebtedness
ranking senior to the Notes. Additionally, the Indenture provides that, unless
the subordination provisions with respect to the Notes are eliminated, the
Company will not incur any unsecured indebtedness that is senior to the Notes at
the same time that any secured debt of the Company is outstanding. The Notes are
unconditionally guaranteed on a senior subordinated basis by Protection One,
Inc. and by certain subsidiaries of the Company. At June 30, 1998, the Company
had total consolidated indebtedness of $540.8 million, of which $256.2 million
was senior indebtedness, and had availability of approximately $36.6 million
under its revolving credit facility (all of which would be senior indebtedness).
After giving effect to an offering of $250.0 million of 7-3/8% senior notes due
2005 (the "Senior Notes"), completed in August 1998, as well as an increase in
commitment under its revolving credit facility, at June 30, 1998, the Company
would have had total consolidated indebtedness, senior indebtedness and
availability under its revolving credit facility of approximately $544.0
million, $259.3 million and $463.5 million respectively. Holders of the senior
indebtedness are entitled to payment prior to holders of the Notes.
All expenses of registration incurred in connection herewith and all selling and
other expenses incurred by the Selling Noteholder will be borne by the Selling
Noteholder.
The Notes will be sold from time to time in negotiated transactions or
otherwise. The Notes may be sold at or above par or at a discount and are not
listed on any exchange, and there can be no assurance that the Notes will be
sold or that there will be a secondary market for the Notes. The Selling
Noteholder reserves the right to withdraw, cancel or modify the offer or
solicitation of offers made hereby without notice. The Selling Noteholder may
reject any offer in whole or in part. The Selling Noteholder and any brokers,
dealers or agents that participate in the distribution of the Notes may be
deemed to be underwriters, and any profit on the sale of the Notes by them and
any discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended (the "Securities Act").
See "Plan of Distribution."
For a discussion of certain factors that should be considered in evaluating an
investment in the Securities, see "Risk Factors" beginning on page 2.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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 , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") on Form
S-2 under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder covering the Securities offered hereby. This Prospectus,
which constitutes part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain portions of
which have been omitted in accordance with the Rules and Regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. For further information with respect to the Company,
reference is made to the Registration Statement.
The Company and the Parent Company are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder, and in accordance therewith, file reports and
other information with the Commission. The Registration Statement, including
exhibits thereto, as well as such reports and other information filed with the
Commission may be inspected without charge at the public reference facilities
maintained by the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10007. Copies of such material may also be obtained from the Public
Reference Section of the Commission in its Washington, D.C. office at prescribed
rates. In addition, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference its Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual
Report") and its Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, (the "Form 10-Q").
Any statements contained in the Annual Report or Form 10-Q shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
This Prospectus is accompanied by a copy of the Company's Annual Report and Form
10-Q together with documents incorporated by reference therein.
<PAGE>
THE COMPANY
The Company is a leading provider of security alarm monitoring and related
services in the United States, with approximately 1.3 million subscribers as of
July 1998. The Company has grown rapidly by participating in both the expansion
and the consolidation of the security alarm monitoring industry.
The Company's revenues consist primarily of recurring payments for monitoring
and related services. The Company monitors digital signals communicated by
security systems installed at subscribers' premises. Security systems are
designed to detect burglaries, fires and other events. Through a network of
approximately 65 service branches, the Company provides repair of security
systems and, in select markets, armed response to verify that an actual
emergency has occurred.
The Company's principal executive offices are located at 6011 Bristol Parkway,
Culver City, California 90230, telephone (310) 342-6300.
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<PAGE>
RISK FACTORS
Prospective purchasers of the Notes should carefully consider the following
matters, as well as the other information contained in this Prospectus and
incorporated by reference herein, before making an investment in the Notes.
Leverage
The Company has substantial indebtedness. As of June 30, 1998, on a pro forma
basis after giving effect the Senior Notes offering (and the use of the proceeds
therefrom), as though all such events had occurred at such date, the Company
would have had approximately $544.0 million of indebtedness outstanding, and
there would have been approximately $283.5 million available for future
borrowings under the senior credit facility. Subsequent to June 30, 1998, the
commitment under the senior credit facility was increased from $292.8 million to
$472.8 million in connection with the CET acquisition. For the six months ended
June 30, 1998 and the year ended December 31, 1997, earnings were insufficient
to cover fixed charges by $2.1 million and $82.3 million, respectively. The
Company may incur additional indebtedness in the future, subject to certain
limitations contained and to be contained in the various indentures and credit
agreements governing the Company's outstanding indebtedness, and expects to do
so in order to fund future additions of subscriber accounts through purchases in
connection with the dealer program and future acquisitions of subscriber account
portfolios as part of its business strategy. To the extent the Company will need
to rely on funds under the senior credit facility beyond its current maturity of
March 30, 1999, the Company believes that it will be able to obtain further
extensions of the maturity date of such senior credit facility from time to
time, or will be able to refinance the senior credit facility prior to its
present maturity date, although there can be no assurance that the Company will
be able to do so. A portion of the consolidated debt of the Company bears
interest at floating rates; therefore, the financial results of the Company are
and will continue to be affected by changes in prevailing interest rates. As of
July 31, 1998, the Company had approximately $304.7 million of debt outstanding
bearing interest at floating interest rates.
The Company's degree of leverage may have important consequences to holders of
the Notes, including the following: (i) 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; (ii) the Company may be
more vulnerable to a downturn in the Company's business or the economy
generally; and (iii) the Company's ability to compete against other less
leveraged companies may be adversely affected.
Impact of Acquisition Strategy on Operations
A principal element of the Company's business strategy is to grow rapidly be
acquiring portfolios of alarm monitoring accounts. During the 1992-1997 period,
acquisitions were the primary source of the Company's growth; however, the
dealer program has become an increasingly important component of the Company's
growth. Since November 1997, Protection One has completed 20 transactions,
thereby adding approximately 1.0 million subscribers. The Combination and
subsequent acquisitions have placed and will continue to place substantial
demands on the Company's management, operational resources and financial and
internal control systems. 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. Moreover, due to the continuing consolidation of the
security alarm monitoring 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. The Company faces competition for the acquisition of portfolios of
subscriber accounts, and may be required to offer higher prices for subscriber
accounts it acquires in the future than the Company has in the past. There can
be no assurance that the Company will be able to find
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<PAGE>
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 risks,
including the possibility of unanticipated problems not discovered prior to the
acquisition, higher than expected account attrition and the diversion of
management's attention from other business activities in order to focus on the
integration of accounts. For acquisitions that are structured as stock purchases
of other companies, the Company may assume unexpected liabilities and must
dispose of unnecessary or undesirable 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 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. In
making acquisition decisions, 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
arc inaccurate, that the Company will be able to uncover such inaccuracies in
the course of its due diligence or 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 integration of
subscriber accounts into the Company's operations after purchase. Depending on
the size, frequency and location of acquisitions, the integration 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 integrate a substantial
portion of or do not adequately service acquired subscriber accounts, the
Company may experience higher attrition in the future.
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 experiences attrition of newly acquired accounts to the extent the
Company does not integrate such accounts or does not adequately service those
accounts. An increase in attrition rates 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
piece 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 business,
financial condition, results of operations, prospects or ability to service
their debt obligations, including the Notes. 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 has no assurance that
actual account attrition for acquired accounts will not be greater than the
attrition rate assumed or historically incurred by the Company. In addition,
because some acquired accounts are prepaid on an annual, semiannual or quarterly
basis, attrition may not become evident for some time after an acquisition is
consummated.
As of June 30, 1998, the cost of intangible assets, net of previously
accumulated amortization, was $1.9 billion, which constituted approximately
90.1% of the book value of the Company's total assets. The Company's purchased
subscriber accounts are amortized on a straight-line basis over the estimated
life of the related revenues (generally ten years) and goodwill is amortized
over a 40 year life. The effects of gross subscriber attrition has historically
been offset by adding new accounts from subscribers who move into premises
previously occupied by prior subscribers and in which security alarm systems are
installed, conversions of accounts that were previously
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<PAGE>
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. There could be
a material adverse effect on the Company's business, financial condition,
results of operations. prospects or ability to service their debt obligations,
including the Notes if actual account attrition significantly exceeds assumed
attrition and the Company has to shorten the period over which it amortizes the
cost of purchased subscriber accounts.
History of Losses
The Company incurred a net loss of $49.3 million in 1997 and a net loss of $0.7
million in 1996, and Westinghouse Security (a predecessor of the Company for
accounting purposes) reported net losses of $4.9 million, $5.9 million, $1.8
million and $9.2 million in fiscal 1996, 1995, 1994 and 1993, respectively.
These losses reflect, among other factors, substantial charges incurred by the
Company and Westinghouse Security for amortization of purchased subscriber
accounts, interest incurred on indebtedness and nonrecurring charges. Such
charges, with the exception of the nonrecurring charges, will increase as the
Company continues to purchase subscriber accounts, if the Company's indebtedness
increases, or if interest rates increase. The Company's earnings have been
insufficient to cover its fixed charges since the Company was formed, and there
can be no assurance that the Company will attain profitable operations on an
annual basis or at all.
Control by Western Resources
Western Resources, through Westar Capital, currently owns 82.4% of the
outstanding Common Stock of the Company. As long as Westar Capital continues to
beneficially own in excess of 50% of the shares of Common Stock outstanding,
Westar Capital will be able to direct the election of all directors of the
Company and exercise a controlling influence over its business and affairs,
including any determinations with respect to mergers or other business
combinations involving the Company, the acquisition or disposition of assets and
the incurrence of indebtedness by the Company.
Need for Additional Capital
The Company's purchases of subscriber accounts through the dealer program and
acquisitions of portfolios of subscriber accounts have generated cash needs that
exceed the Company's net cash provided by operating 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 senior credit facility
or a successor credit facility and the sale of additional securities in the
future, which may lead to higher leverage. Any inability of the Company to
obtain funding through external financing 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 terms considered favorable by the Company or at all.
Risks Related to the Dealer Program
During 1995-1997, the Company's dealer program became an increasingly important
source of growth for the Company. The Company expects that this emphasis will
continue. Several of the Company's competitors also have or are initiating
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.
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Possible Adverse Effect of "False Alarm" Ordinances
According to the Company's experience and industry data, substantially all alarm
activations that result in the dispatch of police or fire department personnel
are not emergencies, and thus are "false alarms." Significant concern has arisen
in certain municipalities about this high incidence of false alarms. This
concern could cause a decrease in the likelihood or timeliness of police
response to alarm activations and thereby decrease the propensity of Consumers
to purchase or maintain alarm monitoring services.
A number of local governmental authorities have considered or adopted various
measures aimed at reducing the number of false alarms. Such measures include (i)
subjecting alarm monitoring companies to fines or penalties for transmitting
false alarms, (ii) licensing individual alarm systems and the revocation of such
licenses following a specified number of false alarms, (iii) imposing fines on
alarm subscribers for false alarms, (iv) imposing limitations on the number of
times the police will respond to alarms at a particular location after a
specified number of false alarms, and (v) requiring further verification of an
alarm signal before the police will respond. Enactment of such measures could
adversely affect the Company's future business and operations.
Possible Adverse Effect of Future Government Regulations; Risks of Litigation
The Company's operations are subject to a variety of laws, regulations and
licensing requirements of federal, state and local authorities. In certain
jurisdictions, the Company is required to obtain licenses or permits to comply
with standards governing employee selection and training, and to meet certain
standards in the conduct of the Company's business. The loss of such licenses,
or the imposition of conditions to the granting or retention of such licenses,
could have a material adverse effect on the Company's business, financial
condition, results of operations, prospects or ability to service their debt
obligations, including the Notes.
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 than 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.
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 a material adverse effect on the
Company.
The Company's alarm response and patrol services require Company personnel to
respond to emergencies that may entail risk of harm to such employees and to
others. In most cities in which the Company provides such services, the
Company's patrol officers carry firearms, which may increase such risk. Although
the Company screens and trains its employees, the provision of alarm response
service subjects the Company to greater risks related to accidents or employee
behavior than other types of businesses. Reduction of police participation in
the handling of emergencies could expose the Company's patrol officers to
greater hazards and further increase the Company's risk of liability.
The Company carries insurance of various types, including general liability and
errors and omissions insurance. The loss experience of the Company and other
security service companies may affect the availability and cost of
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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.
Impact of Accounting Differences for Account Purchase 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, the Company's costs related to the sales
and marketing of new alarm monitoring systems generated by the Company's sales
force, as well as indirect overhead incurred in support of such activities are
expensed in the period in which such activities occur. The Company's sales,
marketing and indirect overhead expenses for new systems generally exceed
installation revenues, The Company has recently converted the internal sales
force of WestSec and Westar into independent dealers participating in the dealer
program.
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, however,
particularly in connection with a joint venture or other strategic alliance. Any
such increase could have a material adverse effect on reported results.
Competition
The security alarm industry is highly competitive and highly fragmented. The
Company competes with major firms with substantial financial resources,
including ADT Operations Inc., a subsidiary of Tyco International, Inc.; the
security subsidiaries of the Ameritech Corporation; and Brinks Rome Security
Inc., a subsidiary of The Pittston Services Group. Other alarm service 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 competitors have greater financial
resources than the Company, or 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 could have a material adverse
effect on the Company's return on investment in such accounts and the Company's
results of operations.
Impact of Declines in New Construction of Multi-Family Dwellings
Demand for alarm monitoring services in the multi-family alarm monitoring market
is tied to the construction of new multi-family structures. The Company believes
that developers of multi-family dwellings view the provision of alarm monitoring
services as an added feature that can be used in marketing newly developed
condominiums, apartments and other multi-family structures. Accordingly, the
Company anticipates that the growth in the multi-family alarm monitoring market
will continue so long as there is a demand for new multi-family dwellings.
However, the real estate market in general is cyclical and, in the event of a
decline in the market for new multifamily dwellings, it is likely that demand
for the Company's alarm monitoring services to multi-family dwellings would also
decline, which could negatively impact the Company's results of operations.
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Impact of Year 2000 Issue
An issue exists for all companies that rely on computers as the year 2000
approaches. The "Year 2000" problem is the result of the past practice in the
computer industry of using two digits rather than four to identify the
applicable year. This practice will result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. The Company is reviewing its computer and signal processing to
identify and correct any components that could be affected by the change of the
date to January 1, 2000 (the "Year 2000 Issue"). The Company will continue its
review until January 1, 2000, particularly with respect to acquisition of
security businesses that include additional computer systems and equipment. In
addition, changes in the state of compliance or preparedness within companies
that provide services or equipment to the Company will require the Company to
continue its evaluation. Based on its on-going review, management believes the
Year 2000 Issue does not pose material operational problems and estimates the
costs associated with the assessment of risk and the execution of corrective
action to be approximately $4.0 million.
Fraudulent Conveyance
Under applicable provisions of federal bankruptcy law or comparable provisions
of state fraudulent transfer law, if, among other things, the Company or the
Parent Company, at the time it incurred the indebtedness evidenced by the Notes
or the guarantees, (i) (a) was or is insolvent or rendered insolvent by reason
of such occurrence of (b) was or is engaged in a business or transaction for
which the assets remaining with the Company or the Parent Company constituted
unreasonably small capital or (c) intended or intends to incur, or believed or
believes that it would incur, debts beyond its ability to pay such debts as they
mature, and (ii) the Company or the Parent Company received or receives less
than reasonably equivalent value or fair consideration for the incurrence of
such indebtedness, then the Notes and the guarantees could be voided, or claims
in respect of the Notes or the guarantees could be subordinated to all other
debts of the Company or the Parent Company, as the case may be. In addition, the
payment of interest and principal by the Company pursuant to the Notes or the
payment of amounts by the Parent Company pursuant to the guarantees could be
voided and required to be returned to the person making such payment, or to a
fund for the benefit of the creditors of the Company or the Parent Company, as
the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or the Parent Company would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at a fair
valuation or if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and mature or
(ii) it could not pay its debts as they become due. There can be no assurance,
however, as to what standard a court would apply in making such determinations
or that a court would agree with the Company's or the Parent Company'
conclusions in this regard.
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RATIO OF EARNINGS TO FIXED CHARGES
In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and the component of rental expense believed by management to be
representative of the interest factor thereon. Earnings were insufficient to
cover fixed charges by approximately $82.3 million and $1.0 million for the
Company during the years ended December 31, 1997 and 1996 respectively. For the
Company's predecessor, earnings were insufficient to cover fixed charges by
approximately $7.8 million for the 53 weeks ended December 30, 1996, $9.6
million for the 52 weeks ended December 20, 1995, $2.8 million for the 52 weeks
ended December 20, 1994, and $14.8 million for the 52 weeks ended December 16,
1993.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Offered
Notes. The Offered Notes are being sold by the Selling Noteholder who will
receive all of the proceeds from the sale thereof.
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<PAGE>
SELLING NOTEHOLDER
The Notes are owned by Western Resources, Inc., a Company engaged principally in
the production, purchase, transmission, distribution and sale of electricity,
and provides the electronic security services. Western Resources has an
approximate 82.4% equity interest in Protection One, Inc.
Western Resources, Inc. acquired the $13,001,000 principal amount of Notes
offered hereby in open market transactions in 1995, prior to its 1997
acquisition of its equity interest in Protection One, Inc.
The Notes that may be offered hereby constitute all of the Notes owned by the
Selling Noteholder. It is currently the intention of the Selling Noteholder to
sell all the Notes in one or more transactions.
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DESCRIPTION OF THE NOTES
The Notes were issued under an Indenture dated May 17, 1995 (the "Indenture"),
among the Company, as issuer, Protection One, Inc., Protection One Alarm
Services, Inc. ("Services") and A-Able Lock & Alarm, Inc., as guarantors, and
the First National Bank of Boston, as trustee (the "Trustee"). Since the date of
the Indenture, Services and A-Able Lock & Alarm, Inc., have merged into
Protection One Alarm Monitoring Inc., and the First National Bank of Boston has
been succeeded by the State Street Bank and Trust. In addition, WestSec, Inc.
has become a guarantor under the Indenture. The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to all of the provisions of the
Indenture. Capitalized terms used but not defined in this section of the
Prospectus shall have the meaning ascribed to them in the Indenture.
General
The Notes are unsecured senior subordinated obligations of the Company and were
part of an issue limited to $166,000,000 aggregate principal amount at maturity.
The Notes will mature on June 30, 2005. Following an equity clawback on June 30,
1998, the principal amount of the Notes outstanding was reduced to $107,900,000.
The Notes were sold at a substantial discount from their principal amount, and
the Notes accreted to face value on June 30, 1998. Although for federal income
tax purposes a significant amount of original issue discount, taxable as
ordinary income, will be recognized by a Holder as such discount accrues from
the issue date of the Notes, no interest will be payable on the Notes prior to
December 31, 1998. From and after June 30, 1998, cash interest on the Notes will
accrue at the rate of 13 5/8% per annum. (subject to adjustment as set forth
below) payable in cash semiannually (to Holders of record at the close of
business on the June 15 or December 15 immediately preceding the Interest
Payment Date) on June 30 and December 31, of each year, commencing December 31,
1998.
Optional Redemption
The Notes are redeemable, at the Company's option, in whole or in part, at any
time or from time to time, on or after June 30, 2000 and prior to maturity, upon
not less than 30 nor more than 60 days' prior notice mailed by first class mail
to each Holder's last address as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of principal amount at
maturity) plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date), if redeemed during the 12-month period commencing on June 30,
of the applicable year set forth below:
Redemption
Year Price
---- -----------
2000.............................................. 106.813%
2001.............................................. 104.500%
2002.............................................. 102.250%
2003 and thereafter............................... 100.000%
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not listed on a national securities exchange, on a pro rata basis, by
lot or by such other method as the Trustee in its sole discretion shall deem to
be fair and appropriate; provided that no Note of $1,000 in principal amount at
maturity or less shall be redeemed in part. If any Note is to be redeemed in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. The Revolving Credit
Facility contains a provision prohibiting the optional redemption of the Notes.
See "Description of Revolving Credit Facility."
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Ranking
The indebtedness evidenced by the Notes is senior subordinated indebtedness of
the Company. The payment of the Senior Subordinated Obligations (as defined
below) is, to the extent set forth in the Indenture, subordinated in right of
payment to the prior payment in full, is cash or cash equivalents, of all Senior
Indebtedness, including, without limitation, the Company's obligations under the
Revolving Credit Facility. As of June 30, 1998, the Company had approximately
$540.8 million of total consolidated indebtedness outstanding, approximately
$256.2 million of which was Senior Indebtedness. The Company is the borrower
under the Revolving Credit Facility and its obligation thereunder is guaranteed
by the Parent Company and certain subsidiaries. After giving effect to an
offering of $250.0 million of 7-3/8% senior notes due 2005 (the "Senior Notes"),
completed in August 1998, as well as an increase in commitment under its
Revolving Credit Facility, at June 30, 1998, the Company would have had total
consolidated indebtedness, Senior Indebtedness and availability under its
Revolving Credit Facility of approximately $544.0 million, $259.3 million and
$463.5 million, respectively. All liabilities of the Subsidiaries of the Company
will be effectively senior in right of payment to the Notes, except to the
extent any such Subsidiary is a Guarantor. As of the date of this Prospectus,
the Company did not have any indebtedness that would have ranked subordinate to
the Notes.
"Senior Subordinated Obligations" means, all principal of, premium, if any, or
interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, including any amounts received upon the exercise of rights of
rescission or other rights of action (including claims for damages) or
otherwise, to the extent relating to the purchase price of the Notes or amounts
corresponding to such principal, premium, if any, or interest on the Notes.
Upon any payment or distribution of assets or securities of the Company of any
kind or character, whether in cash, property or securities, in connection with
any dissolution or winding up or total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full, in cash or cash equivalents,
before the Holders or the Trustee on their behalf shall be entitled to receive
any payment by the Company on account of Senior Subordinated Obligations, or any
payment to acquire any of the Notes (for cash, property or securities, or any
distribution with respect to the Notes of any cash, property or securities.
Before any payment may be made by, or on behalf of, the Company on any Senior
Subordinated Obligations in connection with any such dissolution, winding up,
liquidation or reorganization, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property or
securities, to which the Holders or the Trustee on their behalf would be
entitled, but for the subordination provisions of the Indenture, shall be made
by the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person making such payment or distribution or by the
Holders or the Trustee if received by them or it, directly to the holders of the
Senior Indebtedness (pro rata to such Holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their representatives or
to any trustee or trustees under any indenture pursuant to which any such Senior
Indebtedness may have been issued, as their respective interests appear, to the
extent necessary to pay all such Senior Indebtedness in full, in cash or cash
equivalents, after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Indebtedness.
No direct or indirect payment by or on behalf of the Company of Senior
Subordinated Obligations, whether pursuant to the terms or the Notes or upon
acceleration or otherwise, shall be made if, at the time of such payment, there
exists a default in the payment of all or any portion or the obligations on any
Senior Indebtedness, and such default shall not have been cured or waived or the
benefits of this provision waived by or on behalf of the holders of such Senior
Indebtedness. In addition, during the continuance of any other event of default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may he accelerated, upon receipt by the Trustee of written
notice from the trustee or other representative for the holders of such other
Designated Senior Indebtedness (or the holders of at least a majority in
principal amount of such other Designated Senior Indebtedness then outstanding),
no payment of Senior Subordinated Obligations may be made by or on behalf of the
Company upon or in respect of the Notes for a Payment Blockage Period commencing
on the date of receipt of such notice and ending 119 days thereafter (unless, in
each case, such Payment Blockage Period shall be termi-
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nated by written notice to the Trustee from such trustee of, or other
representative for, such holders or by repayment in full in cash or cash
equivalents of such Designated Senior Indebtedness or such event of default has
been cured or waived). Not more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 360 consecutive days.
Notwithstanding anything in the Indenture to the contrary, there must be 180
consecutive days in any 360-day period in which no Payment Blockage Period is in
effect. No event of default that existed or was continuing (it being
acknowledged that any subsequent action that would give rise to an event of
default pursuant to any provision under which an event of default previously
existed or was continuing shall constitute a new event of default for this
purpose) on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or shall be made, the basis for the commencement of a second
Payment Blockage Period by the representative for, or the holders of, such
Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default shall have been cured or waived
for a period of not less than 90 consecutive days.
By reason of the subordination provisions described above, in the event of
bankruptcy, liquidation, insolvency or similar events, creditors of the Company
who are not holders of Senior Indebtedness may recover less, ratably, than
holders of Senior Indebtedness and may recover more, ratably, than Holders of
the Notes.
"Senior Indebtedness" means all Indebtedness of the Company (other than the
Notes), whether outstanding on the date of the Indenture or thereafter Incurred,
including principal and interest on such Indebtedness, if (A) in the event such
Indebtedness is unsecured, a notice to the effect that such Indebtedness
constitutes "Senior Indebtedness" under the Indenture is delivered by the
Company to the Trustee, and (B) such Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such Indebtedness is issued,
does not expressly state that it is pari passu with, or subordinated in right of
payment to, the Notes, provided that the term "Senior Indebtedness" shall not
include (a) any Indebtedness of the Company that, when Incurred and without
respect to any election under Section 1111 (b) of the United States Bankruptcy
Code, was without recourse to the Company, (b) any Indebtedness of the Company
to the Parent Company or any Subsidiary of the Parent Company or to a joint
venture in which the Company or any Affiliate has an interest, (c) any
Indebtedness of the Company not permitted by the Indenture, (d) any repurchase,
redemption or other obligation in respect of Redeemable Stock, (e) any
Indebtedness of the Company to any employee, officer or director of the Company
or any of its Affiliates, (f) any liability for federal, state, local or other
taxes owed or owing by the Company, and (g) any Trade Payables of the Company.
Senior Indebtedness also includes interest accruing subsequent to events of
bankruptcy of the Company and its Subsidiaries at the rate provided for in the
document governing such Senior Indebtedness, whether or not such interest is an
allowed claim enforceable against the debtor in a bankruptcy case under federal
bankruptcy law or similar laws relating to insolvency.
To the extent any payment of Senior Indebtedness (whether by or on behalf of the
Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Indebtedness or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred. To the extent the obligation to repay any Senior Indebtedness
is declared to be fraudulent, invalid or otherwise set aside under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
the obligations so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation not
been so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes of the Indenture as if such declaration,
invalidity or setting aside had not occurred.
"Designated Senior Indebtedness" means any Indebtedness constituting Senior
Indebtedness that, at any date of determination, has an aggregate principal
amount of at least $25 million and is specifically designated by the Company in
the instrument creating or evidencing such Senior Indebtedness as "Designated
Senior Indebtedness."
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<PAGE>
"Trade Payables" means, with respect to any Person, any accounts payable or any
other indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person or any of its Subsidiaries arising in the ordinary
course of business in connection with the acquisition of goods or services.
Guarantees
The Company's obligations under the Notes are fully and unconditionally
guaranteed on a senior subordinated basis by the Parent Company and WestSec,
Inc. The Company's obligations under the Notes also are fully and
unconditionally guaranteed by any restricted Subsidiary of the Company formed or
acquired after the date hereof, subject to certain exceptions, so long as such
subsidiary remains a Subsidiary of the Company. All such future restricted
Subsidiaries, if any, are each referred to herein as a "Subsidiary Guarantor."
Each Note Guarantee is subordinated to the Guarantor Senior Indebtedness of the
issuer of such Note Guarantee on the same basis as provided above with respect
to the subordination of Senior Subordinated Obligations of the Company to Senior
Indebtedness of the Company. The Parent Company has no material assets other
than all the outstanding capital stock of the Company, and the assets, results
of operations and shareholders' equity of the Company, comprise substantially
all of the assets, results of operations and shareholders' equity of the Parent
Company on a consolidated basis. As of the date of this Prospectus, the Parent
Company did not have any Indebtedness outstanding.
The Indenture provides that any new Restricted Subsidiary with assets in excess
of $2 million shall become a Guarantor, (i) not later than 30 days after such
Subsidiary becomes a Restricted Subsidiary if such Restricted Subsidiary is a
Significant Subsidiary, and (ii) not later than 180 days after such Subsidiary
becomes a Restricted Subsidiary if such Restricted Subsidiary is not a
Significant Subsidiary.
"Guarantor Senior Indebtedness" means, with respect to each Guarantor, all
Indebtedness of such Guarantor (other than the Note Guarantee), whether
outstanding on the date of the Indenture or thereafter Incurred, including
principal and interest on such Indebtedness if (A) in the event such
Indebtedness is unsecured, a notice to the effect that such Indebtedness
constitutes "Guarantor Senior Indebtedness" under the Indenture is delivered by
the Company or such Guarantor to the Trustee, and (B) such Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, does not expressly state that it is pari passu with, or
subordinated in right of payment to, the Note Guarantee; provided that the term
"Guarantor Senior Indebtedness" shall not include (a) any Indebtedness of such
Guarantor that, when incurred and without respect to any election under Section
1111 (b) of the United States Bankruptcy Code, was without recourse to such
Guarantor, (b) any Indebtedness of such Guarantor to the Parent Company or any
Subsidiary of the Parent Company or to a joint venture in which such Guarantor
or any Affiliate has an interest (unless, in the case of such Indebtedness of a
Subsidiary Guarantor to the Company, (1) such Indebtedness is evidenced by a
note or other similar instrument that is pledged to secure Senior Indebtedness,
and (2) such note evidences an obligation by such Subsidiary Guarantor to repay
proceeds of such Senior Indebtedness which at the time of any enforcement of the
Notes were loaned to such Subsidiary Guarantor), (c) any Indebtedness of such
Guarantor not permitted by the Indenture, (d) any repurchase, redemption or
other obligation in respect of Redeemable Stock, (e) any Indebtedness of such
Guarantor to any employee, officer or director of such Guarantor or any of its
Affiliates, (f) any liability for federal, state, local or other taxes owed or
owing by such Guarantor, and (g) any Trade Payables of such Guarantor, Guarantor
Senior Indebtedness will also include interest accruing subsequent to events of
bankruptcy of such Guarantor and its Subsidiaries at the rate provided for in
the document governing such Guarantor Senior Indebtedness, whether or not such
interest is an allowed claim enforceable against the debtor in a bankruptcy case
under federal bankruptcy law or similar laws relating to insolvency.
The Indenture provides that if all or substantially all of the assets of any
Subsidiary Guarantor or all of the Capital Stock of any Subsidiary Guarantor is
sold (including by issuance or otherwise) by the Company or any of its
Subsidiaries in a transaction constituting an Asset Sale that does not otherwise
violate the Indenture then such Subsidiary Guarantor (in the event of a sale or
other disposition of all of the Capital Stock of such Subsidiary Guarantor) or
the corporation acquiring such assets (in the event of a sale or other
disposition of all or substantially all of the assets of such Subsidiary
Guarantor) shall be released and discharged of its obligations under the Note
Guarantee.
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Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
terms used herein for which no definition is provided.
"Accounts" means alarm monitoring accounts or alarm service accounts or
customers pursuant to which the Parent Company or any of its Subsidiaries
provide alarm monitoring or other security services or sell, install or service
security alarms or services ancillary thereto.
"Accreted Value" means, for any Specified Date, the amount provided below for
each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates
(each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
June 30, 1995...................................... $ 673.39
December 31, 1995.................................. $ 719.26
June 30, 1996...................................... $ 768.26
December 31, 1996.................................. $ 820.60
June 30, 1997...................................... $ 876.50
December 31, 1997.................................. $ 936.22
June 30, 1998...................................... $ 1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) the
original issue price and (b) an amount equal to the product of (1) the
Accreted Value for the first Semi-Annual Accrual Date less the
original issue price multiplied by (2) a fraction, the numerator of
which is the number of days from the Closing Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days elapsed from the Closing
Date to the first Semi-Annual Accrual Date, using a 360-day year of
twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (a) the
Accreted Value for the Semi-Annual Accrual Date immediately preceding
such Specified Date and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the preceding Semi-Annual Accrual Date
multiplied by (2) a fraction, the numerator of which is the number of
days from the immediately preceding Semi-Annual Accrual Date to the
Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180; or
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(iv) if the Specified Dale occurs after the last Semi-Annual
Accrual Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means, Indebtedness of a Person existing at the time
such Person became a Restricted Subsidiary and not Incurred in connection with,
or in contemplation of, such Person becoming a Restricted Subsidiary.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Parent Company and its consolidated Restricted
Subsidiaries for such period determined in conformity with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of any Unrestricted
Subsidiary or any other Person (other than net income (or loss) attributable to
a Restricted Subsidiary) in which any Person (other than the Parent Company or
any of its Restricted Subsidiaries) has an ownership interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Parent Company or any of its Restricted Subsidiaries by such other Person during
such period; (ii) solely for the purpose of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in such case,
except to the extent included pursuant to clause (i) above), the net income (or
loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary
or is merged into or consolidated with the Parent Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Parent Company or any of its Restricted
Subsidiaries; (iii) the net income (or loss) of any Restricted Subsidiary (other
than the Company and any Restricted Subsidiary that is a Subsidiary Guarantor)
to the extent that the declaration or payment or dividends or similar
distributions by such Restricted Subsidiary of such net income is not, at the
time of determination, permitted by the operation or the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary, (iv) any gains
or losses (on an after-tax basis) attributable to Asset Sales; (v) except for
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described below, any amount paid as dividends on Preferred
Stock of the Parent Company or Preferred Stock of any Restricted Subsidiary
owned by Persons other than the Parent Company and any of its Restricted
Subsidiaries; (vi) non-cash compensation paid to officers, directors and
employees of the Parent Company and its Subsidiaries, to the extent included in
Adjusted Consolidated Net Income, so long as such compensation is payable in
shares of Capital Stock (other than Redeemable Stock) or in options, warrants or
other rights to acquire such shares of Capital Stock (other than Redeemable
Stock) of the Parent Company; and (vii) all extraordinary gains and
extraordinary losses; provided that, solely for the purpose of calculating the
Debt to EBITDA Ratio and the Senior Debt to EBITDA Ratio (and in such case
except to the extent it is already included pursuant to clause (i) above),
"Adjusted Consolidated Net Income" shall include the amount of all cash
dividends received by the Parent Company or any Restricted Subsidiary from an
Unrestricted Subsidiary.
"Adjusted Consolidated Tangible Assets" means, the total amount of assets of the
Parent Company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with the
accounting for acquisitions in conformity with GAAP), after deducting therefrom
all goodwill, subscriber accounts, trade names, trademarks, patents, unamortized
debt discount and expense and other like intangibles, all as set forth on the
most recently available quarterly or annual consolidated balance sheet or the
Parent Company and its Restricted Subsidiaries, prepared in conformity with
GAAP.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
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<PAGE>
"Asset Acquisition" means, (i) an investment by the Parent Company of any of its
Restricted Subsidiaries in any other Person pursuant to which such person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Parent Company or any of its Restricted Subsidiaries or (ii) an acquisition by
the Parent Company or any of its Restricted Subsidiaries of the property and
assets of any Person other than the Parent Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"Asset Disposition" means, the sale or other disposition by the Parent Company
or any of its Restricted Subsidiaries (other than to a Restricted Subsidiary) of
(i) all or substantially all of the Capital Stock of any Restricted Subsidiary
or (ii) all or substantially all of the assets that constitute a division or
line of business of the Parent Company or any of its Restricted Subsidiaries.
"Asset Sale" means, any sale, transfer or other disposition (including by way of
merger, consolidation or lease-back transactions) in one transaction or a series
of related transactions by the Parent Company or any of its Restricted
Subsidiaries to any Person other than the Parent Company or any Restricted
Subsidiary of (i) all or any of the Capital Stock of any Restricted Subsidiary,
(ii) all or substantially all of the property and assets of an operating unit of
business of the Parent Company or any of its Restricted Subsidiaries or (iii)
any other property and assets of the Parent Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Parent Company or
such Restricted Subsidiary; provided that sales or other dispositions of
inventory, receivables and other current assets shall not be included within the
meaning of "Asset Sale."
"Average Life" means, at any date of determination with respect to any debt
security the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or nonvoting) in equity of such Person, whether now outstanding or issued
after the date of the Indenture, including, without limitation, all Common Stock
and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any property
(whether real, personal or mixed) of which the discounted present value of the
rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligation" is defined to mean the rental obligations, as aforesaid, under
such lease.
"Change or Control" means, such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
Existing Stockholders becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 30% of the total voting power of the then
outstanding Voting Stock of the Parent Company on a fully diluted basis, and
such ownership is greater than the amount of Voting Stock, on a fully diluted
basis, beneficially owned by the Existing Stockholders and their Affiliates on
such date; or (ii) individuals who at the beginning of any period of two
consecutive calendar years constituted the Board of Directors of the Parent
Company (together with any new directors (excluding any new directors elected
pursuant to the provisions relating to defaults with respect to the Series H
Preferred Stock set forth in the resolutions establishing the Series H Preferred
Stock or any similar provisions) whose election by the Board of Directors of the
Parent Company or whose nomination for election by the Parent Company's
stockholders was approved by a vote of at least two-thirds of the members of the
Board of Directors of the Parent Company then still in office who either were
members of the Board of Directors of the Parent Company at the beginning of such
period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of the Board of
Directors of the Parent Company then in office.
"Closing Date" means, May 17, 1995, the date on which the Outstanding Notes were
originally issued under the Indenture.
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"Consolidated EBITDA" means, for any period, the sum of the amounts for such
period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) the aggregate amount of dividends paid on
Redeemable Stock, (iv) income taxes, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income (other than income taxes (either
positive or negative) attributable to extraordinary and nonrecurring gains or
losses or sales or assets), (v) depreciation expense, to the extent such amount
was deducted in calculating Adjusted Consolidated Net Income, (vi) amortization
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, and (vii) all other non-cash items reducing Adjusted
Consolidated Net Income, less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Parent Company and its Restricted Subsidiaries in conformity with GAAP; provided
that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the quotient of (1) the number of shares of outstanding Common Stock of such
Restricted Subsidiary not owned on the last day of such period by the Parent
Company or any of its Restricted Subsidiaries divided by (2) the total number of
shares of outstanding Common Stock of such Restricted Subsidiary on the last day
of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount of
interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the aggregate
amount of dividends paid on Redeemable Stock; the net costs associated with
Interest Rate Agreements, and Indebtedness that is Guaranteed or secured by the
Parent Company or any of its Restricted Subsidiaries) and the interest component
of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by the Parent Company and its Restricted Subsidiaries during such
period, all as determined on a consolidated basis in conformity with GAAP.
"Debt to EBITDA Ratio" means, on any Transaction Date, the ratio of (i) the
aggregate amount of Indebtedness of the Parent Company and its Restricted
Subsidiaries on such Transaction Date to (ii) four times the Consolidated EBITDA
for the most recent fiscal quarter for which financial information in respect
thereof is available immediately prior to such Transaction Date (the "Reference
Period"). In making the foregoing calculation, (A) pro forma effect shall be
given to (1) any Indebtedness Incurred subsequent to the end of the Reference
Period to the extent such Indebtedness is outstanding at the Transaction Date,
(2) any Indebtedness Incurred during such period to the extent such Indebtedness
is outstanding at the Transaction Date and (3) any Indebtedness to be Incurred
on the Transaction Date, in each case as if such Indebtedness had been Incurred
on the first day of such Reference Period and after giving pro forma effect to
the application of the proceeds thereof as if such application had occurred on
such first day; (B) Consolidated Interest Expense attributable to interest on
any Indebtedness (whether existing or being incurred) computed on a pro forma,
basis and bearing a floating interest rate shall be computed as if the rate in
effect on the Transaction Date (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months) had been the applicable rate for the entire period;
(C) there shall be excluded from Consolidated Interest Expense any Consolidated
Interest Expense related to any amount of Indebtedness that was outstanding
during such Reference Period or thereafter but that is not outstanding or is to
be repaid on the Transaction Date; (D) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including giving pro forma effect to the
application of proceeds of any Asset Disposition) that occur during such
Reference Period or thereafter and on or prior to the Transaction Date as if
they had occurred and such proceeds had been applied on the first day of such
Reference Period; (E) with respect to any such Reference Period commencing prior
to the Closing Date, the issuance of the Notes shall be deemed to have taken
place on the first day of such period; and (F) pro forma effect shall be given
to asset dispositions and asset acquisitions (including giving pro forma effect
to the application of proceeds of any asset disposition) that have been made by
any Person that has become a Restricted Subsidiary or has been merged with or
into the Company or any Restricted Subsidiary during such Reference Period or
subsequent to such period and prior to the Transaction Date and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred
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when such Person Was a Restricted Subsidiary as if such asset dispositions or
asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred
an the first day of such Reference Period.
"Default" means, any event that is, or after notice or passage of time or both
would be, an Event of Default.
"Deferred Account Acquisition Price" means, in connection with (i) the purchase
of Accounts, or (ii) the acquisition of all of the outstanding Capital Stock of
a Person where the Principal purpose of such acquisition is to acquire Accounts,
that portion of the purchase price of such Accounts or Capital Stock that has
been deferred to provide an offset for future purchase price adjustments.
"GAAP" means, generally accepted accounting principles in the United States of
America as in effect as of the date of the Indenture, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in the Indenture shall be computed in conformity with GAAP applied on
a consistent basis.
"Guarantee" means, any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an Incurrence of Indebtedness by reason of the acquisition of more
than 50% of the Capital Stock of any Person; provided that none of the accrual
of interest, the accrual of dividends payable on Redeemable Stock or the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of determination
(without duplication), (i) all indebtedness of such Person for borrowed money,
(ii) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments (except, with respect to the Company, the promissory
notes issued by the Company in favor of Ion Leasing (which obligation, have been
defeased by a cash deposit in a segregated trust Account)), (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
Property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such service, except (A) Trade Payables, (B) all obligations
to pay any Deferred Account Acquisition Price, provided that the maximum amount
excluded from the definition of "Indebtedness" under this clause (B) shall not
exceed $5 million in The aggregate at any date of determination and (C)
compensation payable to employees of such Person (or any subsidiary thereof)
under employee benefit plans of such Person, which compensation is deferred in
the ordinary course of business of such Person (or such subsidiary) and in
accordance with such plans, (v) all Capitalized Lease Obligations of such
Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person, (viii) all
outstanding Redeemable Stock issued by such Person and (ix) to the extent
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not otherwise included in this definition, obligations under Currency Agreements
and Interest Rate Agreements. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations
(other than those described in clause (vii)), the maximum liability upon the
occurrence of the contingency giving rise to the obligations (including with
respect to any premium which may be payable on the redemption of Redeemable
Stock), provided (i) that the amount outstanding at any time of any Indebtedness
issued with original issue discount is the face amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP and (ii) that
Indebtedness shall not include any liability for federal, state, local or other
taxes that are not delinquent. Notwithstanding anything to the contrary
contained herein, for purposes of calculating the Debt to EBITDA Ratio and the
senior Debt to EBITDA Ratio, in the case of each of clauses (i), (ii) and (iii)
above, the amount of such Indebtedness shall be the amount that would appear as
a liability an the balance sheet of such Person prepared in accordance with
GAAP.
"Investment" in any Person means, any direct at indirect advance, loan or other
extension of credit (including, without limitation, by way of Guarantee or
similar arrangement, but excluding advances to customers in the ordinary course
of business that arc, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Parent Company or any Restricted Subsidiary) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use or
others), or any purchase at acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person. For purposes of
the definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include (A) the fair
market value of the assets (net of liabilities) of any Restricted Subsidiary at
the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary pursuant to clause (B) of such definition and (B) the Parent
Company's or any Restricted Subsidiary's proportionate interest in the fair
market value of the assets (net of liabilities) of any Restricted Subsidiary
immediately after any transaction pursuant to which such Restricted Subsidiary
ceases to be a Subsidiary, and shall exclude the fair market value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) any
property transferred to or from a Person other than a Restricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in each
case as determined by the Board of Directors of the Parent Company in good
faith.
"Lien" means, any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease, in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Parent Company or any Restricted Subsidiary) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of (i) brokerage commissions and other fees and
expenses, (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes as a result of such
Asset Sale, (iii) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured by a Lien
on the property or assets sold or is required to be paid as result of such sale
and (iv) appropriate amounts to be provided by the Parent Company or any
Restricted Subsidiary as a reserve against any liabilities associated with such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as determined in conformity with GAAP and (b) with respect to any
issuance or sale of Capital Stock, the proceeds or such issuance or sale in the
form of cash or cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Parent Company or any Restricted Subsidiary) and proceeds from
the conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, account-
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ants' fees, underwriters' or placement agents' fees, discounts or commissions
and brokerage, consultant and other fees incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"Permitted Investment" means, (i) an Investment in a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or convey all
or substantially all its assets to, a Restricted Subsidiary; (ii) a Temporary
Cash Investment; (iii) payroll travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) loans or advances to employees of the Parent
Company or its Restricted Subsidiaries that do not in the aggregate exceed
$500,000 at any time outstanding; (v) stock, obligations or securities received
in satisfaction of judgments or settlement of bona fide disputes; and (vi)
Investments in any Person, other than a Restricted Subsidiary, engaged in the
provision of security monitoring services in an aggregate amount not to exceed
$3 million at any time outstanding.
"Permitted Liens" means, (i) Liens for taxes, assessments, governmental charges
or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and/or which a reserve or other
appropriate provision, if any, shall be required in conformity with GAAP shall
have been made; (iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (iv) Liens (including extensions and renewals
thereof) upon real or personal property acquired after the Closing Date;
provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with the "Limitation on Indebtedness"
covenant described below, (1) to finance the cost (including the cost of
improvement or constructions of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property or (2) to refinance any Indebtedness previously
so secured, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets, any
improvements on such item and any proceeds therefrom; (v) any interest or title
of a lessor in the property subject to any Capitalized Lease or operating lease;
(vi) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (vii) Liens on property of, or on shares of stock or
Indebtedness of, any Person existing at the time such Person becomes, or becomes
a part of, any Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Parent Company or any Restricted
Subsidiary other than the property or assets so acquired; (viii) Liens in favor
of the Parent Company or any Restricted Subsidiary; (ix) Liens arising from the
rendering of a final judgment or order against the Parent Company or any
Restricted Subsidiary that does not give rise to an Event of Default; and (x)
Liens securing Indebtedness incurred to (a) finance the acquisition or purchase
of Accounts or (b) the acquisition or purchase or all of the outstanding Capital
Stock of a person which acquisition or purchase was made for the principal
purpose or acquiring Accounts.
"Redeemable Stock" means, any Class or series of Capital Stock of any Person
(other than the Series H Preferred Stock) that by its terms or otherwise is (i)
required to be redeemed prior to the Stated Maturity of the Notes, (i)
redeemable at the option of the holder of such class of series of Capital Stock
at any time prior to the Stated Maturity of the Notes or (iii) convertible into
or exchangeable for Capital Stock referred to in clause (i) or (ii) above or
Indebtedness having a scheduled maturity prior to the Stated Maturity of the
Notes; provided that any Capital Stock that would not constitute Redeemable
Stock but for provisions thereof giving holders thereof the right to require
such Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated Maturity of
the Notes shall not constitute Redeemable Stock if the "asset sale" or "change
of control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Notes Upon a Change of Control" covenants
described below and such Capital Stock specifically provides that such Person
will
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not repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control" covenants described below.
"Restricted Subsidiary" means, the Company and any Subsidiary of the Company
which is not designated an Unrestricted Subsidiary by the Parent Company.
"Senior Debt to EBITDA Ratio" means, on any Transaction Date, the ratio of (x)
the sum (without duplication) of (1) the aggregate amount of Senior Indebtedness
of the Company plus (2) the aggregate amount of Guarantor Senior Indebtedness of
the Parent Company and its Restricted Subsidiaries other than the Company to (y)
four times the Consolidated EBITDA for the most recent fiscal quarter for which
financial information in respect thereof is available immediately prior to such
Transaction Date (the "Reference Period"). In making the foregoing calculation,
reference shall be made to the second sentence of the definition of "Debt to
EBITDA Ratio".
"Significant Subsidiary" means, at any date of determination, any Subsidiary of
the Parent Company or the Company that, together with its Subsidiaries, (i) for
the most recent fiscal year of the Parent Company, accounted (or, on a pro forma
basis, would have accounted) for more than 10% of the consolidated revenues of
the Parent Company and its Restricted Subsidiaries or (ii) as of the end of such
fiscal year, was the owner (or, on a pro forma basis, would have been the owner)
of more than 10% of the consolidated assets of the Parent Company and its
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Parent Company for such fiscal year.
"Specified Date" means, any redemption date, any date of purchase for any
purchase of Notes pursuant to the "Limitation an Asset Sales" or "Repurchase of
Notes Upon a Change of Control" covenants described below or any date on which
the Notes first become due and payable after an event of Default.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation, association or
other business entity of which more than 50% of the outstanding Voting Stock is
owned, directly or indirectly, by such Person and one or more other Subsidiaries
of such Person.
"Subsidiary Guarantors" means, each of the Company's Subsidiaries that become a
guarantor of the Notes pursuant to the provisions of the Indenture.
"Temporary Cash Investment" means, any of the following: (i) direct obligations
of the United States of America or any agency thereof or obligations fully and
unconditionally guaranteed by the United States of America or any agency
thereof, (ii) time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States, and which bank or trust company has capital, surplus and undivided
profile aggregating in excess of $50 million (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Parent Company)
organized and in existence under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
with a rating at the time as of which
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any investment therein is made of P-1 (or higher) according to Moody's Investor
Service, Inc. or "A-1" (or higher) according to Standard & Poor's Corporation,
and (v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poors Corporation or Moody's Investor Service, Inc. "Transaction Date" means,
with respect to the Incurrence of any Indebtedness by the Parent Company or any
of its Restricted Subsidiaries, the date such Indebtedness is to be Incurred
and, with respect to any Restricted Payment, the date such Restricted Payment is
to be made.
"Unrestricted Subsidiary" means, (i) any Subsidiary of the Parent Company (other
than the Company) that is not also a Subsidiary of the Company, (ii) any
Subsidiary of the Company that at the time of determination shall be designated
an Unrestricted Subsidiary by the Board of Directors of the Parent Company in
the manner provided below and (iii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors of the Parent Company may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
or assets of, the Parent Company or any Restricted Subsidiary; provided that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under the "Limitation on Restricted Payments" covenant described
below. The Board of Directors of the Parent Company may designate any
Unrestricted Subsidiary (other than a Subsidiary of the Parent Company that is
not a Subsidiary of the Company) to be a Restricted Subsidiary; provided that
immediately after giving effect to such designation (x) the Company could incur
$1.00 of additional Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described below and (y) no Default or Event of Default
shall have occurred and be continuing. Any such designation by the Board of
Directors of the Parent Company shall be evidenced to the Trustee by Promptly
filing with the Trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions. As of the date hereof, the Parent
Company has no Subsidiaries that are Unrestricted Subsidiaries.
"Voting Stock" means, with respect to any Person, Capital Stock of any class or
kind ordinarily having the power to vote for the election of directors, managers
or other voting member of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock or other similar equity
ownership interests in such Subsidiary (other than any director's qualifying
shares or Investments by foreign nationals mandated by applicable law) is owned
by such Person or one or more Wholly Owned Subsidiaries of such Person.
Covenants
Limitation on Indebtedness. (a) Under the terms of the Indenture, the Parent
Company will not, and will not permit any Restricted Subsidiary to, Incur any
Indebtedness (other than the Notes and the Note Guarantees); provided that the
Parent Company and any Restricted Subsidiary may Incur Indebtedness if, after
giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, (i) the Debt to EBITDA Ratio would be 6:1
or less and (ii) the Senior Debt to EBITDA Ratio would be 4:1 or less.
Notwithstanding the foregoing, the Parent Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness of the Company under the Notes and Indebtedness of the Guarantors
under the Note Guarantees; (ii) Indebtedness of the Parent Company to any Wholly
Owned Restricted Subsidiary which is a Subsidiary Guarantor or Indebtedness of
any Wholly Owned Restricted Subsidiary which is a Subsidiary Guarantor to the
Parent Company or any other Wholly Owned Restricted Subsidiary which is a
Subsidiary Guarantor provided that any subsequent issuance or transfer of
Capital Stock or any other action or event that results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary
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which is a Subsidiary Guarantor or any subsequent transfer of such Indebtedness
(other than to a Wholly Owned Restricted Subsidiary which is a Subsidiary
Guarantor) shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness; (iv) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness, other than
Indebtedness Incurred under clause (i) of this paragraph and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the Notes or Indebtedness that
is pari passu with, or subordinated in right of payment to, the Notes shall be
permitted under this clause (iv) only if (A) in case the Notes are refinanced in
part or the Indebtedness to be refinanced is pari passu with the Notes or any
Note Guarantee, as the case may be, such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such new Indebtedness
is outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes or such Note Guarantee, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the Notes
or any Note Guarantee, as the case may be, such new Indebtedness, by its terms
or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made subordinate in right of payment
to the Notes or such Note Guarantee, as the case may be, at least to the extent
that the Indebtedness to be refinanced is subordinated to the Notes or such Note
Guarantee, as the case may be, and (C) such new Indebtedness, determined as of
the date of Incurrence of such new Indebtedness, does not mature prior to the
Stated Maturity of the Indebtedness to be refinanced or refunded, and the
Average Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced or refunded; and provided further that
in no event may Indebtedness of the Parent Company be refinanced pursuant to
this clause (iv) by means of any Indebtedness or any Restricted Subsidiary and
in no event may Indebtedness or monitoring be refinanced pursuant to this clause
(iv) by means of any Indebtedness of any other Restricted Subsidiary; (v)
Indebtedness (A) in respect of performance, surety or appeal bonds provided by
the Parent Company or any Restricted Subsidiary in the ordinary course of
business, (B) under Currency Agreements and Interest Rate Agreements; provided
that, in the case of Currency Agreements that relate to other Indebtedness, such
Currency Agreements do not increase the Indebtedness of the obligor outstanding
at any time other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable thereunder, and
(C) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of the Parent Company
or any Restricted Subsidiary pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
for the purpose of financing such acquisition), in a principal amount not to
exceed the gross proceeds actually received by the Parent Company or any
Restricted Subsidiary in connection with such disposition; and (vi) Capital
Lease Obligations outstanding at any time in an aggregate amount not to exceed
$2 million.
(b) For purposes of determining any particular amount of Indebtedness under this
"Limitation on Indebtedness" covenant, Guarantees of (or obligations, with
respect to letters of credit supporting) Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this "Limitation on Indebtedness" covenant, (A) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, the Parent Company, in
its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses and (B) the amount of Indebtedness issued at a price that is less than
the principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with GAAP.
Limitation on Restricted Payments. So long as any of the Notes are outstanding,
the Parent Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on its Capital Stock (other than (A) regular periodic dividends payable on its
Redeemable Stock issued in accordance with The "Limitation on Indebtedness"
covenant and paid strictly in accordance with the terms of such Redeemable Stock
and (B) dividends or distributions payable solely in shares of the Parent
Company's Capital Stock (other than Redeemable Stock) or in options, warrants or
other rights to acquire such shares
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of Capital Stock (other than Redeemable Stock)) held by Persons other than the
Parent Company or any of its Wholly Owned Restricted Subsidiaries, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock (other than (if such purchase, redemption, retirement or other acquisition
for value is mandatory) Redeemable Stock of the Parent Company issued in
accordance with the "Limitation on Indebtedness" covenant) of the Parent Company
or any Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by Persons other than the Parent
Company or any of its Wholly Owned Restricted Subsidiaries, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance or other acquisition or retirement for value, of
Indebtedness (including Redeemable Stock) of the Parent Company or any
Restricted Subsidiary that is subordinated in right of payment to the Notes or
any Note Guarantee, as the case may be, or (iv) make any Investment, other than
a Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) being collectively "Restricted Payments")
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing, (B) the
Company could not Incur at least $1.00 of Indebtedness under the first paragraph
of the "Limitation on Indebtedness" covenant or (C) the aggregate amount
expended for all Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors of the Parent
Company, whose determination shall be conclusive and evidenced by a Board
Resolution) after the date of the Indenture shall exceed the sum of (1) 50% of
the aggregate amount of the Adjusted Consolidated Net Income (or, if the
Adjusted Consolidated Net Income is a loss, minus 100% of such amount)
(determined by excluding income resulting from transfers of assets received by
the Parent Company or any of its Restricted Subsidiaries from an Unrestricted
Subsidiary) accrued on a cumulative basis during the period (taken at one
accounting period) beginning on the first day of the month immediately following
the Closing Date and ending on the last day of the last fiscal quarter preceding
the Transaction Date plus (2) the aggregate Net Cash Proceeds and the fair
market value of any property and securities (as determined by the Board of
Directors of the Parent Company in good faith) received by the Parent Company
from the issuance and sale permitted by the Indenture of its Capital Stock
(other than Redeemable Stock) to a Person who is not a Subsidiary of the Parent
Company, or from the issuance to a Person who is not a Subsidiary of the Parent
Company of any options, warrants or other rights to acquire Capital Stock of the
Parent Company (in each case, exclusive of any Redeemable Stock or any options,
warrants or other rights that are redeemable at the option of the holder, or are
required to be redeemed, prior to the Stated Maturity of the Notes) plus (3) the
aggregate Net Cash Proceeds received by the Parent Company or its Restricted
Subsidiaries from the issuance and sale permitted by the Indenture to a Person
who is not a Subsidiary of the Parent Company of debt securities or Redeemable
Stock that has been converted into or exchanged for Capital Stock of the Parent
Company that is not Redeemable Stock plus (4) an amount equal to the net
reduction in Investments in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, releases of Guarantees
or other transfers of assets, in each case to the Parent Company or any
Restricted Subsidiary from such Person, or resulting from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments" ), not to exceed, in the case of any
Person, the amount of Investments previously made by the Parent Company and any
Restricted Subsidiary in such Person.
The foregoing provision shall not take into account, and shall not be violated
by reason of: (i) the payment of any dividend within 60 days after the date or
declaration thereof if, at said date of declaration, such payment would comply
with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or
other acquisition or retirement for value of Indebtedness that is subordinated
in right of payment to the Notes or any Note Guarantee including premium, if
any, and accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (v) of the second paragraph of part (a) of
the "Limitation on Indebtedness" covenant; (iii) the repurchase, redemption or
other acquisition of Capital Stock of the Parent Company in exchange for, or out
of the proceeds of a substantially concurrent offering of, shares of Capital
Stock (other than Redeemable Stock) of the Parent Company; (iv) the acquisition
of Indebtedness of the Parent Company or the Company which is subordinated in
right of payment to the Notes or any Note Guarantee, as the case may be, in
exchange for, or out of the proceeds of, a substantially concurrent offering of,
shares of Capital Stock (other than Redeemable Stock) of the Parent Company; (v)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Parent Company held by employees or the Company in
connection with the termination or their employment
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pursuant to any redemption or repurchase provision of any agreement requiring or
permitting the Parent Company to repurchase, redeem or acquire such shares
(provided that the aggregate consideration paid for all such purchases,
redemptions or other acquisitions or retirements of such shares of Capital Stock
shall not exceed $2 million); (vi) the payment of regular quarterly dividends
upon the outstanding shares of Series H Preferred Stock in accordance with the
resolutions establishing the Series H Preferred Stock in an aggregate amount in
any year of up to $700,000; and (vii) payments or distributions pursuant to or
in connection with a consolidation, merger or transfer or assets that complies
with the provisions of the Indenture applicable to consolidations, mergers and
transfers of all or substantially all of the property and assets of the Parent
Company or the Company; provided that, except in the case of clause (i), no
Default or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) thereof), and the Net
Cash Proceeds from any issuance of Capital Stock referred to in clauses (iii)
and (iv), shall be included in calculating whether the conditions of clause (C)
of the first paragraph of this "Limitation on Restricted Payments" covenant have
been met with respect to any subsequent Restricted Payments. Notwithstanding the
foregoing, in the event the proceeds of an issuance of Capital Stock of the
Parent Company are used for the redemption, repurchase or other acquisition of
the Notes, then the Net Cash Proceeds of such issuance shall be included in
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Notes.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. So long as any of the Notes are outstanding, the Parent Company
will not, and will not permit any Restricted Subsidiary to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any such Restricted Subsidiary (other
than the Company) to (i) pay dividends or make any other distributions permitted
by applicable law on any Capital Stock of such Restricted Subsidiary owned by
the Parent Company or any other Restricted Subsidiary, (ii) pay any Indebtedness
owed to the Parent Company or any other Restricted Subsidiary, (iii) make loans
or advances to the Parent Company or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to the Parent Company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or restrictions:
(i) existing on the Closing Date in the Indenture or any other agreements in
effect on the Closing Date, and any extensions, refinancings, renewals or
replacements of any of the foregoing; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements
taken as a whole are not materially less favorable to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law; (iii) existing with respect to any Person or the property or
assets of such Person acquired by the Parent Company or any Restricted
Subsidiary and existing at the time of such acquisition, which encumbrances or
restrictions are not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Parent Company or any Restricted Subsidiary
not otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or assets
of the Parent Company or any Restricted Subsidiary in any manner material to the
Parent Company or any Restricted Subsidiary; or (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary.
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries. Under
the terms of the Indenture, the Parent Company will not sell, and will not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell any
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shares of Capital Stock of a Restricted Subsidiary (including options, warrants
or other rights to purchase shares of such Capital Stock) except (i) to the
Parent Company or a Wholly Owned Restricted Subsidiary, or (ii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary.
Limitation on Issuances of Guarantees by Restricted Subsidiaries. The Parent
Company will not permit any Restricted Subsidiary, directly or indirectly, to
Guarantee any Indebtedness of the Company or any Guarantor which is pari passu
with or subordinate in right of payment to the Notes or any Note Guarantee, as
the case may be ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Guarantee (a "Subsidiary Guarantee") of payment of the
Notes by such Restricted Subsidiary and (ii) such Restricted Subsidiary waives
and will not in any manner whatsoever claim or take the benefit or advantage of,
any rights of reimbursement, indemnity or subrogation or any other rights
against the Parent Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided
that this paragraph shall not be applicable to any Guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary and (y) was not Incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is
(A) pari passu with the Notes, then the Guarantee of such Guaranteed
Indebtedness shall be pari passu with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated to the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Parent Company, of all the Parent
Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release or
discharge of the Guarantee which resulted in the creation or such Subsidiary
Guarantee, except a discharge or release by or as a result of payment under such
Guarantee. The foregoing provisions of this covenant shall nor apply to any
Subsidiary Guarantor.
Limitation on Transactions with Shareholders and Affiliates. Under the terms of
the Indenture, the Parent Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital Stock of
the Parent Company or with any Affiliate of the Parent Company or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to the
Parent Company or such Restricted Subsidiary than could reasonably be expected
to be obtained, at the time of such transaction or at the time of the execution
of the agreement providing therefor, in a comparable arm's-length transaction
with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i) transactions
(A) approved by a majority of the disinterested members of the Board of
Directors of the Parent Company, (B) approved by a majority of the disinterested
stockholders of the Parent Company or (C) for which the Parent Company or a
Restricted Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to the
Parent Company or such Restricted Subsidiary from a financial point of view;
(ii) any transaction between the Parent Company and any of its Wholly Owned
Restricted Subsidiaries that is a Subsidiary Guarantor or between Wholly Owned
Restricted Subsidiaries each of which is a Subsidiary Guarantor; (iii) the
payment of reasonable and customary regular fees and expenses of directors of
the Parent Company who are not employees of the Parent Company, and the
provision or reasonable indemnification benefits to directors of the Parent
Company; and (iv) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant.
Limitation on Liens. Under the terms of the Indenture, the Parent Company will
not, and will not permit any Restricted Subsidiary to, create, incur, assume or
suffer to exist any Lien on any of its assets or properties, or any
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shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes (or, in the case of the Parent
Company or any Subsidiary Guarantor, the Note Guarantee) and all other amounts
due under the Indenture to be directly secured equally and ratably with (or, if
the obligation or liability to be secured by such Lien is subordinated in right
of payment to the Notes or the Note Guarantee, prior to) the obligation or
liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens granted after the Closing
Date on any assets or Capital Stock of the Parent Company or its Restricted
Subsidiaries created in favor of the Holders; (ii) Liens with respect to
Acquired Indebtedness permitted under the "Limitation on Indebtedness" covenant
and permitted refinancings, thereof; provided that such Liens do not extend to
or cover any property or assets of the Parent Company or any Restricted
Subsidiary other than the property or assets acquired; (iii) Liens with respect
to assets of a Restricted Subsidiary granted by such Restricted Subsidiary to
the Parent Company or a Wholly Owned Restricted Subsidiary to secure
Indebtedness owing to the Parent Company or such other Restricted Subsidiary;
(v) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness and which is permitted to be Incurred under clause (v) of part (a)
of the second paragraph of the "Limitation on Indebtedness" covenant; provided
that such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (vi) Liens securing other Indebtedness, provided
that the aggregate amount of such Indebtedness so secured shall not exceed 10%
of the Adjusted Consolidated Tangible Assets; or (vii) Permitted Liens.
Limitation on Senior Subordinated Indebtedness. Under the terms of the
Indenture, the Parent Company will not, and will not permit any Subsidiary
Guarantor to, Incur any Indebtedness that is expressly made subordinate in right
of payment to any Senior Indebtedness or Guarantor Senior Indebtedness, as the
case may be, unless such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is outstanding, is
expressly made pari passu with, or subordinate in right of payment to, the Notes
or the Note Guarantee, as the case may be, pursuant to provisions substantially
similar to those contained in the Indenture.
Limitation on Senior Indebtedness. Under the terms of the Indenture, the Parent
Company will not, and will not permit the Company or any Subsidiary Guarantor
to, Incur any Indebtedness unless (i) in the case of such Indebtedness that is
secure, there is no outstanding unsecured Senior Indebtedness or Guarantor
Senior Indebtedness of the Company or any Guarantor, and (ii) in the case of
such Indebtedness that is unsecured Senior Indebtedness or unsecured Guarantor
Senior Indebtedness, there is no outstanding secured Indebtedness of the Company
or any Guarantor, other than Capital Lease Obligations outstanding at any time
in an aggregate amount not to exceed $2 million.
The foregoing limitation will be of no further force and effect nor will
compliance be required with respect to the Senior Debt to EBITDA Ratio set forth
in the "Limitation on Indebtedness" covenant nor the Senior Debt to EBITDA Ratio
set forth in the "Consolidation, Merger and Sale of Assets" covenant, if (i) a
supplemental indenture which eliminates the subordination provisions set forth
in the Indenture, in form and substance satisfactory to the Trustee, shall have
been executed and delivered to the Trustee, (ii) the Trustee shall have received
necessary consents with respect to all outstanding Senior Indebtedness and
Guarantor Senior Indebtedness from the holders thereof approving such
supplemental indenture, (c) the Trustee shall have received such Opinions of
Counsel as the Trustee may reasonably request, and (d) immediately before and
immediately after giving effect to such supplemental indenture, no Default or
Event of Default shall have occurred and be continuing.
Limitation on Asset Sales. Under the terms of the Indenture, in the event and to
the extent that Net Cash Proceeds received by the Parent Company or any of its
Restricted Subsidiaries from one or more Asset Sales occurring on of after the
Closing Date in any period of 12 consecutive months exceed $5 million, then the
Parent Company shall or shall cause the relevant Restricted Subsidiary to (i)
within 12 months after the date Net Cash Proceeds so received exceed $5 million
(A) apply an amount equal to such excess Net Cash Proceeds to permanently repay
Senior Indebtedness of the Company or other unsubordinated Indebtedness of the
Parent Company or of any Restricted Subsidiary providing a Note Guarantee
pursuant to the "Limitation on Issuances of Guarantees by Re-
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stricted Subsidiaries" covenant described above on Indebtedness of any other
Restricted Subsidiary, in each case owing to a Person other than the Parent
Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or
the amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Parent Company and its Restricted
Subsidiaries existing on the date of such investment (as determined in good
faith by the Board of Directors of the Parent Company, whose determination shall
be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than
the end of the 12-month period referred to in clause (i)) such excess Net Cash
Proceeds (to the extent not applied pursuant to clause (i)) as provided in the
following paragraphs of this "Limitation on Asset Sales" covenant. The amount of
such excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of Excess
Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below)
totals at least $3 million, the Company must commence, not later than the
fifteenth Business Day of such month, and consummate an offer (an "Excess
Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate
Accreted Value of Notes equal to the Excess Proceeds on such date, at a purchase
price equal to 101% of the Accreted Value of the Notes, plus, in each case,
accrued interest (if any) to the date of purchase (the "Excess Proceeds
Payment").
The Company shall commence an Exceeds Proceeds Offer by mailing a notice to the
Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being
made pursuant to this "Limitation of Asset Sales" covenant and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed
(the "Excess Proceeds Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the Excess Proceeds Payment, any Note accepted for
payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on
and after the Excess Proceeds Payment Date; (v) that Holders electing to have a
Note purchased pursuant to the Excess Proceeds Offer will be required to
surrender the Note, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of the Note completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
Business Day immediately preceding the Excess Proceeds Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Excess Proceeds Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or an integral multiple thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for payment on
a pro rata basis Notes or portions thereof tendered pursuant to the Excess
Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or an integral multiple thereof. the
Company will publicly announce the results of the Excess Proceeds Offer as soon
as practicable after the Excess Proceeds Payment Date. For purposes of this
"Limitation on Asset Sales" covenant, the Trustee shall act as the Paying Agent.
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The Company will comply with Rule l4e-l under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under this "Limitation on Asset Sales" covenant and the Company
is required to repurchase Notes as described above.
Repurchase of Notes upon a Change of Control
Upon the occurrence of a Change of Control, each Holder shall have the right to
require the repurchase of its Notes by the Company in cash pursuant to the Offer
described below (the "Change of Control Offer") at a purchase price at least
equal to 101% of the Accreted Value thereof, plus accrued interest (if any) to
the date of purchase (the "Change of Control Payment"). Prior to the mailing of
the notice to Holders provided for in the succeeding paragraph, but in any event
within 30 days following any Change of Control, the Company covenants to (i)
repay in full all indebtedness of the Company that would prohibit the repurchase
of the Notes as provided for in the succeeding paragraph or (ii) obtain any
requisite consents under instruments governing any such indebtedness of the
Company to permit the repurchase of the Notes as provided for in the succeeding
paragraph. The Company shall first comply with the covenant in the preceding
sentence before it shall he required to repurchase Notes pursuant to this
"Repurchase of Notes upon a Change of Control" covenant.
Within 30 days of the Change of Control, the Company shall mail a notice to the
Trustee and each Holder stating: (i) that a Change of Control has occurred, that
the Change of Control Offer is being made pursuant to this "Repurchase of Notes
upon a Change of Control" covenant and that all Notes validly tendered will be
accepted for payment; (ii) the purchase price and the date of purchase (which
shall be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Change of Control Payment Date"); (iii) that
any Note not tendered will continue to accrue interest pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the Change of Control
Payment, any Note accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest on and after the Change of Control Payment Date;
(v) that Holders electing to have any Note or portion thereof purchased pursuant
to the Change of Control Offer will be required to surrender such Note, together
with the form entitled "Option of the Holder to Elect Purchase" on the reverse
side of such Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately preceding
the Change of Control Payment Date; (vi) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the third Business Day immediately preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Notes delivered
for purchase and a statement that such Holder is withdrawing his election to
have such Notes purchased; and (vii) that Holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided that each Note purchased
and each new Note issued shall be in a principal amount of $1,000 or an integral
multiple thereof.
On the Change of Control Payment Date, the Company shall: (i) accept for payment
Notes or portions thereof tendered pursuant to the Change of Control Offer; (ii)
deposit with the Paying Agent money sufficient to pay the purchase price of all
Notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee, all Notes or portions thereof so accepted together
with an Officers' Certificate specifying the Notes or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail to the Holders
of Notes so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or an integral multiple thereof. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date. For purposes of this "Repurchase of Notes
upon a Change of Control" covenant, the Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and
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<PAGE>
the Company is required to repurchase the Notes under this "Repurchase of Notes
Upon a Change of Control" covenant.
If the Company is unable to repay all of its indebtedness that would prohibit
repurchase of the Notes or is unable to obtain the consents of the holders of
indebtedness, if any, of the Company outstanding at the time of a Change of
Control whose consent would be so required to permit the repurchase of Notes,
then the Company will have breached such covenant. This breach will constitute
an Event of Default under the Indenture if it continues for a period of 30
consecutive days after written notice is given to the Company by the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes
outstanding. In addition, the failure by the Company to repurchase Notes at the
conclusion of the Change of Control Offer will constitute an Event of Default
without any waiting period or notice requirements.
The covenant requiring the Company to repurchase the Notes will, unless the
consents referred to above are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note; repurchase. There
can be no assurances that the Company would have sufficient funds available at
the time of any Change or Control to make any debt payment (including
repurchases of Notes) required by the foregoing covenant (or by any covenant
contained in other securities of the Company which might be outstanding at the
time).
Commission Reports and Reports to Holders
Whether or not the Parent Company is then required to file reports with the
Commission, the Parent Company shall file with the Commission all such reports
and other information as would be required to be filed with the Commission by
the Securities Exchange Act of 1934, as amended, including, but not limited to,
annual reports containing consolidated financial statements of the Parent
Company audited by its independent auditors, and quarterly reports containing
unaudited condensed consolidated financial statements of the Parent Company for
each of the first three quarters of each fiscal year. The Company and the Parent
Company shall supply the Trustee and each Holder, or shall supply to the Trustee
for forwarding to each Holder, without cost to such Holder, copies of such
reports or other information. In addition, upon the request of any Holder or any
prospective purchaser of the Notes designated by a Holder, the Parent Company
and the Company shall supply to such Holder or such prospective purchaser the
information required under Rule 144A under the Securities Act.
Events of Default
The following events arc defined as "Events or Default" in the Indenture: (a)
default in the payment of principal of (or premium, if any, on) any Note when
the same becomes due and payable at maturity, upon acceleration, redemption or
otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days; (c)
the Company or any Guarantor defaults in the performance of or breaches any
other covenant or agreement of the Company or such Guarantor in the Indenture or
under the Notes and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes; (d) there occurs with respect
to any issues of Indebtedness of the Company, any Guarantor or any Significant
Subsidiary having an outstanding principal amount of $5 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (i) an event of default that has caused
the Holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (ii) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (e) any
final judgment or order for the payment of money in excess of $5 million in the
aggregate for all such final judgments or orders against all such Persons shall
be rendered against the Company, any Guarantor or any Significant Subsidiary and
shall not be paid or discharged, and there shall be any period of 30 consecutive
days following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders out-
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<PAGE>
standing and not paid or discharged against all such Persons to exceed $5
million during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (f) a court
having jurisdiction in the premises enters a decree or order for (A) relief in
respect of the Company, any Guarantor or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company,
any Guarantor or any Significant Subsidiary or for all or substantially all of
the property and assets of the Company, any Guarantor or any Significant
Subsidiary or (C) the winding up or liquidation of the affairs of the Company,
any Guarantor or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 30 consecutive days;
or (g) the Company, any Guarantor or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company, any Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company, any Guarantor or any Significant Subsidiary or (C)
effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause (f)
or (g) above that occurs with respect to the Company, any Guarantor or any
Significant Subsidiary) occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Company (and to the Trustee if
such notice is given by the holders), may, and the Trustee at the request of
such Holders shall, declare the principal of, premium, if any, and accrued
interest on the Notes to be immediately due and payable. Upon a declaration of
acceleration, such principal of, premium, if any, and accrued interest shall be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (d) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default or payment default triggering such Event of
Default pursuant to clause (d) shall be remedied or cured by the Company, the
Guarantor and/or the relevant Significant Subsidiary or waived by the holders of
the relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause (f) or (g)
above occurs, the principal of, premium, if any, and accrued interest on the
Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. The Holders of at least a majority in principal amount of the
outstanding Notes, by written notice to the Company and to the Trustee, may
waive all past defaults and rescind and annul a declaration of acceleration and
its consequences if, in addition to certain other conditions, (i) all existing
Events of Default other than the nonpayment of the principal of, premium, if
any, and interest on the Notes that have become due solely by such declaration
of acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to institute proceedings in respect
of such Event of Default; (iii) such Holder or Holders offer the Trustee
indemnity satisfactory to the Trustee against any costs, liability or expense;
(iv) the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and (v) during such 60-day period,
the Holders of a majority in aggregate principal amount of the outstanding Notes
do not give the Trustee a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any Holder of a Note to
receive payment of the principal of, premium, if any, or interest on, such Note
or to bring suit for the enforcement of any such payment, on or after
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<PAGE>
the due date expressed in the Notes, which right shall not be impaired or
affected without the consent of the Holder.
The Indenture requires certain officers of the Company and the Parent Company to
certify, on or before a date not more than 90 days after the end of each fiscal
year, that a review has been conducted of the activities of the Parent Company
and its Restricted Subsidiaries and the Parent Company's, and its Restricted
Subsidiaries' performance under the Indenture and that the Parent Company and
the Company have fulfilled all obligations thereunder, or, if there has been a
default in the fulfillment of any such obligations, specifying each such default
and the nature and status thereof. The Parent Company and the Company are
obligated to notify the Trustee of any default or defaults in the performance of
any covenants or agreements under the Indenture.
Consolidation, Merger and Sale of Assets
The Indenture provides that neither the Company nor any Guarantor shall (a)
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially as an entirety in one transaction or a series of
related transactions) to, any Person (except that the Company or any other
Restricted Subsidiary may enter into any of the foregoing transactions with a
Wholly Owned Restricted Subsidiary that is a Guarantor and that (in the case of
any Wholly Owned Restricted Subsidiary other than the Company) has a positive
net worth; provided that, in connection with any such merger or consolidation,
no consideration (other than Common Stock in the surviving Person, the Company
or the Guarantor) shall be issued or distributed to the stockholders of the
Company or the Guarantor, in which case the provisions of this covenant shall be
deemed to be complied with) or (b) permit any Person to merge with or into the
Company or any Guarantor unless (i) the Company or the Guarantor, as the case
may be, shall be the continuing Person, or the Person (if other than the Company
or such Guarantor, as the case may be) formed by such consolidation or into
which the Company or such Guarantor is merged or that acquired or leased such
property and assets of the Company or such Guarantor shall be a corporation
organized and validly existing under the laws of the United States of America or
any jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all of the obligations of the Company or such Guarantor, as the case
may be, on all of the Notes or the Note Guarantee, as the case may be, and under
the Indenture; (ii) immediately before and immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Debt to EBITDA Ratio of the Parent Company or, if such sale,
conveyance, transfer, lease or other disposition relates to the Parent Company,
the surviving, successor or purchasing entity, is not more than 6:1; (iv)
immediately after giving effect to such transaction on a pro forma basis, the
Senior Debt to EBITDA Ratio of the Parent Company or, if such sale, conveyance,
transfer, lease or other disposition relates to the Parent Company, the
surviving, successor or purchasing entity is not more than 4:1; and (v) the
Company or such Guarantor, as the case may be, delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv)) and an Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with.
Notwithstanding the foregoing, the sale, conveyance, transfer, lease or other
disposition (whether by merger or otherwise) of all or substantially all of the
property and assets of a Subsidiary Guarantor shall not be subject to the
preceding sentence so long as such sale, conveyance, transfer, lease or other
disposition is made in a transaction constituting an Asset Sale not otherwise
prohibited by the Indenture.
In accordance with the foregoing provisions, in July 1995 A-Able was merged with
and into the Company and in May, 1996, Services was merged with and into the
Company. As a result of the foregoing, neither Services nor A-Able are
guarantors of the Notes.
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<PAGE>
Defeasance
Defeasance and Discharge. The Indenture provides that the Company will be deemed
to have paid and will be discharged from any and all obligations in respect of
the Notes on the 123rd day after the deposit referred to below, and the
provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance and Discharge"
provision and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which Opinion of Counsel
must be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a change in applicable
federal income tax law after the date of the Indenture such that a ruling is no
longer required or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not, result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company is a party
or by which the Company is bound, and (D) if at such time the Notes are listed
on a national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The Indenture
further provides that the provisions of the Indenture will no longer be in
effect with respect to clauses (iii) and (iv) under "Consolidation, Merger and
Sale of Assets" and all the covenants described herein under "Covenants," clause
(c) under "Events of Default" with respect to such covenants and clauses (iii)
and (iv) under "Consolidation, Merger and Sale of Assets," and clauses (d) and
(e) under "Events of Default" shall be deemed not to be Events of Default, upon,
among other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not realize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same time as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments and the Note Guarantees will remain in effect.
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<PAGE>
Modification and Waiver
Modifications and amendments of the Indenture may be made by the Parent Company,
the Company, the Subsidiary Guarantors and the Trustee with the consent of the
holders of not less than a majority in aggregate principal amount of the
outstanding Notes; provided, however, that no such modification or amendment
may, without the consent of each Holder affected thereby, (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Note, (ii)
reduce the principal amount of, or premium, if any, or interest on, any Note,
(iii) change the place or currency of payment of principal of, or premium, if
any, or interest on, any Note, (iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or in the case of a
redemption, on or after the redemption date) of any Note, (v) reduce the
above-stated percentage of outstanding Notes the consent of whose Holders is
necessary to modify or amend the Indenture, (vi) modify the subordination
provisions in a manner adverse to the Holders, (vii) waive a default in the
payment of principal of, premium, if any, or interest on the Notes or (viii)
reduce the percentage in aggregate principal amount of outstanding Notes the
consent of whose Holders is necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults.
Notwithstanding the foregoing, the Parent Company, the Company, the Subsidiary
Guarantors and the Trustee may amend or supplement the Indenture or the Notes,
without notice to or the consent of any Holder, (i) to cure any ambiguity,
defect or inconsistency; provided that such amendments or supplements shall not
adversely affect the interests of the Holders in any material respect; (ii) to
make any change that does not adversely affect the rights under the Indenture of
any Holder; (iii) to eliminate the subordination provisions contained in the
Indenture; or (iv) to comply with requirements of the Commission in connection
with the qualification of the Indenture under the Trust Indenture Act.
No Personal Liability of Incorporators, Shareholders, Officers, Directors, or
Employees
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Notes or for any claim based thereon
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement or the Company or any Guarantor contained in the
Indenture, or in any of the Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, shareholder,
officer, director, employee or controlling person of the Company or any
Guarantor or of any successor Person thereof. Each Holder, by accepting the
Outstanding Notes, waived and released all such liability.
Concerning the Trustee
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will be required to use the same degree of care
and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in other transactions;
provided, however, that if it acquires, any conflicting interest, it must
eliminate such conflict or resign.
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<PAGE>
PLAN OF DISTRIBUTION
The sale or distribution of the Notes may be effected directly to purchasers by
the Selling Noteholder as principal in privately negotiated transactions or
through one or more underwriters, brokers, dealers or agents from time to time
(i) in one or more transactions on any exchange or in the over-the-counter
market, or (ii) in transactions otherwise than in such markets. Any of such
transactions may be effected at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at varying prices determined at
the time of sale or at negotiated or fixed prices, in each case as determined by
the Selling Noteholder or by agreement between the Selling Noteholder and
underwriters, brokers, dealers or agents, or purchasers. If the Selling
Noteholder effects such transactions by selling Notes to or through
underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or
agents may receive compensation in the form of discounts, concessions or
commissions from the Selling Noteholder or commissions from purchasers of Notes
for whom they may act as agent (which discounts, concessions or commissions as
to particular underwriters, brokers, dealers or agents may be in excess of those
customary in the types of transactions involved). The Selling Noteholder and any
brokers, dealers or agents that participate in the distribution of the Notes may
be deemed to be underwriters, and any profit on the sale of Notes by them and
any discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Under the securities laws of certain states, the Notes may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the Notes may not be sold unless the Notes have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
The Selling Noteholder will pay all fees and expenses incident to the
registration, offering and sale of the Notes to the public hereunder, including
but not limited to compensation, commissions and discounts of underwriters. The
Company has agreed to indemnify the Selling Noteholder and any underwriters
against certain liabilities under the Securities Act and the Exchange Act, or to
contribution with respect thereto.
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<PAGE>
LEGAL MATTERS
The validity of the issuance of securities offered hereby have been passed upon
for the Company by Mitchell Silberberg & Knupp LLP, Los Angeles, California.
INDEPENDENT AUDITORS
The consolidated financial statements and schedules of Protection One, Inc.,
appearing on its Annual Report for the year ended December 31, 1997, have been
audited by Arthur Andersen LLP, independent accountants, as set forth in their
report thereon included therein and incorporated herein.
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<TABLE>
<CAPTION>
======================================================= =====================================================
<S> <C>
No person has been authorized to give any in-
formation 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 author-
ized by the Company or any Initial Purchaser.
This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy Protection One Alarm
any of the securities offered hereby in any juris- Monitoring, Inc.
diction to any person to whom it is unlawful to
make such an offer in such jurisdiction. Neither
the delivery of this Prospectus nor any
sale made hereunder shall, under any circum- Protection One, Inc.
stances, create any implication that the informa-
tion contained herein is correct as of any time
subsequent to the date hereof or that there has
been no change in the affairs of the Company
since such date.
------------------
$13,001,000
TABLE OF CONTENTS 13-5/8% Senior Subordinated
Discount Notes Due 2005
Page
The Company.................................... 1
Risk Factors................................... 2
Ratio of Earnings to Fixed Charges............. 8
Use of Proceeds................................ 8
Selling Noteholder............................. 9
Description of the Notes....................... 10
Plan of Distribution........................... 35
Legal Matters.................................. 36
Independent Auditors........................... 36
PROSPECTUS
======================================================= =====================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the issuance and distribution of the
securities being registered will be borne by the Selling Noteholder and are
estimated as follows:
Securities and Exchange Commission $ 4,420
registration fee............................
Legal fees and expenses..................... $25,000
Accountants' fees and expenses.............. $ 1,000
Miscellaneous............................... $ 4,580
-----
Total.............................. $35,000
=======
- -----------------
Item 15. Indemnification of Directors and Officers.
The Certificates of Incorporation and the Bylaws of Protection One, Inc. and
Protection One Alarm Monitoring, Inc. (collectively, the "Registrants") and the
Articles of Incorporation and Bylaws of Western Resources, provide for the
indemnification of directors and officers to the fullest extent permitted by the
General Corporation Law of the State of Delaware (the "DGCL") and the Kansas
General Corporation Law (the "KGCL"), as applicable. Pursuant to the provisions
of Section 145 of the DGCL, each of the Registrants has the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee, or agent of such company
against any and all expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding. The power to indemnify under the DGCL only applies if such person
acted in good faith and in a manner he reasonably believed to be in the best
interest, or not opposed to the best interest, of such company and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Section 17-6305 of the KGCL provides for indemnification
by a corporation of its corporate officers, directors, employees and agents or,
if serving at the request of corporation, of any other corporation, partnership,
joint venture, trust or other enterprise. The KGCL provides that a corporation
may indemnify such persons who have been, are, or may become parties to an
action, suit or proceeding due to their status as directors, officers, employees
or agents of the corporation. Further, the KGCL grants authority to a
corporation to implement its own broader indemnification policy.
Indemnification is not available if such person has been adjudged to have been
liable to the Company, unless and only to the extent that the Court of Chancery
or the court in such action determines that, despite the adjudication of
liability, but in view of all of the circumstances, the person is reasonably and
fairly entitled to indemnification for such expenses as the court shall deem
proper. The statutes also expressly provide that the power to indemnify
authorized thereby is not exclusive of any rights granted under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.
II-1
<PAGE>
The above discussion of the Certificates of Incorporation and Bylaws of the
Registrants, the Articles of Incorporation and Bylaws of Western Resources,
Section 145 of the DGCL and Section 17-6305 of the KGCL is not intended to be
exhaustive and is qualified in its entirety by reference thereto.
The Indemnification and Contribution Agreement filed as Exhibit 10.25 to the
Registration Statement includes provisions requiring the Registrants to
indemnify the Selling Noteholder against certain civil liabilities, including
liabilities under the Securities Act of 1933, in certain circumstances. The
Indemnification and Contribution Agreement also provides for indemnification by
the Selling Noteholder to the Registrants and their directors, officers and
controlling persons who signed this Registration Statement, against certain
civil liabilities, including liabilities under the Securities Act of 1933, in
certain circumstances.
II-2
<PAGE>
Item 16. Exhibits
Exhibit Description
2.1 Contribution Agreement dated as of July 30, 1997 (the "Contribution
Agreement"), between Western Resources and Protection One, Inc. (1)
(2.1)
2.2 Amendment No. 1 dated October 2, 1997, to the Contribution Agreement.
(2) (99.1)
2.3 Assignment and Assumption Agreement (Centennial Security Holdings,
Inc.) dated as of November 24, 1997, among Western Resources, Westar
Capital, Inc. ("Westar Capital"), Westar Security, Inc. ("Westar
Security") and Protection One, Inc. (3) (2.3)
2.4 Assignment and Assumption Agreement (Guardian International, Inc.)
dated as of November 24, 1997, among Western Resources, Westar
Capital, Westar Security and Protection One, Inc. (3) (2.4)
2.5 Stock Purchase Agreement dated as of October 2, 1997, among Centennial
Security Holdings, Inc. ("Centennial"), the shareholders of Centennial
and Westar Capital. (3) (2.5)
2.6 Stock Subscription Agreement dated as of October 4, 1997, between
Guardian International, Inc. ("Guardian") and Westar Capital. (3)
(2.6)
4.1 Indenture dated as of May 17, 1995, among Protection One Alarm
Monitoring, Inc., as Issuer, Protection One, Inc., inter alia, as
Guarantor, and The First National Bank of Boston ("FNBB"), as Trustee.
(4) (4.1)
4.2 First Supplemental Indenture dated as of July 26, 1996, among
Protection One Alarm Monitoring, Inc., as Issuer, Protection One,
Inc., inter alia, as Guarantor and State Street Bank and Trust Company
("SSBTC") as successor to FNBB as Trustee. (5) (4.2)
4.3 Second Supplemental Indenture dated as of October 28, 1996, among
Protection One Alarm Monitoring, Inc. as Issuer, Protection One, Inc.
inter alia, as Guarantor and SSBTC as Trustee. (5) (4.3)
4.4 Subordinated Debt Shelf Indenture dated as of August 29, 1996, among
Protection One Alarm Monitoring, Inc. as Issuer, Protection One, Inc.
as Guarantor and SSBTC as Trustee. (6) (4.3)
4.5 Supplemental Indenture No. 1 dated as of September 20, 1996, among
Protection One Alarm Monitoring, Inc. as Issuer, Protection One, Inc.,
inter alia, as Guarantor and SSBTC as Trustee. (7) (4.1)
4.6 Supplemental Indenture No. 2 dated as of October 28, 1996, among
Protection One Alarm Monitoring, Inc. as Issuer, Protection One, Inc.,
inter alia, as Guarantor and SSBTC as Trustee (incorporated by
reference to Exhibit 4.6 to the Fiscal 1996 Form 10-K). (5) (4.6)
5.1* Opinion of Mitchell Silberberg & Knupp LLP.
II-3
<PAGE>
Exhibit Description
10.1 Stock Purchase Warrant dated as of September 16, 1991, issued by
Protection One, Inc. to Merita Bank. Ltd. (formerly
Kansallis-Osake-Pankki). (8) (10.25) 10.2 Amended and Restated
Stockholders' Agreement dated as of August 15, 1994, among Protection
One, Inc. and the stockholders of Protection One, Inc. named therein.
(9) (10.42)
10.3 Warrant Agreement dated as of November 3, 1993, between Protection One
Alarm Monitoring, Inc. and United States Trust Company of New York, as
Warrant Agent. (10) (4.3)
10.4 Registration Rights Agreement dated as of November 3, 1993, among
Protection One Alarm Monitoring, Inc., Protection One, Inc., certain
former subsidiaries of Protection One Alarm Monitoring, Inc. and Bear,
Stearns & Co., Inc. (10) (4.4)
10.5 Warrant Agreement dated as of May 17, 1995, between Protection One,
Inc. and The First National Bank of Boston, as Warrant Agent. (4)
(10.40)
10.6 Common Stock Registration Rights Agreement dated May 17,1995, among
Protection One, Inc., Morgan Stanley & Co. Incorporated and Montgomery
Securities. (4) (10.41)
10.7 Employment Agreement dated as of November 24, 1997, between Protection
One and James Mackenzie, Jr. (3) (10.4)
10.8 Employment Agreement dated as of November 24, 1997, between Protection
One and John W. Hesse. (3) (10.5)
10.9 Employment Agreement dated as of November 24, 1997, between Protection
One and John E. Mack, III. (3) (10.6)
10.10 Employment Agreement dated as of November 24, 1997, between
Protection One and Thomas K. Rankin. (3) (10.7)
10.11 Employment Agreement dated as of November 3, 1993, between Protection
One Alarm Monitoring, Inc. and George A. Weinstock. (10) (10.13)
10.12 Non-Competitive and Non-Solicitation Agreement dated as November 3,
1993, between Protection One Alarm Monitoring, Inc. and George A.
Weinstock. (10) (10.14)
10.13 Consulting Agreement dated as of February 19, 1996, between
Protection One, Inc. and Dr. Ben Enis. (11) (10.7)
10.14 1994 Stock Option Plan of Protection One, Inc., as amended. (5)
(10.23)
10.15 1997 Long-Term Incentive Plan of Protection One, Inc. (12) (Appendix
F)
10.16 Notes Registration Rights Agreement dated as of May 17, 1995, among
Protection One, Inc., Protection One Alarm Monitoring, Inc., Morgan
Stanley & Co. (4) (4.2)
10.17 Agreement for Purchase and Sale of Assets, dated May 25, 1995,
between Alert Centre, Inc. and Protection One Alarm Monitoring, Inc.
(4) (4.2)
II-4
<PAGE>
Exhibit Description
10.18 Agreement to Purchase and Sell Stock dated as of May 23, 1996, among
Metrol, the persons named therein as the "Shareholders" (the "Metrol
Shareholders"), Protection One Alarm Monitoring, Inc. and Protection
One, Inc. (13) (2.1)
10.19 Amendment No. 1 to Agreement dated as of June 28, 1996, among Metrol,
the Metrol Shareholders, Protection One Alarm Monitoring, Inc. and
Protection One, Inc. (13) (2.2)
10.20 Escrow Agreement dated May 31, 1996, among Metrol, the Metrol
Shareholders, Protection One Alarm Monitoring, Inc., Protection One,
Inc. and First National Bank of Denver, N.A. as the Escrow Agent. (14)
(2.3)
10.21 Registration Rights Agreement dated as of June 28, 1996, among
Protection One, Inc. and the Metrol Shareholders. (14) (99.1)
10.22 Stock Option Agreement dated as of July 30, 1997, between Western
Resources and Protection One, Inc. (1) (10.1)
10.23 Option and Voting Agreement dated as of July 30, 1997, between
Western Resources and Protection One, Inc. (1) (10.2)
10.24 Promissory Note dated as of March 2, 1998, between Westar Capital,
Inc, and Protection One, Inc. (15) (99.1)
10.25* Indemnification and Contribution Agreement dated as of September 30,
1998 between Protection One Alarm Monitoring, Inc., Protection One,
Inc. and Western Resources, Inc.
12.1 Statement Re Computation of Ratio of Earnings to Fixed Charges. (16)
(12.1)
13.1 Annual Report on Form 10-K for the year ended December 31, 1997. (17)
13.2 Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(18)
16.1 Letter from Coopers & Lybrand to the Securities and Exchange
Commission re: Change in Certifying Accountant. (19) (16)
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Mitchell, Silberberg & Knupp (included in Exhibit 5.1)
24.1* Powers of Attorney (included on signature page).
25.1 Statement on Form T-1, of the Eligibility of State Street Bank and
Trust Company, as Trustee under the Indenture relating to 13 5/8%
Senior Subordinated Discount Notes due 2005. (4) (25.1)
- -----------------
* Filed herewith
(1) This exhibit is incorporated by reference from the Current Report on Form
8-K filed by Protection One, Inc. and certain of its subsidiaries reporting
an event dated July 30, 1997, in which such exhibit had the number in
parentheses immediately after the description of such exhibit herein.
II-5
<PAGE>
(2) This exhibit is incorporated by reference from the Current Report on Form
8-K filed by Protection One, Inc. and certain of its subsidiaries reporting
an event dated October 2, 1997, in which such exhibit had the number in
parentheses immediately after the description of such exhibit herein.
(3) This exhibit is incorporated by reference from the Current Report on Form
8-K filed by Protection Once, Inc. and certain of its subsidiaries
reporting an event dated November 24, 1997, in which such exhibit had the
number in parentheses immediately after the description of such exhibit
herein.
(4) This exhibit is incorporated by reference from the current report
Registration Statement on Form S-4 (File No. 33-94684 originally filed by
Protection One, Inc. and certain of its subsidiaries on July 18, 1995, in
which such exhibit had the number in parentheses immediately after the
description of such exhibit herein.
(5) This exhibit is incorporated by reference from the Annual Report on Form
10-K for the year ended September 30, 1996, filed by Protection One, Inc.
and certain of its subsidiaries, in which such exhibit had the number in
parentheses immediately after the description of such exhibit herein.
(6) This exhibit is incorporated by reference from the Registration Statement
on Form S-3 (File No.333-09401) originally filed by Protection One, Inc. on
August 1, 1996, in which such exhibit had the number in parentheses
immediately after the description of such exhibit herein.
(7) This exhibit is incorporated by reference from the Current Report on Form
8-K filed by Protection Once, Inc. and certain of its subsidiaries
reporting an event dated September 20, 1996, in which such exhibit had the
number in parentheses immediately after the description of such exhibit
herein.
(8) This exhibit is incorporated by reference from the Quarterly Report on Form
10-Q for the quarter ended March 31, 1994, filed by Protection One, Inc.
and certain of its subsidiaries, in which such exhibit had the number in
parentheses immediately after the description of such exhibit herein.
(9) This exhibit is incorporated by reference from the Registration Statement
on Form S-1 (File No. 33-81292) originally filed by Protection One, Inc. on
July 8, 1994, in which such exhibit had the number in parentheses
immediately after the description of such exhibit herein.
(10) This exhibit is incorporated by reference from the current report
Registration Statement on Form S-4 (File No. 33-73002 originally filed by
Protection One, Inc. and certain of its subsidiaries on December 15, 1993,
in which such exhibit had the number in parentheses immediately after the
description of such exhibit herein.
(11) This exhibit is incorporated by reference from the Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1996, filed by Protection One,
Inc., in which such exhibit had the number in parentheses immediately after
the description of such exhibit herein.
(12) This exhibit is incorporated by reference from the Registration Statement
on Form S-3 (File No. 33-5849) originally filed by Protection One, Inc. on
June 12, 1996, in which such exhibit had the number in parentheses
immediately after the description of such exhibit herein.
(13) This exhibit is incorporated by reference from Protection One, Inc. Proxy
Statement dated November 7, 1997.
(14) This exhibit is incorporated by reference from the Current Report on Form
8-K reporting an event dated June 7, 1996, filed by Protection One, Inc.,
in which such exhibit had the number in parentheses immediately after the
description of such exhibit herein.
(15) This exhibit is incorporated by reference from the Current Report on Form
8-K reporting an event dated March 15, 1998, filed by Protection One, Inc.,
in which such exhibit had the number in parentheses immediately after the
description of such exhibit herein.
(16) This exhibit is incorporated by reference from Amendment No. 1 to the
Registration Statement on Form S-3 (File No. 333-50383) filed by Protection
One, Inc. and Protection One Alarm Monitoring, Inc. on May 5, 1998 in which
such exhibit had the number in parentheses immediately after the
description of such exhibit herein.
II-6
<PAGE>
(17) This exhibit is incorporated by reference from the Annual Report on Form
10-K for the year ended December 31, 1997, filed by Protection One, Inc.
and Protection One Alarm monitoring, Inc. on March 30, 1998.
(18) This exhibit is incorporated by reference from the Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed by Protection One, Inc. and
Protection One Alarm Monitoring, Inc. on August 3, 1998.
(19) This exhibit is incorporated by reference from the Current Report on Form
8-K reporting an event dated February 5, 1998, filed by Protection One,
Inc., in which such exhibit had the number in parentheses immediately after
the description of such exhibit herein.
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 end 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;
(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.
II-7
<PAGE>
(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 and officers of the Registrants 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 liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director or officer
of the Registrants in the successful defense of any action, suit or proceeding)
is asserted by such director or officer in connection with the securities being
registered, the Registrants 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 final
adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement, to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Culver City, California, on September 29, 1998.
PROTECTION ONE, INC.
PROTECTION ONE ALARM MONITORING, INC.
By: /S/ John W. Hesse
------------------------------------
John W. Hesse
Executive Vice President and
Chief Financial Officer
Know all those by these presents, that each person whose signature appears
below constitutes and appoints each of James M. Mackenzie, Jr. and John W.
Hesse, or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full Power of Substitution and Resubstitution, for such person
and in his name, place and stead, in any and all capacities, in connection with
the Registration Statement on Form S-2 of Protection One, Inc. and Protection
One Alarm Monitoring, Inc. under the Securities Act of 1933, as amended,
including, without limitation the generality of the foregoing, to sign the
Registration Statement in the name and on behalf of Protection One, Inc. and
Protection One Alarm Monitoring, Inc. or on behalf of the undersigned as a
director or officer of Protection One, Inc. or Protection One Alarm Monitoring,
Inc., and any and all amendments or supplements to the Registration Statement,
including any and all stickers and post-effective amendments to the Registration
Statement, and to sign any and all additional Registration Statements relating
to the same offering of Securities as the Registration Statement that are filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any applicable
securities exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their 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 REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
President, Chief Executive Officer and September 28, 1998
/s/ James M. Mackenzie, Jr. Director (Principal Executive Officer)
- ---------------------------------
James M. Mackenzie, Jr.
<PAGE>
Executive Vice President, Chief Financial September 28, 1998
/s/ John W. Hesse Officer and Secretary (Principal Financial
- --------------------------------- and Accounting Officer)
John W. Hesse
/s/ Peter C. Brown Director September 28, 1998
- ---------------------------------
Peter C. Brown
/s/ Robert M. Chefitz Director September 28, 1998
- ---------------------------------
Robert M. Chefitz
/s/ Howard A. Christensen Director September 24, 1998
- ---------------------------------
Howard A. Christensen
/s/ Ben M. Enis Director September 28, 1998
- ---------------------------------
Ben M. Enis
/s/ Joseph J. Gardner Director September 28, 1998
- ---------------------------------
Joseph J. Gardner
/s/ William J. Gremp Director September 28, 1998
- ---------------------------------
William J. Gremp
/s/ Steven L. Kitchen Director September 30, 1998
- ---------------------------------
Steven L. Kitchen
/s/ Carl M. Koupal, Jr. Director September 30, 1998
- ---------------------------------
Carl M. Koupal, Jr.
/s/ John C. Nettels, Jr. Director September 28, 1998
- ---------------------------------
John C. Nettels, Jr.
/s/ Jane Dresner Sadaka Director September 28, 1998
- ---------------------------------
Jane Dresner Sadaka
/s/ James Q. Wilson Director September 28, 1998
- ---------------------------------
James Q. Wilson
</TABLE>
EXHIBIT 5.1
LAW OFFICES
MITCHELL SILBERBERG & KNUPP LLP
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
TRIDENT CENTER
11377 WEST OLMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064-1683
(310) 312-2000
FAX: (310) 312-3100
September 30, 1998
Protection One Alarm Monitoring, Inc.
6011 Bristol Parkway
Culver City, California 90230
RE: Registration Statement on Form S-2
- Commission File No. 33-
Dear Gentlemen:
We have acted as counsel for Protection One Alarm Monitoring, Inc. (the
"Company") and Protection One, Inc., a Delaware corporation (the "Parent
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 Western Resources, Inc. of
13-5/8% Senior Subordinated Discount Notes due 2005 in the initial principal
amount of $13,001,000 of the Company (the "Notes") and the guarantees of the
Notes (the "Guarantees") as set forth in that certain Indenture dated as of May
17, 1995, among the Company, as issuer, the Parent Company, inter alia, as
guarantor, and The First National Bank of Boston ("FNBB"), as trustee, as
supplemented by that certain First Supplemental Indenture dated as of July 26,
1996, among the Company, as issuer, the Parent Company, inter alia, as guarantor
and State Street Bank and Trust Company ("SSBTC") as successor to FNBB as
trustee and that certain Second Supplemental Indenture dated as of October 28,
1996, among the Company as issuer, the Parent Company, as guarantor and SSBTC as
trustee.
In our capacity as counsel for the Company and the Parent Company and for
the purposes of this opinion, we have made such examinations and investigations
of the legal and factual matters we deemed advisable, and we have examined the
originals, or copies identified to our satisfaction as being true copies of the
originals, of such certificates, documents, corporate records and other
instruments, as we, in our judgment, have considered necessary or appropriate to
enable us to render the opinions expressed below. We also have relied in
rendering those opinions, without independent investigation or confirmation,
upon certificates provided by public officials and officers of the Company and
the Parent Company as to certain factual matters. In the course of our
examinations and investigations, we have assumed the genuineness of all
signatures on
<PAGE>
-2-
original documents, and the due execution and delivery of all documents
requiring due execution and delivery for the effectiveness thereof.
We are members of the bar of the State of California and do not herein
express any opinion as to any law other than federal law, the Delaware General
Corporation Law and the laws of the State of California. We, have, with your
permission, assumed for purposes of the sections of this opinion letter
regarding the enforceability of the Notes and Guarantees under the laws of the
State of New York, without independently verifying the same, that the laws of
the State of California are identical to the laws of the State of New York.
Based upon and subject to the foregoing and in reliance thereon, and
subject to the assumptions, exceptions and qualifications set forth herein, it
is our opinion that the Notes and the Guarantees have been duly authorized and
legally issued, and constitute the legal and binding obligations of the Company
and the Parent Company, respectively, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or similar laws
affecting the enforceability of creditors' rights generally and to the extent
that enforceability thereof may be limited by certain equitable, legal or
statutory principles affecting the enforcement of contractual rights generally.
We consent to the filing of this opinion letter with the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Registration Statement. Subject to the foregoing sentence, this opinion
letter is solely for your benefit and may not be relied upon by, nor may copies
be delivered to, any other person without our prior written consent. In giving
our 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 contained herein
are given as of the date hereof and we assume no obligation to advise you of any
change that may hereafter be brought to our attention.
Very truly yours,
/s/ MITCHELL SILBERBERG & KNUPP LLP
--------------------------------------
MITCHELL SILBERBERG & KNUPP LLP
EXHIBIT 10.25
PROTECTION ONE
September 30, 1998
Western Resources
818 South Kansas Avenue
P.O. Box 889
Topeka, Kansas 66601
Ladies and Gentlemen:
In connection with the offering of the 13-5/8% Senior Subordinated Discount
Notes due 2005 (the "Notes"), held by Western Resources (the "Selling
Noteholder"), subject to the terms and conditions set forth below, Protection
One Alarm Monitoring, Inc (the "Company") and Protection One, Inc. (the
"Parent") hereby agree with you as follows:
1. Payment of Expenses
The Selling Noteholder shall pay all fees and expenses incurred by it and
the reasonable out of pocket fees and expenses incurred by the Company or the
Parent in connection with the offering of the Notes, including but not limited
to all underwriters compensation, commissions and discounts, the registration,
filing and qualification fees, any printing fees and legal and accounting fees.
2. Underwriting Agreement
In the event that the Selling Noteholder wishes to sell its Notes through
an underwriter, the Company and the Parent agree to enter into an underwriting
agreement in customary form, containing customary representations, warranties,
covenants, closing conditions, indemnification, contribution and other
provisions as are ordinarily contained in underwriting agreements for such
transactions. In addition, the Company
<PAGE>
-2-
and the Parent agree to cooperate with the Selling Noteholder and the
underwriter selected by the Selling Noteholder in connection with the
preparation of any prospectus supplement that is deemed necessary or desirable
in connection with such underwritten sale, to make personnel from the Company or
the Parent reasonably available to any such underwriter in connection with the
preparation of any such prospectus supplement and to deliver, or cause to be
delivered, to the Selling Noteholder or any such underwriter such opinions of
counsel, comfort letters, officers certificates and other documents as may be
reasonably requested by the Selling Noteholder or any such underwriter in
connection with any such underwritten sale of the Notes.
3. Indemnification
(a) The Company and the Parent agree to indemnify and hold harmless the
Selling Noteholder within the meaning of Section 15 of the Securities Act of
1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as
amended, from and against any loss, expense, liability or claim which arises out
of or is based upon any alleged untrue statement of a material fact in the
registration statement at the time it becomes effective, or the prospectus, or
any related preliminary prospectus, or arises out or is based upon any alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading. The foregoing shall not
cover any such loss, expense, liability or claim, however, which arises out of
or is based upon any alleged untrue statement of an untrue fact contained in,
and in conformity with information furnished in writing by the Selling
Noteholder to the Company or the Parent expressly for use with reference to the
Selling Noteholder in, any such documents or arises out of or is based upon any
alleged omission to state a material fact in connection with such information
required to be stated in any such documents or necessary to make such
information not misleading.
If any action is brought against the Selling Noteholder in respect of which
indemnity may be sought against the Company or the Parent pursuant to the
foregoing paragraph, the Selling Noteholder shall promptly notify the Company
and the Parent in writing or by telephone, confirmed in writing, of the
institution of such action, and the Company and the Parent shall assume the
defense of such action, including the employment of counsel and payment of
expenses; provided, however, that the failure so to notify the Company and the
Parent will not relieve them from any liability that they may have to the
Selling Noteholder under this agreement unless, and only to the extent that,
such failure results in the forfeiture of substantive rights or defenses by the
Company or the Parent. The Selling Noteholder shall have the right to employ its
own counsel in any such case, but the fees and expenses of any such counsel
shall be at the expense of the Selling Noteholder unless the employment of such
counsel shall have been authorized in writing by the Company or the Parent in
connection with the defense of such action or neither the Company nor the Parent
shall have employed counsel to have charge of the defense of such action or the
Selling Noteholder shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
Company or the Parent (in which case neither the Company nor the Parent shall
have the right to direct the defense of such action on behalf of the Selling
Noteholder), in any of which events such fees and expenses of one counsel for
the Selling Noteholder selected by the Selling Noteholder shall be borne by the
Company and the Parent. Anything in this paragraph to the contrary
notwithstanding, the Company and the Parent shall not be liable for any
settlement of any such claim or action effected without their written consent.
The Company and the Parent agree promptly to notify the Selling Noteholder
of the commencement of any litigation or proceedings against the Company or the
Parent or any of their officers, directors or controlling persons in connection
with the issue and sale of the Notes or with the registration statement or
prospectus.
<PAGE>
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(b) The Selling Noteholder agrees to indemnify and hold harmless the
Company, the Parent and their directors, officers and controlling persons from
and against any loss, expense, liability or claim which arises out of or is
based upon any alleged untrue statement of a material fact contained in, and in
conformity with information furnished in writing by the Selling Noteholder to
the Company or the Parent expressly for use with reference to the Selling
Noteholder in, the registration statement, any prospectus contained in the
registration statement at the time it becomes effective or the prospectus, or
any related preliminary prospectus, or arises out of or is based upon any
alleged omission to state a material fact in connection with such information
required to be stated in such documents or necessary to make such information
not misleading.
If any action is brought against the Company, the Parent or any such person
in respect of which indemnity may be sought against the Selling Noteholder
pursuant to the foregoing paragraph, the Company, the Parent or such person
shall promptly notify the Selling Noteholder in writing or by telephone,
confirmed in writing, of the institution of such action, and the Selling
Noteholder shall assume the defense of such action, including the employment of
counsel and payment of expenses; provided, however, that the failure so to
notify the Selling Noteholder will not relieve it from any liability that it may
have to the Company or the Parent under this agreement unless, and only to the
extent that, such failure results in the forfeiture of substantive rights or
defenses by the Selling Noteholder. The Company, the Parent or such person shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of the Company, the Parent
or such person unless the employment of such counsel shall have been authorized
in writing by the Selling Noteholder in connection with the defense of such
action or the Selling Noteholder shall not have employed counsel to have charge
of the defense of such action or the Company or the Parent, shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to the Selling Noteholder
(in which case the Selling Noteholder shall not have the right to direct the
defense of such action on behalf of the Company or the Parent), in any of which
events such fees and expenses of one counsel for the Company or the Parent
selected by the Company or the Parent shall be borne by the Selling Noteholder.
Anything in this paragraph to the contrary notwithstanding, the Selling
Noteholder shall not be liable for any settlement of any such claim or action
effected without its written consent.
The Selling Noteholder agrees promptly to notify the Company and the Parent
of the commencement of any litigation or proceedings against the Selling
Noteholder in connection with the issue and sale of the Notes or with the
registration statement or prospectus.
4. Contribution
If the indemnification provided for in paragraph 3 of this agreement is
unavailable in respect of any losses, expenses, liabilities or claims referred
to therein, then the parties entitled to indemnification under the terms thereof
shall be entitled to contribution to liabilities and expenses except to the
extent that that contribution is not permitted under section 11(f) of the
Securities Act of 1933, as amended. In determining the amount of contribution to
which the respective parties are entitled, there shall be considered the
parties' relative knowledge and access to information concerning the matter with
respect to which the claim was asserted, the opportunity to correct and prevent
any misstatement or omission, and any other equitable considerations appropriate
under the circumstances. The parties entitled to indemnification agree that it
would not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation.
<PAGE>
-4-
5. Counterparts
This agreement may be executed in any number of counterparts which, taken
together, shall constitute one and the same instrument.
The provisions of paragraphs 3 and 4 of this agreement shall remain in full
force and effect regardless of any investigation made by or on behalf the
Selling Noteholder, the Company, the Parent or any of their respective
directors, officers or controlling persons and shall survive the termination of
this agreement and the issuance and delivery of the Notes.
<PAGE>
-5-
Very truly yours,
PROTECTION ONE ALARM MONITORING,INC.
By: /s/ John W. Hesse
--------------------------------------
Name: John W. Hesse
Title: EVP & CFO
PROTECTION ONE, INC.
By: /s/ John W. Hesse
---------------------------------------
Name: John W. Hesse
Title: EVP & CFO
Accepted and agreed to as of the date first above written:
WESTERN RESOURCES, INC.
By: /s/ Richard D. Terrill
-------------------------------------
Name: Richard D. Terrill
Title: Vice President, Law and
Corporate Secretary
EXHIBIT 23.1
ARTHUR
ANDERSEN
CONSENT OF INDENPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated January 29, 1998
and August 22, 1997 included in Protection One, Inc.'s Form 10-K for the year
ended December 31, 1997 and to all references to our Firm included in this
registration statement.
Dallas, Texas
September 30, 1998
/s/ Arthur Andersen LLP
----------------------------------
Arthur Andersen LLP
