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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
0-24780 33-73002-01
(Commission File Number) (Commission File Number)
PROTECTION ONE, INC. PROTECTION ONE ALARM MONITORING, INC.
(Exact Name of Registrant as Specified Exact Name of Registrant as Specified
in Charter) in Charter)
DELAWARE DELAWARE
(State of Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
93-1063818 93-1064579
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
600 CORPORATE POINTE, 12TH FLOOR, 600 CORPORATE POINTE, 12TH FLOOR,
CULVER CITY, CALIFORNIA, 90230 CULVER CITY, CALIFORNIA, 90230
(Address of Principal Executive (Address of Principal Executive
Offices, Including Zip Code) Offices, Including Zip Code)
(310) 342-6300 (310) 342-6300
(Registrant's Telephone Number, (Registrant's Telephone Number,
Including Area Code) Including Area Code)
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
of Protection One, Inc.
6 3/4% Convertible Senior Subordinated
Notes Due 2003 of Protection One Alarm
Monitoring, Inc. Guaranteed by
Protection One, Inc.
Securities registered pursuant to Section 12(g) of the Act:
(NONE.)
(Title of Class)
Indicate by check mark whether each of the registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that such
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of each registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of common stock of Protection One, Inc. held by
nonaffiliates on February 24, 1999 (based on the last sale price of such shares
on the New York Stock Exchange) was $153,712,322.
As of March 31, 1999, Protection One, Inc. had 126,838,741 shares of Common
Stock outstanding, par value $0.01 per share. As of such date, Protection One
Alarm Monitoring, Inc. had outstanding 110 shares of Common Stock, par value
$0.10 per share, all of which shares were owned by Protection One, Inc.
Protection One Alarm Monitoring, Inc. meets the conditions set forth in General
Instructions I (1)(a) and (b) for Form 10-K and is therefore filing this form
with the reduced disclosure format set forth therein.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Protection One, Inc.'s proxy statement on Schedule 14A to be
furnished to stockholders in connection with its Annual Meeting of Stockholders
are incorporated by reference in Part III of the Form 10-K. Such proxy statement
is expected to be filed with the Commission prior to April 30, 1999.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business......................................................... 1
Item 2. Facilities....................................................... 23
Item 3. Legal Proceedings................................................ 24
Item 4. Submission of Matters to a Vote of Stockholders.................. 24
PART II
Item 5. Market for Common Equity and Related Stockholder Matters......... 25
Item 6. Selected Consolidated Financial Data............................. 26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 29
Item 7A. Market Risk Disclosure........................................... 44
Item 8. Financial Statements and Supplementary Data...................... 45
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 45
PART III
Item 10. Directors and Executive Officers of the Registrants.............. 46
Item 11. Executive Compensation........................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and Management... 46
Item 13. Certain Relationships and Related Transactions................... 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K............................................................... 47
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PART I
ITEM 1. BUSINESS
Unless the context otherwise indicates, all references in this Annual Report
on Form 10-K (this "Report") to the "Company", "Protection One," "we," "us" or
"our" or similar words are to Protection One, Inc., its direct wholly owned
subsidiary, Protection One Alarm Monitoring, Inc. ("Protection One Alarm
Monitoring") and Protection One's other wholly owned subsidiaries. Each of
Protection One and Protection One Alarm Monitoring is sometimes referred to
herein as "Registrant." Protection One's sole asset is, and Protection One
operates solely through, its investment in Protection One Alarm Monitoring and
Protection One's other wholly owned subsidiaries. Each of Protection One and
Protection One Alarm Monitoring is a Delaware corporation organized in September
1991.
OVERVIEW
Protection One is one of the leading providers of life safety and property
monitoring services, providing electronic monitoring and maintenance of its
alarm systems to over 1.5 million customers in North America and Europe. We also
provide our customers with enhanced services that include:
- extended service protection;
- patrol and alarm response;
- two-way voice communication;
- pager service;
- medical information service;
- cellular back-up; and
- mobile security services.
Approximately 85% of our revenues are contractually recurring for monitoring
alarm security systems and other related services. We have grown rapidly by
participating in the organic growth in the alarm industry and by acquiring other
alarm companies.
BUSINESS
Our principal activity is responding to the immediate security and safety
needs of our customers 24 hours a day. Our revenues are generated primarily from
recurring monthly payments for monitoring and maintaining the alarm systems that
are installed in our customers' homes and businesses. Security systems are
designed to detect burglaries, fires and other events. Through a network of 66
service branches and four satellite offices in North America and 49 service
branches in continental Europe and the United Kingdom, we provide maintenance
service of security systems and, in certain markets, armed response to verify
that an actual emergency has occurred.
We provide our services to the residential (both single family and
multifamily residences), commercial and wholesale segments of the alarm
monitoring industry. Although we intend to grow our presence in each of these
market segments, we believe that the residential segment, which represents in
excess of 80% of our customer base, is the most attractive segment of the alarm
business because of its lower penetration and thus stronger growth prospects,
higher gross margins and larger potential size.
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At December 31, 1998, our customer base composition was as follows:
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MARKET SEGMENT PERCENTAGE OF TOTAL
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Single Family.............................................................. 57%
Multifamily/Apartment...................................................... 21%
Commercial................................................................. 12%
Wholesale.................................................................. 10%
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Total.................................................................. 100%
---
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</TABLE>
Wholesale customers represent those customers that are served by smaller
independent alarm dealers that do not have a monitoring station and therefore
subcontract monitoring services from us. Of the approximately 10% of our
customer base that are wholesale customers, approximately 75% of those are
residential customers.
Our company is divided geographically into two business segments:
PROTECTION ONE NORTH AMERICA generated approximately $377 million, or 90%,
of our revenues in 1998 and is comprised of:
- Protection One Alarm Monitoring--our core alarm monitoring business based
in Culver City, California and
- Network Multifamily Security--our monitored alarm business servicing the
multifamily/apartment market based in Addison, Texas and
- Mobile Division--our location-based emergency, navigation and information
business servicing individuals in their automobiles based in Irving,
Texas.
PROTECTION ONE EUROPE generated approximately $44 million, or 10%, of our
revenues in 1998 and is comprised of:
- Protection One Continental Europe--our alarm monitoring business servicing
continental Europe, established from our purchase of Compagnie Europeenne
de T elesecurite ("CET") in September 1998, described below, based in
Paris and Vitrolles, France and offices in Germany, Switzerland, Belgium
and the Netherlands and
- Protection One United Kingdom--our alarm monitoring business servicing the
United Kingdom, established from our purchase of Hambro Countrywide
Security in May 1998, described below, based in Basingstoke, United
Kingdom.
Because Protection One Europe was created as a result of acquisitions that
occurred during the course of the year, only 10% of our 1998 revenues were
contributed from this business segment. This percentage is expected to increase
in 1999 as Protection One Europe contributes a full year of revenues.
RECENT DEVELOPMENTS
SUMMARY OF NOTABLE TRANSACTIONS IN 1998
Since November 1997, we have grown from a regional security alarm company in
the western United States into a nationwide provider of life safety and property
monitoring services through a series of significant strategic acquisitions and
internal growth. The most important of these acquisitions was the combination
with the security business of Western Resources, Inc., a transaction that
increased our size by approximately 500,000 customers. The combination with
Western Resources was completed in November 1997 and gave us the operational
infrastructure and financial strength to support our substantial growth in 1998.
We believe our internal growth and acquisition activity during 1998 successfully
established
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Protection One as the second largest company in the residential monitoring
segment of the industry. We added over 500,000 new customers in 1998, obtained a
leading position in the multifamily alarm monitoring segment and entered new,
high growth markets in Canada, the United Kingdom and continental Europe. In
1998, we undertook the following notable acquisitions and financings:
- THE ACQUISITION OF NETWORK MULTIFAMILY SECURITY CORPORATION. We acquired
approximately 200,000 customers by purchasing the stock of Network
Multifamily Security effective January 1, 1998 under the terms of a
purchase option granted to us by Western Resources. We paid approximately
$180 million for what we believe, based on our substantial industry
experience and knowledge, to be the leading provider of security alarm
monitoring services to apartment complexes and other multi-family
dwellings.
- THE ACQUISITION OF MULTIMEDIA SECURITY SERVICES, INC. We obtained
approximately 147,000 customers and related assets, including a service
center in Wichita, Kansas, when we purchased certain assets and
liabilities of Multimedia Security Services for approximately $233 million
in cash on March 2, 1998.
- THE ACQUISITION OF COMSEC/NARRAGANSETT SECURITY, INC. We obtained 30,000
customers located primarily in the Northeast United States when we
purchased all of the capital stock of Comsec/ Narragansett Security for
$65 million, consisting of approximately $49 million of cash and $16
million of assumed debt, on March 17, 1998.
- A CONCURRENT PUBLIC OFFERING AND PRIVATE PLACEMENT OF OUR COMMON STOCK. We
issued 4,500,000 shares of common stock to the public and 33,000,000
shares of common stock to Western Resources for aggregate proceeds of
approximately $356 million on June 8, 1998. We issued an additional
667,144 shares to the public and 4,597,500 shares to Western Resources for
aggregate proceeds of approximately $50 million on June 29, 1998. The
proceeds from these offerings were used to redeem $65.0 million of the
outstanding senior subordinated discount notes issued by Protection One
Alarm Monitoring and to repay borrowings under our credit facility with
Westar Capital, our controlling stockholder and a wholly owned subsidiary
of Western Resources.
- THE ACQUISITION OF HAMBRO COUNTRYWIDE SECURITY. We acquired all of the
capital stock of Hambro Countrywide Security, the fifth largest security
company in the United Kingdom with operations throughout the United
Kingdom, for approximately $18 million on May 18, 1998.
- THE ACQUISITION OF ROGER'S CANGUARD INC. We acquired all of the capital
stock of Rogers CanGuard Inc., a wholly-owned subsidiary of Rogers
Cablesystems Limited, on June 30, 1998. Rogers CanGuard was Canada's fifth
largest provider of residential and commercial security services with
approximately 38,000 subscribers and two central stations located in
Vancouver, British Columbia and Ottowa, Ontario, Canada.
- A PRIVATE OFFERING OF SENIOR NOTES. Protection One Alarm Monitoring issued
$250 million of senior unsecured notes bearing an interest rate of 7 3/8%
and due in 2005 in a private offering completed on August 17, 1998. We
used proceeds from this offering to repay borrowings under our credit
facility with Westar Capital.
- THE ACQUISITION OF CET. We established a major presence in Western Europe
by purchasing the common stock of this public company with 60,000
customers for approximately $140 million in a series of transactions
completed on September 30, 1998. We also assumed liabilities for recourse
financing contracts sold to a third party financing company in this
acquisition.
- THE REFINANCING OF OUR CREDIT FACILITY WITH WESTAR CAPITAL WITH A NEW $500
MILLION CREDIT FACILITY THROUGH A SYNDICATE OF BANKS. We obtained a
revolving credit facility from a syndicate of banks led by NationsBank
N.A., concurrent with our offering of senior subordinated notes, discussed
below, to substantially replace our credit facility with Westar Capital.
The proceeds of the new facility were
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used to repay the borrowings under the credit facility with Westar
Capital. We can borrow under this facility at a range of interest rates
based on either the defined prime rate or an Eurodollar rate. Our weighted
average interest rate for the new senior credit facility at December 31,
1998 was 6.8%. The new senior facility matures in December 2001.
- A PRIVATE OFFERING OF SENIOR SUBORDINATED NOTES. Protection One Alarm
Monitoring issued $350.0 million of senior subordinated notes bearing an
interest rate of 8 1/8% and due in 2009 in a private offering completed on
December 21, 1998. We used proceeds from this offering to repay borrowings
under the new credit facility.
SHAREHOLDER LITIGATION
Based on public releases, we understand that purported class action lawsuits
have been filed against us and certain of our officers and directors alleging
violations of federal securities laws arising from our public announcement that
we have decided to restate our financial statements for the year ended December
31, 1997 and each of the first three quarters of 1998. We have not been served
with process and, therefore, cannot provide more details with respect to these
or any other claims alleged in these actions.
THE LIFELINE TRANSACTION
In October 1998, we announced an agreement to acquire Lifeline Systems,
Inc., ("Lifeline") a leading provider of 24-hour Personal Emergency Response and
Support Services (PERSS) in North America. Based on the average closing price of
our common stock for the three trading days prior to April 8, 1999, the value of
the consideration to be paid under the merger agreement is approximately $129.2
million or $22.05 per Lifeline share in cash and stock. Lifeline has advised us
that it is evaluating the restatement of our financial statements. The
consideration to be given in the Lifeline transaction is by design variable and
is subject to change within certain parameters until the closing date.
Interested parties should obtain the most recent proxy/registration statement
for further analysis of the merger consideration.
Each Lifeline share will be converted into the right to receive a
combination of $14.50 in cash and shares of common stock of New Protection One.
The actual amount of cash and the value of the common stock to be issued will be
based on the average closing price of our common stock on the New York Stock
Exchange over the ten-day period ending three days before the Lifeline
stockholders meeting to vote on the proposed merger, a variable exchange rate
and the number of shares of Lifeline common stock outstanding at the time the
transaction is completed. Lifeline stockholders may elect to receive additional
shares of common stock in lieu of all or a portion of the cash consideration.
Lifeline provides 24-hour PERSS to its customers who are primarily elderly
individuals with medical or age-related conditions as well as physically
challenged individuals throughout the United States and Canada. These customers
communicate with Lifeline utilizing a communicator that connects to the
telephone line in the customer's home and to a personal help button, which is
worn or carried by the individual subscriber. Lifeline has an extensive
distribution network of over 2,200 hospitals in all 50 states and Canada. The
Lifeline targeted customer base represents the fastest growing demographic
segment of the North American population.
The Lifeline acquisition is consistent with our strategy to broaden the
services offered to our customers. This acquisition will also afford us the
opportunity to cross-sell our alarm monitoring services to Lifeline's customers,
as well as cross-sell Lifeline's services to both our customers and Western
Resources' customers.
STRATEGY
Our strategy is to become the largest provider of life safety and property
monitoring services based in North America and Europe. We intend to achieve our
growth objectives by extending our leadership
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position in large and growing residential markets and adding new customers
through our dealer program, "tuck-in" acquisitions, direct sales and strategic
alliances. We are dedicated to becoming the highest quality service provider in
the industry. In addition, we are focused on:
- adding new customers at lowest cost by developing new channels of
distribution
- continuing to improve our operating efficiency and margins through further
integration of acquired accounts and better scale economies
- enhancing revenues and margins by offering additional services to new and
existing customers
- cross-selling value-added services to customers in each of our divisions
- continuing to improve our customer service and
- building a preeminent brand name in the security industry.
We believe that this strategy will lead to continued growth in revenues and
EBITDA. The principal components of our strategy are as follows:
INTERNAL GROWTH
DEALER PROGRAM. Rather than incur the costs of maintaining an internal
sales force in our core North American single-family alarm monitoring business,
we have built a dealer program that successfully generates a consistent and
reliable number of new customers each month. We believe that our dealer program
is an advantageous distribution channel because it is a source of significant
organic subscriber growth at lower cost.
Our dealer program is comprised of approximately 250 direct exclusive
dealers that are typically independent alarm companies with residential and
small commercial sales, marketing and installation skills. Our dealers enter
into exclusive contracts with us to generate new monitoring customers that we
purchase from them on an ongoing basis. We have experienced a significant
increase in the number of new customers generated in North America through our
dealer program in 1998. We anticipate developing a similar dealer program in
Europe.
NETWORK MULTIFAMILY SECURITY. Network Multifamily markets its services and
products primarily to developers, owners and managers of apartment complexes and
other multifamily dwellings. Network Multifamily grows its business through
national and regional advertising, a nationwide professional field sales force
and affiliations with professional industry-related associations. We believe
this targeted internal sales effort is the most effective means of generating
sales in the multifamily market, which is comprised primarily of developers and
professionals that can be identified and contacted with relative ease.
EUROPE. We are developing a residential dealer program for Protection One
Europe modeled after our North American dealer program and are building a
distribution network based upon a centralized marketing function to provide
promotional materials in the markets served by Protection One Europe. We also
are developing strategic alliances with leading insurance, banking and real
estate companies in Europe. We believe that the combination of a residential
dealer program, in conjunction with the development of strategic alliances, will
provide our European operations with consistent and reliable subscriber growth
at low cost, particularly as this relatively underdeveloped market matures.
GENERATE CUSTOMER GROWTH THROUGH STRATEGIC ALLIANCES.
Strategic alliances provide us with a proprietary source of prospective
customers and offer us the opportunity to generate new customers at a
substantially lower cost as well as to advertise and to build the Protection One
brand name. We have aggressively pursued alliances with companies in other
industries that have significant residential customer bases. Approximately 95%
of our strategic alliances are exclusive arrangements governed by written
contracts. Examples of companies with which we have established
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strategic alliances include electric and gas utilities, home builders, realtors,
mortgage companies and home improvement retailers.
We have several major initiatives in place for 1999 designed to help evolve
our strategic partners from generating referral sources to becoming direct
sellers of our alarm systems to the end user. This is an integral part of our
strategy to lower the cost of growth through new distribution channels.
SELL ADDITIONAL SERVICES TO INCREASE REVENUES AND MARGINS. As a means to
increase revenues and margins, we provide our new and existing customers with an
array of additional value-added services to help broaden our customer
relationships. Our enhanced services include extended service protection,
several different types of alarm verification, wireless backup and mobile
services. These enhanced services also position us as a full service provider
and give our dealers more features to sell in their solicitation of new
customers.
CROSS-SELLING OF SERVICES BETWEEN DIVISIONS. Through our strategic
partnership with Western Resources, we have access to Western Resources'
approximately 2.5 million customers, which include customers from pending
acquisitions. Management is currently working with Western Resources on
developing programs designed to cross-sell Protection One services to Western
Resources customers as a means of generating new customers at lower cost.
EXTERNAL GROWTH THROUGH ACQUISITIONS
Despite the amount of significant consolidation activity that has occurred
in the alarm industry over the last several years, the industry in North America
and Europe remains highly fragmented. SDM Magazine (formerly Security
Distribution Magazine) estimates that there are over 16,000 alarm companies in
North America alone. The top 100 companies in the North American industry
represent only 25% of the total revenue in that industry. The remaining 75% are
comprised of small, local alarm companies with annual revenues typically less
than $1 million. Management estimates that the combined customer base of these
small alarm companies exceeds eight million customers, indicating that the
consolidation trend in the alarm industry will likely continue for many years to
come. Moreover, we intend to actively pursue lower cost acquisitions in Europe
as an important component of our European growth strategy.
Since November 1997, we have completed in excess of 30 transactions, adding
approximately one million new customers and establishing our market position.
Acquisitions, in conjunction with the dealer program allow us to increase
customer density, which results in significant operating synergies. Our
acquisition strategy for 1999 and beyond is to focus on smaller, less expensive,
"tuck-in" acquisitions that can be quickly and easily integrated into our
existing operations.
INCREASE OPERATING EFFICIENCIES
We continually review our monitoring, customer service and other corporate
operating functions to maximize labor and other efficiencies. These ongoing
initiatives to analyze our cost structure result in ongoing modifications to
operating activities. We believe our economies of scale afford us a distinct
competitive advantage over our smaller competitors.
CUSTOMER SERVICE
Our customer care centers are co-located in our service centers and answer
non-emergency customer inquiries. Highly trained operators answer inbound calls
to our help desk and assist customers with understanding and resolving operating
issues related to their security systems. Our operators are knowledgeable on
virtually every type of alarm system that is installed in our customers' homes.
If an operator is unable to resolve an issue over the phone, a technician is
typically dispatched through a repair order that is entered into our centralized
field scheduling system.
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In 1998, we made a significant investment in our customer service-response
systems and training as part of our ongoing effort to become the highest quality
service provider in the industry.
ESTABLISH PREEMINENT BRAND NAME
We believe that there is a unique opportunity to build a preeminent consumer
brand name in the security industry which would enable us to add new customers
at a lower cost than our competitors and improve customer retention. Our service
and response vehicles, dealer marketing efforts and affinity relationships serve
as a base from which to launch further brand development efforts. We believe
that a well recognized brand supports our goal of becoming the industry leader
and broadening our customer relationships.
THE SECURITY ALARM INDUSTRY
The North American alarm industry is large, growing rapidly and
characterized by a high degree of fragmentation, low residential penetration and
a continuing trend towards consolidation. We believe that the European market is
similarly fragmented and that the residential segment in Europe is substantially
less penetrated than in North America. We further believe that the residential
penetration rate in the European alarm market today closely resembles the
residential penetration rate in the North American alarm market in the early
1980's.
LARGE AND GROWING MARKET
Management estimates that the North American Security industry grew 8.6% in
1998, reaching total revenues of approximately $16.75 billion. Of this total,
management estimates that recurring alarm monitoring and leasing revenue
comprised 20%, or approximately $3.4 billion, an increase of 10.7% from $3.1
billion in 1997. We also participate in the recurring service and maintenance
sector of the alarm industry, which comprised 19%, or approximately $3.2 billion
of total industry revenues, an increase of 8.9% from $2.9 billion in 1997. The
aggregate growth of the markets in which we operate was 9.8% in 1997. SDM
Magazine reports that the largest 100 companies in the U.S. alarm industry
experienced growth of 14.8% in 1998, compared to the industry growth rate of
8.6%. This disparity reflects the ongoing consolidation of the security alarm
industry as larger firms continue to actively acquire smaller companies. We
believe that several favorable demographic trends, including the aging
population, two-income families, home officing as well as a strong economy and
the increased perception of crime have all contributed to an increased demand
for security alarm services.
INCREASED RESIDENTIAL PENETRATION IN NORTH AMERICA AND EUROPE
Management and other industry sources estimate that there will be a
substantial amount of new residential customers created in North America and
Europe over the next several years as more and more consumers elect to include
home security in their places of living.
As the following chart indicates, only about 11% of the 122 million
households in North America currently have a monitored alarm system. With the
estimated terminal penetration and additional growth in the housing stock in
each market segment--defined as the maximum realistic alarm penetration
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potential within each segment--management estimates that there will be
approximately 30-40 million new customers created in the residential market over
the next several years:
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SEGMENT SIZE % TERMINAL
MARKET SEGMENT (IN MILLIONS) % PENETRATED PENETRATION
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Single Family............................ 78 15% 30-40%
Multifamily High Rise.................... 12 0 NA
Multifamily "Garden Style"............... 22 5 20-30
Manufactured Housing..................... 10 2 10-20
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Total.................................... 122 11% 20-30%
</TABLE>
The residential penetration of alarms in European households is estimated by
management to be less than 5%. With a population of over 380 million people in
the 15 European Union countries (over 100 million larger than the United States)
and crime rates in most European Union countries generally higher than the
United States in most categories except murder, management believes the
residential alarm penetration rate in Europe will increase significantly over
the next several years. We currently operate in six European countries with a
combined population of over 232 million.
TREND TOWARD CONSOLIDATION
Over the last several years, many of the largest security alarm companies in
North America and Europe have been acquired leaving few large national and
Pan-European alarm companies. Potential new entrants into the alarm industry are
now faced with few, if any, large alarm companies available for purchase. We
believe that the larger, more cost efficient alarm companies with access to
capital will continue to grow faster than the industry average. In most cases,
the installation of security systems requires alarm companies to fund the excess
of installation-related costs over installation revenues, a trend that continues
to be prevalent in both the residential and commercial segments.
In addition, we believe that the growth in false alarms is causing some
municipalities to consider alternatives to response by municipal police. To the
extent that municipalities elect to require some form of private verification of
an alarm prior to police dispatch, such policies could impose additional
expenses on alarm monitoring companies and thereby provide additional impetus
for consolidation. Due to our size, density in key markets and access to
capital, we believe we are well positioned to take advantage of consolidation
opportunities in the industry.
OPERATIONS
Our operations consist principally of alarm monitoring, customer service
functions and branch operations.
CENTRALIZED MONITORING, CUSTOMER SERVICE AND CUSTOMER SOLICITATION
CUSTOMER SECURITY ALARM SYSTEMS. Security alarm systems include many
different types of devices installed at customers' premises designed to detect
or to react to various occurrences or conditions, such as intrusion or the
presence of fire or smoke. In general, systems for multi-family and residential
applications tend to be smaller in size than those used by commercial customers,
and also tend to generate a lower level of alarm signals than in commercial
applications. These devices are connected to a computerized control panel that
communicates through the phone lines to a service center. In most systems,
control panels can identify the nature of the alarm and the areas within a
building where the sensor was activated, and can transmit that information to a
central monitoring station.
The basic system sold by our dealers includes monitoring of the front and
back doors of a home, one keypad, an interior motion detection device, a central
processing unit with the ability to communicate
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signals to our central monitoring station, a panic button, a siren, window
decals and a yard sign. This basic system often will be offered for little or no
up-front price, but will be sold to a customer with additional equipment
customized to a customer's specific needs. Such equipment add-ons include
additional perimeter and interior protection, fire protection devices (heat and
smoke detectors), environmental protection devices (freeze sensors and water
detectors), additional panic buttons and home automation devices (lighting or
appliance controls).
CUSTOMER CONTRACTS. Our alarm monitoring customer contracts generally have
initial terms ranging from one to five years in duration, and provide for
automatic renewals for a fixed period (typically one year) unless we or the
customer elects to cancel the contract at the end of its term.
Typically, dealers sign customers to alarm monitoring contracts that include
a bundled monthly charge for monitoring, extended service protection and a
rebate against the homeowners' insurance deductibles in the event of a loss.
Extended service protection covers the normal costs of repair of the security
system after the expiration of the security system's initial warranty period.
Although a customer may elect to sign an alarm monitoring contract that excludes
extended service protection, few customers choose to do so, and we believe the
bundling of monitoring and extended service protection provides additional value
to customers and allows us to provide more efficient field repair services.
SERVICE CENTERS. We maintain eight major service centers in North America
to provide monitoring services to the majority of our customer base. In the
United Kingdom, our service center is based in metropolitan London and in
Continental Europe, our service centers are based in Paris and in metropolitan
Marseilles, France. The table below provides additional detail about the North
American monitoring centers:
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CURRENT NUMBER OF CAPACITY OF
LOCATION CUSTOMERS MONITORED FACILITY PRIMARY MARKETS
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<S> <C> <C> <C>
Beaverton, OR.................. 275,000 500,000 Residential/Commercial
Irving, TX..................... 235,000 500,000 Multi-Family
Hagerstown, MD................. 65,000 150,000 Residential/Wholesale
Irving, TX..................... 340,000 750,000 Residential/Commercial
Orlando, FL.................... 100,000 500,000 Wholesale
Wichita, KS.................... 147,000 500,000 Residential/Commercial
Ottawa, Ontario................ 20,000 35,000 Residential
Vancouver, B.C................. 20,000 35,000 Residential
</TABLE>
Each service center incorporates the use of state-of-the-art communications
and computer systems that route incoming alarm signals and telephone calls to
operators. Each service center currently monitors signals largely on a
geographic basis. We are currently standardizing our operating platforms so that
the centers will be effectively integrated with signals routed to the centers on
a capacity basis, rather than on a geographic basis. We expect that the use of a
single operating platform in North America and Europe will enable us to realize
overall operating efficiencies through the ability to monitor more effectively
alarm signal patterns and adjust service center staffing levels accordingly.
Depending upon the type of service for which the customer has contracted,
service center personnel respond to alarms by relaying information to the local
fire or police departments, notifying the subscriber, or taking other
appropriate action, such as dispatching alarm response personnel to the
customer's premises where this service is available. We also provide customers
with remote audio verification capability that enables the central monitoring
station to listen and speak directly into the customer's premises in the event
of an alarm activation. This feature allows our personnel to verify that an
emergency exists, to reassure the subscriber, and to expedite emergency
response, even if the customer is unable to reach a telephone. Remote audio
verification capability also assists us in quickly determining if the alarm was
activated inadvertently, and thus whether a response is required.
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Our service centers operate 24 hours per day, seven days a week, including
all holidays. Each operator within a service center monitors a computer screen
that presents real-time information concerning the nature of the alarm signal,
the customer whose alarm has been activated, and the premises on which such
alarm is located. Each operator receives training that includes familiarization
with substantially every type of alarm system in our customer base. This enables
the operator to tell customers how to turn off their systems in the event of a
false alarm, thus reducing the instances in which a field service person must be
dispatched. All telephone conversations are automatically recorded. Other
non-emergency administrative signals are generated by low battery status,
deactivation and reactivation of the alarm monitoring system, and test signals,
and are processed automatically by computer.
All of our primary service centers in North America are listed by
Underwriters Laboratories, Inc. ("UL") as protective signaling services
stations. UL specifications for service centers include building integrity,
back-up computer and power systems, staffing and standard operating procedures.
In many jurisdictions, applicable law requires that security alarms for certain
buildings be monitored by UL listed facilities. In addition, such listing is
required by certain commercial customers' insurance companies as a condition to
insurance coverage.
WHOLESALE MONITORING. Through our service center in Orlando, Florida, we
provide wholesale monitoring services to independent dealers. The Orlando
service center is one of only a few wholesale monitoring facilities to offer
two-way voice communication on a widespread basis. Under the typical
arrangement, dealers subcontract monitoring services to us, primarily because
such dealers do not have their own monitoring capabilities. We may also provide
billing and other services. Dealers retain ownership of monitoring contracts and
are responsible for every other aspect of the relationship with customers,
including field repair service.
Our presence in wholesale monitoring provides us with another source of
prospective acquisition targets. Independent dealers who subcontract monitoring
services to us are familiar with our high quality monitoring and related
capabilities, an important consideration for a prospective seller of a portfolio
of security alarm customers.
CUSTOMER CARE SERVICES. Our customer care centers are co-located in our
service centers and process non-emergency communications. Operators receive
inbound customer calls and the customer service group addresses customer
questions and concerns about billing, service, credit and alarm activation
issues. The help desk staff assists customers in understanding and resolving
mechanical and operating issues related to security systems. A centralized field
repair scheduling function sets up technician appointments. We also operate a
dedicated customer service call center in Chatsworth, CA to address questions
that customers or potential customers have about our services, as well as
outbound sales and marketing activities and collections.
ENHANCED SERVICES. As a means to increase revenues and to enhance customer
satisfaction, we offer customers an array of enhanced security services,
including extended service protection and several different types of alarm
verification. These services position us as a full service provider and give
dealers more features to sell in their solicitation of new customers. We
actively solicit our customers for interest in these services. The following
provides additional detail on enhanced services:
- EXTENDED SERVICE PROTECTION, which covers the normal costs of repairing
the system during normal business hours, after the expiration of the
initial warranty period.
- TWO-WAY VOICE COMMUNICATION (REMOTE AUDIO VERIFICATION), which consists of
the ability, in the event of an alarm activation, to listen and to talk to
persons at the monitored premises from the service center through speakers
and microphones located within the premises. Among other things, such
remote audio verification helps us to determine whether an alarm
activation is a false alarm.
- SUPERVISED MONITORING SERVICE, which allows the alarm system to send
various types of signals containing information on the use of the system,
such as which users armed or disarmed the system
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and at what time of the day. This information is supplied to customers for
use in connection with the management of their households or businesses.
Supervised monitoring service can also include a daily automatic test
feature.
- PAGER SERVICE, which provides the customer with standard pager services
that also enables us to reach the customer in the event of an alarm
activation.
- WIRELESS BACK-UP, which permits the alarm system to send signals over a
cellular telephone or dedicated radio system, in the event that regular
telephone service is interrupted.
- ALARM RESPONSE AND PATROL SERVICE, which provides customers in selected
markets with rapid, on-premises response to and verification of alarms by
armed officers.
- MEDICAL INFORMATION SERVICE,which provides a responder with our customers'
specific medical needs, as well as emergency contacts whether home or
away.
MOBILE SERVICES, which provides professional response for the delivery of
emergency, navigation and information services in mobile applications. We became
a pioneer in the mobile security industry when we teamed with Ford Motor Company
and Motorola in 1995 to develop Lincoln RESCU. This program offered the first
vehicle safety system to integrate cellular phone and global positioning
technology to assist motorists when they need emergency help, roadside or
routing assistance. We recently contracted with Nissan to provide similar
services in connection with equipment built into its Infiniti line of cars.
Mercedes-Benz also recently announced that our mobile security services would be
standard across its entire S-Class model line. We are actively pursuing similar
contracts with other car manufacturers.
BRANCH OPERATIONS
We maintain approximately 66 service branches in North America from which we
provide field repair, customer care, alarm response and sales services and
approximately 4 satellite locations from which we provide field repair services.
We also have approximately 49 service branches in Europe from which we provide
field repair, customer care, alarm response and sales services. Our branch
infrastructure plays an important role in enhancing customer satisfaction,
reducing customer loss and building brand awareness.
FIELD REPAIR. Field repair personnel are trained by Protection One to
provide repair services for the various types of security systems utilized by
our customers. We strive to execute prompt service scheduling and first call
repair for customers. Field personnel also provide quality and related
compliance inspections for new installations performed by our dealers.
Repair services generate revenues primarily through billable field service
calls and recurring payments under our extended service protection program. The
increasing density of our customer base, the result of our successful dealer
program and our continuing efforts to acquire new customers in areas surrounding
branch operations, permit more effective scheduling and routing of field service
technicians and results in economies of scale.
These economies of scale give us a distinct competitive advantage over our
smaller competitors. For example, our customer density grants us increased
efficiency in scheduling and routing and allows us to provide faster field
service response and support, which leads to a higher level of customer
satisfaction and each technician is able to make more service calls per day. We
continually review available automated work management and scheduling programs
to maximize employee resources in the field repair function.
ALARM RESPONSE AND PATROL. We offer our customers in Southern California
and Las Vegas alarm response and patrol enhanced services in addition to our
other services. These armed officers supplement our alarm monitoring service by
providing "alarm response service" to alarm system activations, "patrol service"
consisting of routine patrol of customers' premises and neighborhoods and, in a
few cases, "special watch" services, such as picking up mail and newspapers and
increased surveillance when the customer is travelling. Alarm response service
requires our patrol officers to observe and to report any potential criminal
activity at a customer's home.
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We believe that demand for alarm response and patrol services is likely to
increase as a result of a trend on the part of local police departments to limit
their response to alarm activations and other factors that may lead to a
decrease of police presence. The Private Sector Liaison Committee of the
International Association of Chiefs of Police has established Non-Sworn Alarm
Responder Guidelines to provide standards for private alarm response officers.
Although we currently incur a loss in our patrol and alarm response operations,
we believe that further demand for such services will enable us to increase
customer density in our routes, thereby reducing losses. In addition, our offer
of patrol and alarm response services is a sales method used to attract
customers of other alarm monitoring companies that do not provide such services.
To the extent that further demand develops for patrol and alarm response
services, we believe that our current presence will enable us to increase our
conversions of customers to our services. Additionally, we believe that such
services are an effective impediment to the loss of customers.
SALES AND MARKETING
Our core North American sales and marketing activities consist of corporate
advertising and marketing functions, centralized inbound and outbound sales
functions, a branch sales function and dealer and prospective acquisition
marketing efforts.
We believe that the increasing density of our customer base has increased
our overall presence and visibility. We encourage referrals from existing
customers through an incentive program promoted through newsletters, billing
inserts and employee contacts. Alarm response and service vehicles, which
display the Protection One logo, also increase our visibility, coupled with
advertising campaigns.
Network Multifamily Security's sales and marketing activities consist of
national and regional advertising, nationwide professional field sales efforts,
centralized inbound and outbound sales functions, prospective acquisition
marketing efforts and professional industry-related association affiliation.
Services are sold directly to the property owner, and payment is based on a
lease price on a per-unit basis. Ongoing service for the duration of the lease
includes equipment, maintenance, 24-hour monitoring from our central monitoring
station, customer service and individual market support. Property owner
contracts generally have initial terms ranging from five to ten years in
duration, and provide for automatic renewal for a fixed period (typically five
years) unless Network or the subscriber elects to cancel the contract at the end
of its term.
Protection One Europe primarily addresses the professional and commercial
markets in Europe through a network of wholly owned subsidiaries. Each
subsidiary has a series of branch offices from which a direct sales force
develops customer contacts. We encourage referrals from existing subscribers by
way of business partnerships to develop local market presence. Further market
penetration is also achieved by delivering to our customer a broad product
range, including alarm monitoring, video (closed-circuit) and
video-surveillance.
Protection One Europe is developing a residential dealer program and a
distribution network based upon a centralized marketing function to provide
promotional material. Additionally, Protection One Europe is developing
strategic alliances with leading companies in the insurance, banking and real
estate industries.
CORPORATE ADVERTISING AND MARKETING
In the last two years, we have substantially increased our advertising and
marketing efforts to support the dealer program. We use television, radio,
newspaper and direct mail with promotional messages to create sales leads and to
increase awareness of the Protection One brand. Such sales leads are distributed
to dealers based on their financial contribution to support cooperative
advertising efforts. We also have specifically tailored regional advertising and
promotional programs to utilize marketing alliances where appropriate.
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<PAGE>
Based on primary market research, we believe that there is an opportunity to
build a preeminent consumer brand in the security industry. According to a 1998
SDM Magazine consumer survey on home security conducted with us, consumers are
unable to name any security industry competitor on an unaided basis to a
significant degree. We have established a coordinated branding strategy to
assist us in achieving our other strategic objectives by positioning us as an
industry leader and to build a platform for the sale of additional services. We
believe that a nationally recognized brand supports our goals of becoming the
industry leader and broadening our customer relationships.
In addition, we will evaluate all future opportunities for marketing
alliances and joint ventures in the context of the brand strategy, selecting
those that enhance our positioning and that accelerate the growth in public
awareness of our brand. Finally, we intend to test the use of brand awareness
advertising in conjunction with direct response marketing, in an effort to
quantify the extent to which increased consumer awareness of the brand enhances
direct marketing activities. We expect to invest gradually in brand advertising
over time as the security market matures.
DEALER MARKETING
The dealer program provides support services to dealers as they grow their
independent businesses. On behalf of the dealer program participants, we obtain
purchase discounts on security systems, coordinate cooperative dealer
advertising and provide assistance in marketing and employee training support
services.
Dealer contracts provide for the purchase of the dealers' customer accounts
by Protection One on an ongoing basis. The dealers install specified alarm
systems (which have a Protection One logo on the keypad), arrange for customers
to enter into Protection One alarm monitoring agreements, and install Protection
One yard signs and window decals. In addition, we require dealers to qualify
prospective customers by meeting a minimum credit standard.
BRANCH SALES
The most common reason for the loss of customers is customers moving out of
their homes and businesses. Sales professionals and centralized telesales
representatives at our branch offices and Chatsworth, CA customer service center
are responsible for tracking previous customers' homes to sign up new owners
when they move into such homes. The branch sales function also generates revenue
from selling equipment upgrades and add-ons to existing customers and by
attracting competitors' customers to our services.
We operate a significant commercial sales and installation effort for
security and related monitored services both in North America and Europe. Our
commercial products range from basic intrusion and fire detection equipment to
fully integrated systems with card access, closed circuit television and
voice/video monitoring. We are also organizing a national account sales and
customer service function to address the special needs of chain customers, such
as restaurants and retailers.
ACQUISITION SOLICITATION AND INTEGRATION
We actively seek to identify prospective "tuck-in" acquisitions of companies
and dealers with targeted direct mail, trade magazine advertising, trade show
participation, telemarketing, membership in key alarm industry trade
organizations, and contacts through various prominent vendors and other industry
participants. Our extensive experience in identifying and negotiating previous
acquisitions helps to facilitate the successful negotiation and execution of
acquisitions in a timely manner.
Acquisitions are integrated through a specific program developed in
conjunction with each seller. Integration efforts typically include a letter
from the seller to our customers, explaining the sale and transition, followed
by one or more letters and packages that include our customer service brochures,
field service and monitoring phone number stickers. Thereafter, each new
customer is contacted individually by telephone by a member of our customer
service group for the purpose of addressing the customer's
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<PAGE>
questions or concerns and soliciting certain information. Finally, the customer
receives a follow-up telephone call after six months and periodically
thereafter.
COMPETITION
The security alarm industry is highly competitive and highly fragmented in
both North America and Europe. In North America, there are only five alarm
companies that offer services across the U.S. and Canada with the remainder
being either large regional or small, privately held alarm companies. Based on
number of residential customers, the top five alarm companies in North America
as estimated by management, are:
- ADT Security Services, a subsidiary of Tyco International, Inc. ("ADT");
- Protection One;
- SecurityLink from Ameritech, Inc., a subsidiary of Ameritech Corporation;
- Brinks Home Security Inc., a subsidiary of The Pittston Services Group of
North America; and
- Honeywell Inc.
In Europe, we compete with ADT, SecurityLink from Ameritech, Initial
Shorrock (Rentokil Initial PLC) and Chubb Group Services Ltd. (Williams PLC), as
well as the securities subsidiaries of Securitas AB.
Other alarm service companies have adopted a strategy similar to ours that
entails the purchase of alarm monitoring accounts both through acquisitions of
account portfolios and through dealer programs. Some competitors have greater
financial resources than us, or may be willing to offer higher prices than we
are prepared to offer to purchase customer accounts. The effect of such
competition may be to reduce the purchase opportunities available to us, thus
reducing our rate of growth, or to increase the price paid by us for customer
accounts, which would adversely affect our return on investment in such accounts
and our results of operations.
Competition in the security alarm industry is based primarily on reliability
of equipment, market visibility, services offered, reputation for quality of
service, price and the ability to identify and to solicit prospective customers
as they move into homes. We believe that we compete effectively with other
national, regional and local security alarm companies due to our reputation for
reliable equipment and services, our prominent presence in the areas surrounding
our branch offices and dealers, our ability to offer combined monitoring, repair
and enhanced services, our low cost structure and our marketing alliances.
INTELLECTUAL PROPERTY
We own trademarks related to the name and logo for each of Protection One,
Network Multifamily Security and CET, as well as a variety of trade and service
marks related to individual services we provide. We own certain proprietary
software applications, which we use to provide services to our customers.
REGULATORY MATTERS
A number of local governmental authorities have adopted or are considering
various measures aimed at reducing the number of false alarms. Such measures
include:
- subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms;
- permitting of individual alarm systems and the revocation of such permits
following a specified number of false alarms;
- imposing fines on alarm customers for false alarms;
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- 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
- requiring further verification of an alarm signal before the police will
respond.
Our operations are subject to a variety of other laws, regulations and
licensing requirements of both domestic and foreign federal, state, and local
authorities. In certain jurisdictions, we are required to obtain licenses or
permits, to comply with standards governing employee selection and training, and
to meet certain standards in the conduct of our business. Many jurisdictions
also require certain of our employees to obtain licenses or permits. Those
employees who serve as patrol officers are often subject to additional licensing
requirements, including firearm licensing and training requirements in
jurisdictions in which they carry firearms.
The alarm industry is also subject to requirements imposed by various
insurance, approval, listing, and standards organizations. Depending upon the
type of customer served, the type of security service provided, and the
requirements of the applicable local governmental jurisdiction, adherence to the
requirements and standards of such organizations is mandatory in some instances
and voluntary in others.
Our advertising and sales practices are regulated in the United States by
both the Federal Trade Commission and state consumer protection laws. In
addition, certain administrative requirements and laws of the foreign
jurisdictions in which we operate also regulate such practices. Such laws and
regulations include restrictions on the manner in which we promote the sale of
our security alarm systems, the obligation to provide purchasers of our alarm
systems with certain rescission rights and certain foreign jurisdictions'
restrictions on a company's freedom to contract.
Our alarm monitoring business utilizes telephone lines and radio frequencies
to transmit alarm signals. The cost of telephone lines, and the type of
equipment, which may be used in telephone line transmission, are currently
regulated by both federal and state governments. The Federal Communications
Commission and state public utilities commissions regulate the operation and
utilization of radio frequencies. In addition, the laws of certain of the
foreign jurisdictions in which we operate regulate the telephone communications
with the local authorities.
RISK MANAGEMENT
The nature of the services provided by Protection One potentially exposes us
to greater risks of liability for employee acts or omissions, or system failure,
than may be inherent in other businesses. Substantially all of our alarm
monitoring agreements, and other agreements, pursuant to which we sell our
products and services contain provisions limiting liability to customers in an
attempt to reduce this risk.
Our alarm response and patrol services require our employees to respond to
emergencies that may entail risk of harm to such employees and to others. We
employ over 100 patrol and alarm response officers who are subject to extensive
pre-employment screening and training. Officers are subject to local and federal
background checks and drug screening before being hired, and are required to
have gun and baton permits and state and city guard licenses. Officers also must
be licensed by states to carry firearms and to provide patrol services. We are
one of a few companies to have an in-house training academy that prepares
officer candidates for employment. Our training program includes arrest
procedures, criminal law, weaponless defense, firearms and baton usage, patrol
tactics, and first-aid and CPR. After graduating from the Protection One Patrol
Academy, a new officer rides along with a field training officer for two weeks
to gain experience. In total, an officer candidate undergoes five weeks of
specific training, which amount exceeds all state requirements. Although we
conduct extensive screening and training of our employees, the nature of patrol
and alarm response service subjects us to greater risks related to accidents or
employee behavior than other types of businesses.
We carry insurance of various types, including general liability and errors
and omissions insurance in amounts management considers adequate and customary
for our industry and business. Our loss experience, and the loss experiences at
other security service companies, may affect the availability and cost of
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<PAGE>
such insurance. Certain of our 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.
EMPLOYEES
At December 31, 1998, we employed approximately 4,577 individuals on a
full-time basis. Currently, approximately 800 of our employees in France are
covered by a collective bargaining agreement. We believe that we have good
relations with our employees.
WHERE YOU CAN FIND MORE INFORMATION
Protection One (File No. 0-24780) and Protection One Alarm Monitoring (File
No. 33-73002-01) file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (which we
refer to as the "SEC"). You may read and copy any reports, statements and other
information filed by Protection One at the SEC's public reference room, at 450
Fifth Street, N.W., Washington, D.C., as well as at public reference rooms in
New York, New York, and Chicago, Illinois. Please call (800) SEC-0330 for
further information on the public reference rooms. Our filings are also
available to the public from commercial document retrieval services and at the
internet web site maintained by the SEC at http://www.sec.gov. Also, we maintain
an internet web site at www.protectionone.com.
FORWARD-LOOKING STATEMENTS
This Report and the materials incorporated by reference herein include
"forward-looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements generally can be identified as such because the
context of the statement includes words such as we "believe," "expect,"
"anticipate" or other words of similar import. Similarly, statements herein that
describe our objectives, plans or goals also are forward-looking statements. All
such forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those in the
forward-looking statements. Important factors that could cause actual results to
differ materially from the expectations of Protection One include, among others,
the factors discussed in the following section entitled "Cautionary Statements
Regarding Future Results of Operations." The forward-looking statements included
herein are made only as of the date of this report and we undertake no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
CAUTIONARY STATEMENTS REGARDING FUTURE RESULTS OF OPERATIONS
You should read the following cautionary statements in conjunction with
discussions of factors discussed elsewhere in this and other of our filings with
the SEC and in materials incorporated by reference in these filings. These
cautionary statements are intended to highlight certain factors that may affect
our financial condition and results of operations and are not meant to be an
exhaustive discussion of risks that apply to public companies with broad
operations, such as us. Like other businesses, we are susceptible to
macroeconomic downturns in the United States or abroad that may affect the
general economic climate and our performance or that of our customers.
Similarly, the price of our securities is subject to volatility due to
fluctuations in general market conditions, differences in our results of
operations from estimates and projections generated by the investment community
and other factors beyond our control.
WE HAVE HAD A HISTORY OF LOSSES.
We incurred a net loss of $2.5 million in 1998 (a net loss of $10.7 million
excluding the effect of non-recurring income, net), $42.7 million (restated) in
1997, and $0.7 million in 1996, and Westinghouse Security (our predecessor for
accounting purposes) reported net losses of $4.9 million, $5.9 million,
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$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 us and Westinghouse Security for
amortization of purchased customer accounts and
- interest incurred on indebtedness and
- other charges required to manage operations.
The charges identified above will increase as we continue to purchase
customer accounts or increase indebtedness, or if interest rates on our
indebtedness increases. There can be no assurance that we will attain profitable
operations on an annual basis or at all.
THE COMPETITIVE MARKET FOR THE ACQUISITION OF ACCOUNTS MAY AFFECT OUR FUTURE
PROFITABILITY.
A principal element of our business strategy will be to continue to grow
rapidly by acquiring portfolios of alarm monitoring accounts. During the
1992-1998 period, acquisitions were the primary source of our growth. Since
November 1997, we have completed in excess of 30 transactions, adding
approximately one million subscribers. Growth via our authorized dealer program
through which we acquire subscriber accounts has become an increasingly
important component of our growth. We compete with major firms, some of whom
have greater financial resources than we do, or may be willing to offer higher
prices than we are prepared to offer to purchase subscriber accounts. The effect
of competition may be to reduce the purchase opportunities available to us, thus
reducing our rate of growth, or to increase the price we pay for subscriber
accounts, which could have a material adverse effect on our return on investment
in such accounts on our business, and results of operations, financial
condition, prospects and ability to service debt.
THE INTEGRATION OF ACQUIRED BUSINESSES REQUIRES SUBSTANTIAL MANAGEMENT TIME
AND EFFORT, WHICH COULD DIVERT MANAGEMENT'S ATTENTION FROM OTHER MATTERS.
Significant acquisitions, including the 1997 business combination with the
security businesses of Western Resources and the pending Lifeline transaction,
place very significant demands on us with respect to management, operational
resources and financial and internal control systems. Our future operating
results will depend, in part, on our ability to continue to implement and to
improve our operating and financial controls and to expand, to train and to
manage our employee base. Significant risks also exist in the consolidation of
our systems, operations and administrative functions. We also face risks
associated with entering new lines of business, as with the Lifeline
transaction, and will be dependent on the management of these business lines as
we integrate operations, systems and/or financial controls. Significant changes
in quarterly revenues and costs may result from the execution of this business
strategy, resulting in fluctuating financial results. Additionally, managing the
growth of the business may limit the time available to our management to attend
to other operational, financial and strategic issues.
WE COULD DISCOVER PROBLEMS WITH ACQUIRED BUSINESSES AFTER THEIR ACQUISITION.
Acquisitions of subscriber account portfolios involve a number of
uncertainties. Sellers in smaller transactions typically do not have audited
historical financial information with respect to the acquired accounts.
Therefore, in making acquisition decisions, we have generally relied on
management's knowledge of the industry, due diligence procedures and
representations and warranties of the sellers. There can be no assurance that
these representations and warranties are or will be true and complete or, if
these representations and warranties are inaccurate, that we will be able to
uncover any inaccuracies in the course of its due diligence or recover damages
from the seller in an amount sufficient to fully compensate it for any resulting
losses. Risks associated with these uncertainties include, without limitation,
the following:
- the possibility of unanticipated problems not discovered prior to the
acquisition;
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- additional expenses required to integrate the acquired company's systems;
- higher than expected account customer losses; and
- for acquisitions that are structured as stock purchases of other
companies, the assumption of unexpected liabilities and losses from the
disposition of unnecessary or undesirable assets of the acquired
companies.
Also, because the primary consideration in acquiring a portfolio of
subscriber accounts is the monthly recurring revenue associated with the
purchased accounts, the price we have paid has customarily been directly tied to
such monthly recurring revenue. This price varies based on the number and
quality of accounts being purchased from the seller, the historical activity of
these acquired accounts, the anticipated profit margins and other factors.
An important aspect of our acquisition program is the integration of
customer accounts into our operations after purchase. We have consummated well
over 200 acquisitions since 1992 and have experienced nearly all of the problems
and challenges described in varying degrees. We have experienced acquisitions in
which the quality of the accounts purchased, as defined by monthly recurring
revenue, were not commensurate with our expectations. We have also experienced
circumstances where the integration of an acquisition required more time than
expected, often related to differences in, or the inadequacy of, software and
accounting systems of the seller. On these occasions, circumstances have arisen
whereby we were unable to accurately track the loss of customer accounts
purchased. We have also experienced integration challenges where the servicing
of newly acquired customer accounts suffered due to lack of coordination and
systems. Depending upon the size, frequency and location of acquisitions, the
integration of customers may adversely affect our provision of field repair
services to existing customers, which may cause customer losses to increase and
monthly recurring revenue to decline. In addition, if corporate or branch
operations fail to integrate a substantial portion of or do not adequately
service acquired customer accounts, we may experience higher rates of customer
loss in the future.
WE WILL NEED ADDITIONAL FUNDING TO FINANCE OUR FUTURE GROWTH.
Our purchases of customer accounts through the dealer program and
acquisitions of portfolios of customer accounts and new lines of business have
generated cash needs that exceed the net cash provided by our operating
activities. We intend to continue to pursue customer account growth through the
dealer program and acquisitions. As a result, we will need additional funding
from additional borrowings under our credit facility or through the sale of
additional securities in the future. Depending on the price at which new equity,
if any, is sold, the issuance of additional equity securities may dilute voting
power, percentage ownership and earnings per common share realized by then
current stockholders. Any inability to obtain funding through external financing
could adversely affect our ability to increase our customers, revenues and cash
flows from operations. There can be no assurance that we will be able to obtain
external funding on favorable terms or at all.
WE HAVE A SUBSTANTIAL AMOUNT OF DEBT, WHICH COULD CONSTRAIN OUR GROWTH OR
OTHERWISE DISADVANTAGE STOCKHOLDERS.
We have, and will continue to have, a large amount of consolidated
indebtedness when compared to the equity of our stockholders. The terms of
various indentures and credit agreements that govern our indebtedness limit, but
do not prohibit, the incurrence of additional indebtedness. We expect to incur
additional indebtedness in the future in order to fund future acquisitions of
subscriber accounts.
Additionally, please be aware that:
- As of December 31, 1998, we had outstanding long-term indebtedness,
excluding capital leases, of $926.8 million, total indebtedness of $967.6
million, an accumulated deficit of $45.8 million and stockholders' equity
of $1,345.1 million. Our ratio of total indebtedness to stockholders'
equity was 0.72 and total indebtedness to total capitalization was 0.42 as
of December 31, 1998.
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<PAGE>
- As of December 31, 1998, we had $42.4 million of debt outstanding under
our revolving credit facility, or 5% of total indebtedness, bearing
interest at a weighted average floating interest rate of 6.8%. Therefore,
our financial results are and will continue to be affected by changes in
prevailing interest rates.
A large amount of indebtedness could have negative consequences, including,
without limitation:
- our ability to obtain additional financing in the future for working
capital, acquisitions of subscriber accounts, capital expenditures,
general corporate purposes or other purposes;
- our ability to withstand a downturn in our business or the economy
generally; and
- our ability to compete against other less leveraged companies may be
adversely affected.
Our ability to satisfy any payment obligations will depend, in large part,
on our performance, which will ultimately be affected by general economic and
business factors, many of which will be outside management's control. We believe
that the cash flow from operations combined with borrowings under the senior
credit facility will be enough to meet our expenses and interest obligations.
However, if these payment obligations can't be satisfied, we will be forced to
find alternative sources of funds by selling assets, restructuring, refinancing
debt or seeking additional equity capital. There can be no assurance that any of
these alternative sources would be available on satisfactory terms or at all.
WE LOSE SOME OF OUR CUSTOMERS OVER TIME.
We experience the loss of accounts as a result of, among other factors:
- relocation of customers;
- adverse financial and economic conditions; and
- competition from other alarm service companies.
In addition, we experience the loss of newly acquired accounts to the extent
we do not integrate or adequately service those accounts. Because some acquired
accounts are prepaid on an annual, semiannual or quarterly basis, customer loss
may not become evident for some time after an acquisition is consummated. An
increase in this rate of customer loss could have a material adverse effect on
our revenues and earnings.
We have not historically observed that the rate of customer loss is
correlated with the terms of the customer contracts; however, contracts with
shorter terms give rise to more instances in which a customer may choose to
terminate the relationship. Although the contract term varies due to the variety
and number of sources from which we acquired them, based on our standard form of
contract and the due diligence procedures we undertake in connection with
account acquisitions, management believes that substantially all of our customer
contracts provide for an initial term of one to five years. During the initial
term, customers may not cancel the agreement without fulfilling their payment
obligations, so customers that request cancellation during the initial term are
billed for the balance of the initial term. Similarly, we believe that
substantially all of our customer contracts include an "evergreen" provision,
whereby the contract automatically renews for one to five year periods unless
either party gives prior notice of cancellation, usually 30 to 90 days prior to
expiration of the initial or any renewal term. Therefore, customers may only
cancel their agreements by providing the required notice prior to expiration of
the initial or a renewal term.
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<PAGE>
When acquiring accounts, we seek under terms of the purchase agreement, to
withhold a portion of the purchase price as a partial reserve against a greater
than expected loss of customers. If the actual rate of customer loss for the
accounts acquired is greater than the assumed rate at the time of the
acquisition, and damages can not be recouped from the portion of the purchase
price held back from the seller, this loss of customers could have a material
adverse effect on our business, financial condition, results of operations,
prospects or ability to service our debt obligations. Moreover, there can be no
assurance that we will be able to obtain purchase price holdbacks in future
acquisitions, particularly acquisitions of large portfolios. We have no
assurance that actual rates of customer losses for acquired accounts will not be
greater than the rate we have assumed or historically incurred. Moreover, we are
not able to predict accurately the impact that acquired accounts will have on
the overall rate of customer losses.
As of December 31, 1998, our cost of intangible assets, net of accumulated
amortization, was approximately $2.2 billion, which constituted approximately
87.7% of the book value of our total assets. In contrast to the 10-year life for
amortization of subscriber accounts, we amortize goodwill over a 40-year life.
As a result of discussions with the SEC staff, we are reviewing our methodology
for amortizing customer accounts. While we believe our amortization method is
consistent with industry practices, a significant change in the amortization
method would likely have a material effect on our consolidated results of
operations but would not reduce EBITDA. We also believe that the use of a
40-year estimated useful life for goodwill is appropriate because the many
intangibles associated with our acquisitions will survive the estimated useful
life of our customer accounts and management believes should add value to the
organization over an extended period of time.
The effects of the gross number of lost customers have historically been
offset by a combination of factors that has resulted in an overall increase in
the number of customers and/or revenue, including:
- adding new accounts from customers who move into premises previously
occupied by prior customers and in which security alarm systems are
installed;
- conversions of accounts that were previously monitored by other alarm
companies to Protection One monitoring services;
- accounts for which we obtain a guarantee from the seller that allows it to
"put" back to the seller canceled accounts; and
- revenues from price increases and the sale of enhanced services.
There can be no assurance that actual future experience will be consistent
with our past experiences and assumptions based on these experiences. There
could be a material adverse effect on our business, financial condition, results
of operations, prospects or ability to service debt obligations if actual
account attrition significantly exceeds assumed attrition and the period over
which the cost of purchased subscriber accounts is amortized is shortened.
OUR RECENT ENTRANCE INTO EUROPE PRESENTS NEW OPERATIONAL CHALLENGES AND
EXPOSES US TO FOREIGN CURRENCY FLUCTUATION.
As a result of our acquisitions of CET in France and Hambro Countrywide
Security plc in the United Kingdom, we will generate a portion of our revenues
and operating income from operations in Europe. Although our European operations
did not generate any significant earnings in 1998, they did generate
approximately $44 million, or 10%, of revenues in 1998. We currently do not
engage in hedging activities intended to offset the risk of exchange rate
fluctuations, although we may in the future. Both the revenues from
international operations and obligations of CET and Hambro denominated in
foreign currency are subject in varying degrees to risks inherent in doing
business outside the United States. Such risks include economic instability,
currency exchange rate fluctuations, changes in import duties, trade
restrictions, work stoppages, currency restrictions, the ability of CET to
conduct business in the new European currency, known as the "euro," and other
restraints and taxes. With respect to our exposure to fluctuations in
20
<PAGE>
currency exchange rates, we anticipate that substantially all of our foreign
exchange transactions will be denominated in the euro (as discussed below). Any
significant change in the value of the currencies of the countries in which we
do business against the U.S. dollar could affect our ability to control our cost
structure and satisfy foreign denominated obligations, which, in turn, could
have a material adverse effect on our business, results of operations, financial
condition, prospects and ability to service debt. Furthermore, depreciation of
the value of the U.S. dollar against foreign currencies in which we transact
business may have a negative impact on the income from operations of foreign
operations.
On January 1, 1999, eleven of the fifteen member countries of the European
Union, not including the United Kingdom, established fixed conversion rates
between their sovereign currencies, known as the "legacy currencies," and the
euro. During a transition period from January 1, 1999 through December 31, 2001,
legacy currencies will continue in use; however, the value of these currencies
will be set at fixed and irrevocable conversion rates to the euro. Beginning in
January 2002, new euro-denominated bills and coins will be issued and the legacy
currencies will be withdrawn from circulation. We are addressing issues raised
by the conversion to the euro, in ways such as adapting our information
technology systems and assessing whether cross-border price transparency will
limit CET's flexibility to charge different prices for similar products. CET's
efforts to adapt its systems differ at its various European operations.
Currently, none of CET's systems are capable of accommodating euro-denominated
invoicing and purchasing transactions. Management believes the conversion to the
euro has not affected our ability to subscribe new customers, pay vendors and
employees or otherwise service existing customers since January 1, 1999. To the
extent that existing or prospective vendors, customers or employees require CET
to engage in euro-denominated transactions prior to CET's implementing systems
capable of accommodating euro transactions, CET could lose these vendors,
customers or employees. CET's significant European operations have formulated
plans to accommodate all euro-denominated transactions and triangulation
conventions by January 1, 2002.
OUR DEBT AGREEMENTS IMPOSE OPERATIONAL RESTRICTIONS ON US.
The Credit Facility requires us to maintain certain financial covenants, and
the indentures governing our public indebtedness requires us to satisfy certain
financial covenants in order to borrow additional funds. The most restrictive of
these covenants are set forth in the Credit Facility and require the following:
- Total debt to annualized EBITDA for the most recent quarter must be less
than 5.0 through December 31, 1999 and less than 4.5 thereafter and
- Annualized EBITDA for the most recent quarter to interest expense must be
greater than 2.75.
- Senior debt to annualized EBITDA must be less than 4 to 1.
In each case, the ratio should reflect the impact of acquisitions and other
capital investments for the entire period covered by the calculation. Moreover,
we are required to obtain approval of the lenders under the credit facility in
order to make acquisitions valued at $125.0 million or more or in businesses
outside our current scope of operations. Other financial covenants are also
described under "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Material Commitments."
Our ability to comply with the ratios and the tests will be affected by events
outside our control and there can be no assurance that we will meet those tests.
A breach of any of the covenants or failure to meet the tests could result in an
event of default which would allow the lenders to declare all amounts
outstanding immediately due and payable. In the case of the senior credit
facility, if we are unable to pay the amounts due, the lenders could accelerate
the indebtedness under the senior credit facility, which would in turn be an
event of default under our various indentures governing our publicly held
indebtedness. If the amounts outstanding under the senior credit facility are
accelerated, there can be no assurance that our assets would be sufficient to
repay the amount in full.
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<PAGE>
OUR INCREASING RELIANCE ON DEALERS FOR GROWTH MEANS WE MUST CONTINUE TO
ACQUIRE ACCOUNTS IN AN INCREASINGLY COMPETITIVE MARKET.
During the period 1995 through 1997, we increasingly began to rely on
independent dealers as a source for new accounts. We expect that this emphasis
will continue. Our dealer program competes with other major alarm monitoring
firms that also acquire accounts through these independent dealers. Some of
these firms with competitive dealer programs have substantial financial
resources, including ADT Operations, Inc., a subsidiary of Tyco International,
Inc., and the security subsidiaries of the Ameritech Corporation. We are also
aware of other national firms with competitive dealer programs including
Monitronics International, Inc., DMAC, as well as several large regional dealer
programs. There can be no assurance that we will be able to retain or expand our
current dealer base or that competitive offers to dealers will not require us to
pay higher prices to dealers for subscriber accounts than have previously been
paid. Such events could reduce our growth rate and increase our use of cash to
fund growth. A lower growth rate or higher use of cash could have a material
adverse effect on our business, financial condition, results of operations,
prospects and ability to service debt obligations.
DECLINES IN NEW CONSTRUCTION OF MULTI-FAMILY DWELLINGS MAY AFFECT OUR SALES
IN THIS MARKETPLACE.
Demand for alarm monitoring services in the multi-family alarm monitoring
market is tied to the construction of new multi-family structures. We believe
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, we
anticipate 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 multi-family dwellings, it is likely that demand for our
alarm monitoring services to multi-family dwellings would also decline, which
could negatively impact our results of operations.
WESTERN RESOURCES IS OUR PRINCIPAL STOCKHOLDER AND CONTROLS OUR ACTIONS.
Western Resources, through Westar Capital, Inc., a wholly owned subsidiary
of Western Resources, owned approximately 85.4% of the outstanding common stock
of Protection One as of December 31, 1998. Westar Capital has indicated that it
may acquire additional shares of Protection One common stock prior to
consummation of the Lifeline transaction in an amount sufficient for it to
maintain an ownership position in excess of 80% of the issued and outstanding
shares of Protection One common stock following the consummation of the
transaction, although it is not bound by any agreement with us that would either
obligate it to or prevent it from acquiring additional shares of Protection One
common stock prior to or after the transaction. As long as Westar Capital
continues to beneficially own in excess of 50% of the shares of Protection One
common stock outstanding, Westar Capital will be able to direct the election of
all directors of Protection One and exercise a controlling influence over our
business and affairs, including any determinations with respect to mergers or
other business combinations involving Protection One, our acquisition or
disposition of material assets and our incurrence of indebtedness and the
payment of dividends on Protection One common stock. Similarly, Westar Capital
will continue to have the power to determine matters submitted to a vote of
Protection One's stockholders without the consent of other stockholders, to
prevent or cause a change in control of Protection One and could take other
actions that might be favorable to Western Resources and Westar Capital, whether
or not these actions would be favorable to Protection One or its stockholders
generally.
WE FACE CHALLENGES ASSOCIATED WITH OUR OPERATIONAL REORGANIZATION.
On December 9, 1998, we announced that we had reorganized our operating
structure into new divisions in order to better manage the increased scale and
scope of operations. We contemplate that, upon the consummation of the Lifeline
transaction, Lifeline will become another operating division. We also created a
non-operating Executive Division with the intent to focus senior management's
time on key
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<PAGE>
strategic and capital formation initiatives. There can be no assurance that we
will be able to realize the intended benefits of its new operating structure.
Moreover, we face certain risks and uncertainties associated with management and
operational reorganizations, including those relating to:
- changes in management responsibility and reporting structures
- potential lack of communications until new reporting and communication
structure becomes familiar
- potential loss of cohesive operational strategies and
- potential employee turnover.
If we are unable to manage successfully these risks and uncertainties, there
can be no assurance that the new operating structure will not have a material
adverse affect upon our business, financial condition, results of operations,
prospects and ability to service debt obligations.
ITEM 2: FACILITIES
We maintain our executive offices at 600 Corporate Pointe, 12th Floor,
Culver City, CA 90230 and our main financial and administrative offices in
Irving, Texas. We operate primarily from the following facilities, although we
lease office space for our approximate 66 service branch offices and 4
satellites in 33 states and Canada, 7 branch offices in the UK and 42 in
continental Europe.
<TABLE>
<CAPTION>
SIZE (SQ.
LOCATION FT.) LEASE/OWN PRINCIPAL PURPOSE
- --------------------------------------- ----------- ----------- -----------------------------------------------
<S> <C> <C> <C>
UNITED STATES
Addison, TX............................ 28,512 Lease Service center/administrative headquarters
Beaverton, OR.......................... 44,600 Lease Service center
Chatsworth, CA......................... 43,472 Lease Marketing call center
Culver City, CA........................ 23,520 Lease Corporate headquarters
Culver City, CA........................ 8,029 Lease Administrative functions
Hagerstown, MD......................... 21,370 Lease Service center
Irving, TX............................. 53,750 Lease Service center
Irving, TX............................. 54,394 Lease Financial/administrative headquarters
Orlando, FL............................ 11,020 Lease Wholesale service center
Wichita, KS............................ 50,000 Own Service center/administrative headquarters
CANADA
Ottawa, ON............................. 7,937 Lease Service center/administrative headquarters
Vancouver, BC.......................... 5,177 Lease Service center
EUROPE
Basingstoke (London), UK............... 3,500 Lease Financial/administrative headquarters/ service
center
Paris, FR.............................. 3,498 Lease Financial/administrative headquarters/ service
center
Vitrolles (Marseilles), FR............. 13,003 Lease Administrative/service center
</TABLE>
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<PAGE>
ITEM 3: LEGAL PROCEEDINGS
SHAREHOLDER LITIGATION
Based on public releases, we understand that purported class action lawsuits
have been filed against us and certain of our officers and directors alleging
violations of federal securities laws arising from our public announcement that
we have decided to restate our financial statements for the year ended December
31, 1997 and each of the first three quarters of 1998. We have not been served
with process and, therefore, cannot provide more details with respect to these
or any other claims alleged in these actions.
We are a party to claims and matters of litigation incidental to the normal
course of our business. The ultimate outcome of these matters cannot presently
be determined; however, in our opinion, the resolution of these matters will not
have a material adverse effect on our overall financial condition or results of
operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matters were submitted to Protection One's stockholders following our
annual meeting in 1998.
24
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE INFORMATION
The Protection One common stock has been listed on the New York Stock
Exchange since November 6, 1998 under the symbol "POI" and was previously quoted
on the National Market System of the Nasdaq Stock Market under the symbol
"ALRM". The table below sets forth for each of the calendar quarters indicated,
the high and low sales prices per share of Protection One common stock, as
reported by the New York Stock Exchange or the Nasdaq Stock Market, as
applicable, and the dividends per share declared on the Protection One common
stock. All prices are as reported by the National Quotation Bureau,
Incorporated, as adjusted for applicable stock splits.
<TABLE>
<CAPTION>
PROTECTION ONE COMMON STOCK
-----------------------------------
HIGH LOW DIVIDENDS(1)
---- ------ --------------
<S> <C> <C> <C>
1997:
First Quarter..................................... $111/8 $ 73/8 --
Second Quarter.................................... 141/8 91/4 --
Third Quarter..................................... 213/4 133/8 --
Fourth Quarter.................................... 201/8 103/4 $ 7.00
1998:
First Quarter..................................... $131/2 $ 101/16 --
Second Quarter.................................... 137/8 97/16 --
Third Quarter..................................... 121/8 57/8 --
Fourth Quarter.................................... 121/4 77/8 --
</TABLE>
- ------------------------
(1) On July 31, 1997, Protection One declared a cash distribution of $7.00 per
share to all holders of record of its common stock, which was subsequently
paid on November 24, 1997.
DIVIDEND INFORMATION
Holders of Protection One common stock are entitled to receive only
dividends declared by the board of directors from funds legally available for
dividends to stockholders.
Other than the cash distribution paid to holders of record of Protection One
common stock as of November 24, 1997, to holders of outstanding options to
purchase Protection One common stock and to holders of warrants exercisable for
Protection One common stock, all in connection with the combination of the
Protection One and Western Resources security businesses in November 1997,
Protection One has never paid any cash dividends on its common stock and does
not intend to pay any cash dividends in the foreseeable future. The indenture
governing the 13 5/8% Senior Subordinated Discount Notes due 2005 of Protection
One Alarm Monitoring, and the credit agreement relating to its senior credit
facility restrict Protection One Alarm Monitoring's ability to pay dividends or
make other distributions to its corporate parent. Consequently, these agreements
restrict our ability to declare or pay any dividend on, or make any other
distribution in respect of, its capital stock.
NUMBER OF STOCKHOLDERS
As of December 31, 1998, there were approximately 88 stockholders of record
who held shares of Protection One common stock, as shown on the records of
Protection One's transfer agent.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the audited consolidated financial statements and
notes to the financial statements of Protection One and the audited financial
statements and the related notes to the financial statements of Westinghouse
Security, included in Item 8 of this report. The Company has restated its
consolidated financial statements as of December 31, 1997 and for the year then
ended. See Note 2(a) to the Consolidated Financial Statements. All amounts are
in thousands, except per share and customer data, unless otherwise noted. Prior
to November 24, 1997, Protection One was a standalone security business. On
November 24, 1997, pursuant to a contribution agreement dated July 30, 1997,
between Protection One and Western Resources, Protection One acquired WestSec
and Westar, which together were the Western Resources security businesses, and
Centennial Security Holdings, Inc. ("Centennial"). As a result of the November
1997 business combination, Western Resources, through its wholly owned
subsidiary Westar Capital, Inc. owned approximately 85.4% of Protection One at
December 31, 1997.
The November 1997 business combination was accounted for as a reverse
purchase acquisition which treats the Western Resource security businesses as
the accounting acquiror. Accordingly, the results of operations of Protection
One and Centennial have been included in the consolidated financial data only
since November 24, 1997.
The 1996 historical financial data of Protection One are those of the
Western Resources security businesses, the accounting acquiror.
The operating results of the Western Resources security businesses for the
year ended December 31, 1995, can be considered nominal in relation to the
accompanying consolidated statements of operations. The 1995 results are
comprised of only two months of start-up activity. Summarized operating results
are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Revenue............................................................................... $ 344
Gross Profit.......................................................................... 189
Net income............................................................................ 18
</TABLE>
On December 30, 1996, Western Resources, through its indirect wholly owned
subsidiary, WestSec, purchased the assets and assumed certain liabilities
comprising the security business of Westinghouse Security Systems from
Westinghouse Electric Corporation. Westinghouse Security Systems is deemed to be
a predecessor of Protection One.
Selected financial data for 1994 through 1996 were derived from the
financial statements of Westinghouse Security Systems for those years. Per share
data is omitted because Westinghouse Security Systems was wholly owned by
Westinghouse Electric Corporation.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
PROTECTION ONE PREDECESSOR
----------------------------------------- -------------------------------------------
YEAR ENDED 53 WEEKS 52 WEEKS 52 WEEKS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, 1997 DECEMBER 31, DECEMBER 30, DECEMBER 20, DECEMBER 20,
1998 RESTATED 1996 1996 1995 1994
------------ ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues....................... $ 421,095 $ 144,773 $ 8,097 $ 110,881 $ 88,710 $ 67,253
Cost of revenues............... 131,791 35,669 3,348 25,960 17,280 15,224
------------ ------------ ------------- ------------- ------------- -------------
Gross profit................... 289,304 109,104 4,749 84,921 71,430 52,029
Selling, general and
administrative expenses...... 111,798 80,755 5,091 60,166 50,919 27,448
Acquisition and transition
expense...................... 20,298 2,108 -- 101 101 --
Amortization of intangibles and
depreciation expense......... 117,651 39,822 609 21,613 17,804 13,959
Other charges:
Impairment of customer
accounts................... -- 12,750 -- -- -- --
Merger related costs......... 11,542 -- -- -- --
Employee severance costs..... 3,400 -- -- -- -- --
------------ ------------ ------------- ------------- ------------- -------------
Operating income (loss)........ 36,157 (37,873) (951) 3,041 2,606 10,622
Interest expense, net.......... 55,990 33,483 15 10,879 12,159 13,467
Other non-recurring (income)
expense...................... (20,570) -- -- -- -- --
------------ ------------ ------------- ------------- ------------- -------------
Income (loss) before income
taxes and extraordinary
gain--net of taxes........... 737 (71,356) (966) (7,838) (9,553) (2,845)
Income tax (expense) benefit... (4,791) 28,628 310 2,978 3,630 1,081
------------ ------------ ------------- ------------- ------------- -------------
Income (loss) before
extraordinary gain........... (4,054) (42,728) (656) (4,860) (5,923) (1,764)
Extraordinary gain, net of
tax.......................... 1,591 -- -- -- -- --
------------ ------------ ------------- ------------- ------------- -------------
Net income (loss).............. $ (2,463) $ (42,728) $ (656) $ (4,860) $ (5,923) $ (1,764)
------------ ------------ ------------- ------------- ------------- -------------
------------ ------------ ------------- ------------- ------------- -------------
Net income (loss) per share.... $ (.02) $ (0.60) $ (0.01)
------------ ------------ -------------
------------ ------------ -------------
CONSOLIDATED BALANCE SHEET DATA
Working capital (deficit)...... $ (48,151) $ 41,539 $ (19,447) $ (19,515) $ (13,035) $ (11,551)
Customer accounts, net......... 1,014,428 530,312 265,530 157,969 138,620 114,236
Goodwill and trademarks, net... 1,187,862 672,776 218,991 11,102 11,397 11,691
Total assets................... 2,511,319 1,414,567 506,647 187,456 170,907 145,062
Long term debt, including
capital leases............... 926,971 343,942 60,505 47,931 52,511 58,475
Total stockholders' equity..... 1,345,119 940,550 410,430 106,140 89,120 60,108
OTHER OPERATING DATA
MRR (a)........................ $ 37,920 $ 19,137 $ 8,974 $ 7,870 $ 6,437 $ 5,231
Number of customers at end of
period....................... 1,541,526 756,818 424,100 313,784 265,839 214,785
Ratio of earnings to fixed
charges (b).................. -- -- -- -- -- --
EBITDA (c)..................... $ 162,491 $ 26,241 $ (342) $ 24,654 $ 20,410 $ 24,581
Cash flows from operations..... $ 85,150 (4,928) (91) 23,729 15,073 21,644
Cash flows used in investment
activities................... (893,947) (156,684) (369,536) (40,460) (43,094) (46,741)
Cash flows from financing
activities................... 744,479 237,000 369,682 16,734 28,129 22,287
</TABLE>
- ------------------------
(a) Monthly recurring revenue (MRR) is revenue that Protection One is
entitled to receive under contracts in effect at the end of the period. Because
Protection One has grown rapidly, often by acquiring security alarm companies
and portfolios of customer accounts which are included in revenues only from the
date of acquisition, Protection One's revenues are not proportional to the level
of its investment of capital reported to the end of the period upon which a
return must be earned. Management believes
27
<PAGE>
monthly recurring revenue enhances an investor's understanding of Protection
One's financial condition, results of operations and cash flows because it
provides a measure of Protection One's revenue that can be used to derive
estimated annual revenues acquired in acquisitions for a full year of
operations. As a result, monthly recurring revenue can be compared to the level
of investment in the statement of financial condition at the end of the period.
By comparing monthly recurring revenue to cash, debt and equity balances at the
end of a period, an investor can assess Protection One's investment track
record. Further, management believes an investor's consideration of monthly
recurring revenue relative to the Protection One's customer base helps identify
trends in monthly recurring revenue per customer. Monthly recurring revenue does
not measure profitability or performance, and does not include any allowance for
future losses of customers or allowance for doubtful accounts. Protection One
does not have sufficient information as to the losses of acquired customers
accounts to predict with absolute certainty the amount of acquired monthly
recurring revenue that will be realized in future periods or the impact of the
loss of acquired accounts on our overall rate of customer loss. Our computation
of monthly recurring revenue may not be comparable to other similarly titled
measures of other companies and monthly recurring revenue should not be viewed
by investors as an alternative to actual monthly revenue as determined in
accordance with generally accepted accounting principles.
(b) Earnings were insufficient to cover fixed charges by $8,845, $14,100,
$966, $7,838, $9,553 and $2,845 for 1998, 1997, and 1996 for Protection One and
1996, 1995 and 1994 for its relevant predecessor, respectively.
(c) Recurring earnings before interest, taxes, depreciation and amortization
(EBITDA) is derived by adding to income (loss) before income taxes, the sum of:
- interest expense, net;
- other charges;
- depreciation and amortization expense; and
- deducting other non-recurring (income) expense items.
Recurring EBITDA does not represent cash flow from operations as defined by
generally accepted accounting principles, should not be construed as an
alternative to operating income and is indicative neither of operating
performance nor cash flows available to fund the cash needs of Protection One.
Items excluded from EBITDA are significant components in understanding and
assessing the financial performance of Protection One. Protection One believes
presentation of EBITDA enhances an understanding of financial condition, results
of operations and cash flows because EBITDA is used by Protection One to satisfy
its debt service obligations and its capital expenditure and other operational
needs, as well as to provide funds for growth. In addition, EBITDA is used by
senior lenders and subordinated creditors and the investment community to
determine the current borrowing capacity and to estimate the long-term value of
companies with recurring cash flows from operations. Protection One's
computation of EBITDA may not be comparable to other similarly titled measures
of other companies.
28
<PAGE>
The following table provides a calculation of recurring EBITDA for each of
the periods presented above:
<TABLE>
<CAPTION>
PROTECTION ONE
------------------------------- PREDECESSOR
-------------------------------------
YEAR ENDED DECEMBER 31, 53 WEEKS 52 WEEKS 52 WEEKS
------------------------------- ENDED ENDED ENDED
1997 DECEMBER DECEMBER DECEMBER
1998 RESTATED 1996 30, 1996 20, 1995 20, 1994
--------- --------- --------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes and extraordinary
item....................... $ 737 $ (71,356) $ (966) $ (7,838) $ (9,553) $ (2,845)
Plus:
Interest expense, net...... 55,990 33,483 15 10,879 12,159 13,467
Other charges.............. 8,683 24,292 -- -- -- --
Amortization of intangibles
and depreciation
expense.................. 117,651 39,822 609 21,613 17,804 13,959
Less:
Other non-recurring
(income) expense......... (20,570) -- -- -- -- --
--------- --------- --------- ----------- ----------- -----------
EBITDA....................... $ 162,491 $ 26,241 $ (342) $ 24,654 $ 20,410 $ 24,581
--------- --------- --------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- -----------
</TABLE>
Other charges in 1998 represents severence and relocation payments of $3,400
related to our 1998 reorganization and costs of $5,283 incurred to replace
signage for the Western Resources security business, after the merger of the
Western Resources security business with Protection One in 1998. Other charges
in 1997 represent the impairment of Western Resource security business customer
accounts and non-recurring charges related to the merger of Protection One and
the Western Resources security business.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Approximately 90% of our revenues in 1998 came from monitoring and servicing
security systems located in single family homes, apartments and condominiums and
businesses. We had over 1.5 million customers at December 31, 1998, most of whom
pay us under contracts for our monitoring and other security services. We also
bill customers on a time and material basis for service visits if they do not
have extended service contracts. While we typically require payment for
monitoring services in advance, we recognize monitoring and related services
revenues only as we provide the service. The remainder of our revenue is from
the sale and installation of security systems, add-ons and upgrades. We
recognize revenues from these other activities in the period of installation.
RESTATEMENT. We restated our 1997 consolidated financial statements. In
addition, as a result of the restatement of the 1997 consolidated financial
statements and certain other adjustments, we will also restate our previously
issued consolidated financial statements reported on Form 10-K for 1997 and the
first three quarters of 1998. The impact of the restatement on the quarterly
results in 1998 have been reflected in Note 19 to the financial statements.
MONTHLY RECURRING REVENUE. At various times during the year, we measure all
of the monthly revenue we are entitled to receive under contracts with customers
in effect at the end of the period. We had approximately $37.9 million of
monthly recurring revenue as of December 31, 1998. Because Protection One has
grown rapidly, often by acquiring security alarm companies and portfolios of
customer accounts which are included in results of operations only from the date
of acquisition, its revenues are not proportional to the level of its investment
of capital reported at the end of the period upon which a return must be earned.
Management believes monthly recurring revenue enhances an investor's
understanding of
29
<PAGE>
Protection One's financial condition, results of operations and cash flows
because it provides a measure of Protection One's revenue that can be used to
derive estimates of annual revenue acquired in the acquisitions for a full year
of operations. As a result, monthly recurring revenue can be compared to the
level of investment in the statement of financial condition. Further, management
believes an investor's consideration of monthly recurring revenue relative to
the Protection One's customer base helps identify trends in monthly recurring
revenue per customer. Monthly recurring revenue does not measure profitability
or performance, and does not include any allowance for future customer losses or
allowance for doubtful accounts.
Protection One does not have sufficient information as to the losses of
acquired accounts to predict with absolute certainty the amount of acquired
monthly recurring revenue that will be realized in future periods or the impact
of the losses of acquired accounts on our overall rate of customer loss.
Protection One's computation of monthly recurring revenue may not be comparable
to other similarly titled measures of other companies and monthly recurring
revenue should not be viewed by investors as an alternative to actual monthly
revenue, as determined in accordance with generally accepted accounting
principles.
Our monthly recurring revenue includes billable amounts to customers with
past due balances. We seek to preserve the revenue stream associated with each
customer contract, primarily to maximize our return on the investment we made to
generate each contract. As a result, we actively work to collect amounts owed to
us and to retain the customer at the same time. In some instances, we may allow
up to six months to collect past due amounts, while evaluating the ongoing
customer relationship. After we have made every reasonable effort to collect
past due balances, we will disconnect the customer and include the loss in our
customer loss calculations described below.
Our monitoring and related service revenues produce higher gross margins
than any other of our revenue sources. We provide other services, such as patrol
and armed response and installations, because we believe such services
contribute to the growth and retention of our customer base. In most of our
residential markets, we use a network of independent security system sales and
installation companies to generate new monitoring customers for us. In our
multi-family, commercial and foreign markets, we use an internal sales force to
generate new customers. In all markets, we believe we are using the most cost
efficient and productive methods for growing our customer base.
CUSTOMER AND REVENUE LOSSES. Like most monitored security companies, we
invest significant amounts to generate new customers, and we seek to maintain
long-term relationships with our customers by providing excellent service. We
measure the loss of our customers and revenues to verify that our investment in
new customers is generating a satisfactory rate of return and that our policy of
amortizing the cost to acquire customer accounts over 10 years is reasonable. We
calculate and report both gross customer losses and net monthly recurring
revenue loss as meaningful statistics.
We calculate gross customer losses for a period by dividing the number of
customers who disconnect service by the average number of customers outstanding
during that period. Gross loss of customers was 10.4% in 1998 and 11.1% in 1997.
Included in 1997 customer attrition are unusual losses of approximately 13.8%
related to the customer base of WRSB. We took a charge in 1997 related to these
losses. (See Note 5 to the consolidated financial statements). Fluctuations in
gross loss of customers reflect changes in acquisition activity, the rate at
which customers move, the number of customers we disconnect for non-payment and
customer satisfaction with our monitoring, field repair and customer service
functions. Note that a loss of a customer who moves but retains our service as a
new customer in a new location is accounted for as a customer loss and an
addition in calculating customer attrition rates. Further, the loss of a
customer due to a move but the addition of a customer at the same residence is
also accounted for as a customer loss and addition in calculating customer
attrition rates.
30
<PAGE>
We define net monthly recurring revenue losses for a period as gross monthly
recurring revenue lost due to customer cancellations minus:
- Monthly recurring revenue added from connecting new customers who move
into homes previously occupied by our customers;
- Monthly recurring revenue added from converting competitor customers to
our services;
- Monthly recurring revenue of disconnected customers where a seller or
dealer reimburses us for the customer purchase price; and
- Monthly recurring revenue added from selling additional services and
implementing rate increases to our existing customers.
We divide the result of deducting this total by the average amount of
monthly recurring revenue to arrive at net monthly recurring revenue losses. In
1998, net monthly recurring revenue losses were 8.9%, a decrease from 13.0% in
1997. Factors that cause gross customer losses to change also cause fluctuations
in net monthly recurring revenue losses. In addition, net monthly recurring
revenue losses will change depending on our ability to sign up potential
customers who move into homes previously occupied by our customers, convert
competitor customers to our services, obtain purchase price reimbursements from
sellers and dealers and continue to sell enhanced services and increase rates
will cause net monthly recurring revenue losses to change.
To calculate item 3 above, the reimbursement of customer purchase prices by
sellers or dealers, we use the full dollar amount of customer contracts
guaranteed by sellers or dealers in purchase agreements. In some cases, however,
we have not retained the entire portion of the seller or dealer guarantee even
though it is specifically described in the purchase agreement. If we used the
actual amount of purchase price reimbursement by sellers or dealers, rather than
the contractual amount, net monthly recurring revenue losses would have been
higher in each period presented above.
As mentioned above, if future losses of customers were to increase
substantially, we may be required to shorten the 10-year period we use to
amortize our investment in new customers. The resulting increase in amortization
expense could be significant. As a result of discussions with the SEC staff, we
are reviewing our methodology for amortizing customer accounts. While we believe
our amortization method is consistent with industry practices, a significant
change in the amortization method would likely have a material effect on our
consolidated results of operations but would not reduce EBITDA. The net balance
of customer accounts at December 31, 1998 was approximately $1.0 billion.
CHANGE IN CUSTOMER BASE. The table below shows the change in our customer
base from 1996 to 1998:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Beginning Balance, January 1,.............................. 954,887 424,100 265,839
Installations by our personnel............................. 62,312 61,765 75,232
Additions through acquisitions and dealer purchases........ 653,841 328,855 119,445
Gross customer losses...................................... (129,514) (57,902) (36,416)
---------- --------- ---------
Ending Balance, December 31,............................... 1,541,526 756,818 424,100
---------- --------- ---------
---------- --------- ---------
</TABLE>
The January 1, 1998 balance has been increased for customers acquired in the
Network Multifamily Security acquisition, which was completed effective January
1, 1998.
On November 24, 1997, Protection One acquired the security business of
Western Resources, expanding its customer base from approximately 250,000
customers to approximately 750,000 customers and expanding its service coverage
from the western United States to most of the continental United States.
31
<PAGE>
OVERVIEW OF 1998 ACTIVITIES
In 1998, we undertook the following notable acquisitions and financings:
- THE ACQUISITION OF NETWORK MULTIFAMILY SECURITY CORPORATION. We acquired
approximately 200,000 customers by purchasing the stock of Network
Multifamily Security on January 1, 1998 under the terms of a purchase
option granted to Protection One by Western Resources. Protection One paid
approximately $180 million for what we believe, based on our substantial
industry experience and knowledge, to be the leading provider of security
alarm monitoring services to apartment complexes and other multi-family
dwellings.
- THE ACQUISITION OF MULTIMEDIA SECURITY SERVICES, INC. We obtained
approximately 147,000 customers and related assets, including a service
center in Wichita, Kansas, when we purchased assets and liabilities of
Multimedia Security Services for approximately $233 million in cash on
March 2, 1998.
- THE ACQUISITION OF COMSEC/NARRAGANSETT SECURITY, INC. We obtained 30,000
customers located primarily in the northeast United States when we
purchased all of the capital stock of Comsec/ Narragansett Security for
$65 million, consisting of approximately $49 million of cash and $16
million of assumed debt, on March 17, 1998.
- A CONCURRENT PUBLIC OFFERING AND PRIVATE PLACEMENT OF OUR COMMON STOCK. We
issued 4,500,000 shares of common stock to the public and 33,000,000
shares of common stock to Western Resources for aggregate proceeds of
approximately $356 million on June 8, 1998. We issued an additional
667,144 shares to the public and 4,597,500 shares to Western Resources for
aggregate proceeds of approximately $50 million on June 29, 1998. The
proceeds from these offerings were used to redeem $65.0 million of
Protection One Alarm Monitoring's outstanding senior subordinated discount
notes and to repay borrowings under our credit facility with Westar
Capital, our controlling stockholder and a subsidiary of Western
Resources.
- A PRIVATE OFFERING OF SENIOR NOTES. Protection One Alarm Monitoring issued
$250.0 million of senior unsecured notes bearing an interest rate of
7 3/8% and due in 2005 in a private offering completed on August 17, 1998.
We used proceeds from this offering to repay borrowings under our credit
facility with Westar Capital.
- THE ACQUISITION OF CET. We established a major presence in Western Europe
by purchasing the common stock of this public company with 60,000
customers for approximately $140.0 million in a series of transactions
completed on September 30, 1998. In the purchase, we also assumed
acquisition liabilities for recourse financing contracts sold to a third
party finance company.
- THE REFINANCING OF OUR CREDIT FACILITY WITH WESTAR CAPITAL WITH A NEW $500
MILLION CREDIT FACILITY THROUGH A SYNDICATE OF BANKS. We obtained a
revolving credit facility from a syndicate of banks led by NationsBank
N.A., concurrent with our offering of senior subordinated notes, discussed
below, to substantially replace our credit facility with Westar Capital.
The proceeds of the new facility were used to repay the borrowings under
the credit facility with Westar Capital. We can borrow under this facility
at a range of interest rates based on either the prime rate or an
Eurodollar rate. Our weighted average interest rate for the new senior
credit facility at December 31, 1998 was 6.8%. The new senior facility
matures in December 2001.
- A PRIVATE OFFERING OF SENIOR SUBORDINATED NOTES. Protection One Alarm
Monitoring issued $350.0 million of senior subordinated notes bearing an
interest rate of 8 1/8% and due in 2009 in a private offering completed on
December 21, 1998. We used proceeds from this offering to repay borrowings
under the new credit facility.
32
<PAGE>
RESULTS OF OPERATIONS
We present the table below to show how our operating results have changed
over the past two years. Next to each year's results of operations, we provide
the relevant percentage of total revenues so that you can make comparisons about
the relative change in revenues and expenses. As we discussed in the highlights
section above, 1997 results reflect the Western Resources security businesses
for the entire year, and one month of the operations of Protection One and
Centennial Security each, while 1998 results reflect an entire year of the
Western Resources security businesses, Protection One, Centennial Security and
all of the acquisitions since their respective closing dates.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
DECEMBER 31,
------------------------------------------
1997
1998 RESTATED
-------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Monitoring and related services................... $ 375,840 89.3% $ 126,630 87.5%
Installation and rental........................... 45,255 10.7 18,143 12.5
--------- --------- --------- ---------
Total revenues.................................. 421,095 100.0 144,773 100.0
Cost of revenues:
Monitoring and related services................... 103,521 24.6 32,656 22.5
Installation and other............................ 28,270 6.7 3,013 2.1
--------- --------- --------- ---------
Total cost of revenues.......................... 131,791 31.3 35,669 24.6
Gross profit.................................... 289,304 68.7 109,104 75.4
Selling, general and administrative expenses........ 111,798 26.5 80,755 55.8
Acquisition and transition expense.................. 20,298 4.8 2,108 1.5
Amortization of intangibles and depreciation
expense........................................... 117,651 27.9 39,822 27.5
Other charges....................................... 3,400 0.9 24,292 16.8
--------- --------- --------- ---------
Operating income (loss)......................... $ 36,157 8.6% $ (37,873) (26.2)%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
1998 COMPARED TO 1997
REVENUES for 1998 increased by $276.3 million, or 191%, to $421.1 million
from $144.8 million for 1997. Monitoring and related service revenues increased
by $249.2 million, or 197% due to our acquisitions and new customers purchased
through our dealer program. The majority of additional revenues in 1998 were
attributable to Protection One's acquisitions. We added approximately $16.6
million of monthly recurring revenue from our acquisitions and approximately
$5.3 million of monthly recurring revenue from our dealer program. Because
acquisitions and purchases from the dealer program occurred throughout the year,
not all of the $21.9 million of acquired monthly recurring revenue is reflected
in 1998 results. Offsetting these revenue increases, we experienced net monthly
recurring revenue losses of 8.9% in 1998.
INSTALLATION AND RENTAL REVENUES, which consist primarily of revenues
generated from installing new alarm systems, increased by 150% to $45.3 million
in 1998, as compared to $18.1 million in 1997. In the U.S., at the time of the
combination of the Western Resources security business with Protection One, we
committed to a plan to wind down all internal sales activities and increase
reliance on the dealer program as a source of new customers. We believe the
dealer program is a less costly and more productive method of adding primarily
residential customers. We successfully completed this transition in June. We
have internal sales and installation capabilities in other areas, however, such
as our multi-family division, our commercial installations and our European
operations, where we principally rent security systems. We believe that an
internal sales channel better serves the potential customer base for these
classes of customers. The installation activities of acquired businesses
generated approximately $27 million of installation revenues in 1998, as
compared to $17 million in 1997.
33
<PAGE>
COST OF REVENUES for 1998 increased by $96.1 million, or 269% to $131.8
million from $35.7 million for 1997. Cost of revenues as a percentage of total
revenues increased to 31.3% during 1998 from 24.6% during 1997. Monitoring and
related services expenses for 1998 increased by $70.9 million, or 217% to 103.5
million from 32.7 million in 1997, due to the acquisition of three major service
centers and three smaller satellite monitoring facilities in the U.S., as well
as two service centers in Canada and two in Europe. Monitoring and service
activities at our existing facilities increased as well, due to new customers
generated by our dealer program. Monitoring and related services expenses as a
percentage of monitoring and related services revenues increased to 27.5% in
1998 from 25.8% during 1997. The percentage increased due to the expenses of the
acquired facilities, as well as expenses from several higher cost subcontract
monitoring agreements. We are reviewing our service centers to eliminate smaller
satellite facilities. We are committed to building a common monitoring software
platform for all of our U.S. service centers, which we believe will enable
further service center consolidation. In addition, we intend to exit a majority
of our subcontract monitoring relationships in 1999. Finally, we expect to see
continued efficiencies in markets such as Canada and Europe from growing the
customer base and better utilizing our service centers.
INSTALLATION AND OTHER COST OF REVENUES for 1998 increased by $25.3 million,
or 838%, to $28.3 million from $3.0 million in 1997. The increase in expense
reflects the cost of equipment, installation labor and other expenses incurred
in the installation of security alarm systems. Installation and other cost of
revenues as a percentage of other revenues increased to 62.5% in 1998 from 16.6%
in 1997. Acquired commercial installation activities generated lower profit
margins due to declining installation revenues and the selling outright, rather
than leasing, of security alarm systems.
GROSS PROFIT for 1998 increased by $180.2 million, or 165%, to $289.3
million from $109.1 million in 1997. Acquisitions and contribution of new
customers by the dealer program produced the increase in gross profit. As a
percentage of total revenues, gross profit was 68.7% for 1998 compared to 75.4%
for 1997. The decline in gross profit as a percentage of total revenues reflects
the higher monitoring, field service and installation expenses noted above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for 1998 increased by $31.0
million, or 38.4%, to $111.8 million from $80.8 million in 1997. The increase in
expenses resulted primarily from acquisitions, partially offset by a reduction
in sales and related expenses. The transition of our primary distribution
channel from an internal sales force to the dealer program resulted in sales
commissions declining by approximately $9 million. We also reduced advertising
and telemarketing activities that formerly supported the internal sales force.
ACQUISITION EXPENSES for 1998 increased by $18.2 million, or 863%, to $20.3
million from $2.1 million in 1997. We aggregate expenses incurred in the
acquisition and integration of customers in this line item. These expenses
include the replacement of yard signs and the reprogramming of alarm panels for
new customers. In 1998 we incurred $5.3 million in additional customer
transition costs, primarily yard signs for the Western Resource security
business customers related to the merger of WRSB and Protection One. In 1998, we
incurred expenses to develop and manage our dealer program, as well as to
contact, assimilate and solicit acquired and new customers for new services.
Other acquisition expenses were incurred in connection with our dealer program
and the costs related to maintaining an acquisition department in 1998.
AMORTIZATION OF INTANGIBLES AND DEPRECIATION EXPENSE for 1998 increased by
$77.8 million, or 195%, to $117.7 million from $39.8 million in 1997. We spent
approximately $582 million to purchase customer accounts and incurred $549
million in cost allocated to goodwill during 1998 from our purchases of security
alarm companies, portfolios of customer accounts, and individual new customers
through our dealer program. We amortize customer accounts over 10 years and
goodwill over 40 years, in each case using a straight-line method. Additional
considerations relating to our treatment of customer accounts are discussed
under the heading "Forward Looking Statements--We lose some of our customers
over time."
34
<PAGE>
Protection One amortizes goodwill over a forty-year life. Management
believes that the use of a forty year estimated useful life is appropriate based
upon the following factors:
- The alarm monitoring industry has been in existence for over 100 years.
Management believes Protection One will be a significant factor and
participant in the long-term future of the industry due to its size and
market presence.
- The existence of Protection One monitoring equipment in the residential or
commercial structure facilitates renewals by existing occupants and
service to future occupants.
- Each customer contract typically contains an "evergreen" provision that
causes a contract to automatically renew for successive periods unless
either the customer or Protection One gives notice of the cancellation.
Based on historical experience, homeowners tend to renew the contracts
through the life of home ownership, which can be an extended time period
to avoid future installation charges.
- Our ability to sell additional services/equipment on an upgrade or add-on
basis to the base of existing and future new customers is of value to
Protection One above and beyond the base customer contract.
- A strong relationship with existing customers leads to referrals and
potential new customers.
- We have established an industry leading position from which we receive the
benefit of a nationwide presence and economies of scale. Management has
forecasted increasing penetration rates on an industry-wide basis and
believes that Protection One's position as one of only five national
providers will be of significant benefit.
- The prospects for bundling a variety of utility and consumer products in
the services business will strengthen our relationship with our customers.
Ownership of Protection One by our parent company, Western Resources,
Inc., supports this strategic outlook. With the utility industry in the
United States moving towards deregulation, opening formerly regulated
markets to resale services, and bundling services under a strong brand, an
established brand becomes more and more valuable to the owner of that
base.
Overall, these factors combine to create a unique competitive advantage,
which survives the estimated useful life of our customer accounts and should add
value to the organization over an extended period of time.
OTHER CHARGES for 1998 decreased by $20.9, or (86%) to $3.4 million from
$24.3 million in 1997. We incurred $3.4 million for severance and relocation
expenses associated with a reorganization of our operations in late 1998.
OPERATING INCOME for 1998 was $36.2 million, compared to an operating loss
of $(37.9) million in 1997. If we remove the impact of other charges in each of
1997 and 1998, operating income increased from a loss of $(13.6) million in 1997
to operating income of $39.5 million in 1998.
INTEREST EXPENSE, NET for 1998 increased by $22.5 million, or 67%, to $56.0
million from $33.5 million in 1997, reflecting our use of debt to finance a
substantial portion of our customer account growth. We expect
35
<PAGE>
to incur a greater amount of interest expense in 1999 based upon our borrowing
base at December 31, 1998 (but not considering additional borrowing in 1999), as
shown below:
<TABLE>
<CAPTION>
AT
DECEMBER ESTIMATED
DEBT INSTRUMENT INTEREST RATE 31, 1998 ANNUAL INTEREST
- ------------------------------------------------------- ------------- -------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit facility.............................. 6.800%(1) $42,417 $ 2,884
Senior unsecured notes................................. 7.375% 250,000 18,438
CET recourse financing agreements...................... 15.000% 93,541 14,031
Senior subordinated debt............................... 8.125% 350,000 28,438
Discount notes......................................... 6.450% 125,590 8,101
Convertible notes...................................... 6.750% 103,500 6,986
-------
Total................................................ $78,878
-------
-------
</TABLE>
The balance and interest rate applicable to our revolving credit facility
will vary. We may borrow up to $500.0 million under our revolving credit
facility at a floating interest rate based on several different published index
rates subject to limitations provided in the agreement covenants. Currently, the
interest rate options available to us are the Prime Rate, or a Eurodollar rate
plus a margin of 125 basis points (1.25%).
OTHER NON-RECURRING (INCOME) EXPENSE in 1998 totaled $20.6 million of
income, compared to zero in 1997. In 1998, we recognized a non-recurring gain on
the repurchase of customer contracts covered by a financing arrangement with New
York Life Secured Asset Management Company, Ltd. (SAMCO), a third party, in the
amount of $16.4 million. In 1997, we recorded this obligation at $68.5 million
in the valuation of the assets and liabilities we acquired in the acquisition of
Westinghouse Security System and increased the liability to $69.1 million for
increases in the market value of these accounts estimated to have occured in
1997, recording the $583,000 increase as interest expense. This amount was based
upon management's estimate, as specified by the agreement, of the market value
of the customer contracts considering the prices that large customer bases were
being sold in the market, which was experiencing rapid consolidation and higher
prices; verbal discussions with the third party on their expectations on
settlement; and based upon the provisions of the financing agreement. During
1998, in a series of negotiations, we purchased the customer contracts for $52.7
million. We were successful in the settlement of a lower amount based upon the
following (1) it was determined through litigation in 1998 that we could
immediately discontinue service to these customers if sold to a third party, (2)
there was an expectation that if sold to a third party, customer losses would
occur upon transition of the accounts, and (3) due to the reduction in 1998 of
the market value of large customer bases in general, resulting from a reduction
in the number of buyers and competition for large customer bases in the market.
We were able to sustain our position that a lower value was appropriate by
entering into litigation and through the final mediation of the dispute between
the parties.
During 1998, we restructured our investment in Guardian International, Inc.,
exchanging our existing convertible preferred stock and common stock for a new
series of redeemable preferred stock. We recognized a non-recurring gain of
approximately $3.0 million on this transaction. As part of the restructuring, we
also invested an additional $10.0 million in Guardian International, Inc. by
purchasing shares of a new series of convertible preferred stock. This new
investment had no impact on our statement of operations.
- ------------------------
(1) Comprised of approximately $32 million of borrowings at the Eurodollar rate
plus 1.25%, or approximately 6.25% as of December 31, 1998, and
approximately $10 million of borrowings at the Prime Rate, or 7.75%.
36
<PAGE>
In summary, other non-recurring income resulted from the following items:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1998
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Non-recurring gain on repurchase of SAMCO contracts..................... $ 16,348
Non-recurring gain on exchange of Guardian securities................... 3,000
Other................................................................... 1,222
--------
Total non-recurring other income...................................... $ 20,570
--------
--------
</TABLE>
Extraordinary gain for 1998 was ($1,591) net of tax versus zero in 1997.
This was due to the early retirement of debt in 1998.
BALANCE SHEET DATA. The table below compares several key statistics from
our consolidated balance sheets as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997
1998 RESTATED
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Working capital (deficit)............................. $ (48,151) $ 41,539
Customer accounts, net................................ 1,014,428 530,312
Goodwill.............................................. 1,187,862 672,776
Current liabilities................................... 235,991 129,449
Long-term debt, net of current portion................ 926,784 343,338
Stockholders' equity.................................. 1,345,119 940,550
</TABLE>
As of December 31, 1998, our working capital deficit was $48.2 million,
compared to working capital of $41.5 million as of December 31, 1997. Working
capital represents current assets less current liabilities, including the
current portion of long-term debt. The decline in working capital reflects
reductions in our cash balance of approximately $65.5 million and a decrease in
the current portion of our income tax receivable of $19.3 million. An increase
in current liabilities also contributed to the decline in working capital. The
most significant changes in current liabilities includes an increase of $30.9
million in purchase holdbacks, an increase of $19.6 million in the current
portion of long term debt, and an increase of $23.8 million in deferred revenue.
We generate purchase holdbacks when we acquire security alarm companies,
portfolios of customer accounts or individual customer contracts from our dealer
program. We retain a portion of the purchase price in each case, subject to
negotiation, to offset the loss of the acquired customers. Our purchase
holdbacks typically represent between 0% and 20% of the purchase price, and
typically are in effect for up to one year. Deferred revenue represents amounts
billed to customers in advance of providing service. We expect deferred revenue
to continue to fluctuate with the size of our customer base.
Long-term debt, net of current portion increased by $583.4 million,
reflecting the issuance of $600.0 million of new debt, the assumption of
long-term debt obligations in our acquisitions, and offset slightly by the
repayment of debt from the proceeds from our equity offerings. Stockholders'
equity increased by $404.6 million, reflecting primarily the issuance of $401.8
million of common stock in two offerings in June 1998. Our retained losses
increased from $43.4 million at December 31, 1997 to $45.8 million at December
31, 1998, reflecting a 1998 net loss of approximately $(2.5) million.
1997 COMPARED TO 1996
As stated above, on November 24, 1997, Protection One acquired the security
business of Western Resources, the stock of Centennial Security Holdings and
additional cash and securities in exchange for
37
<PAGE>
68.7 million shares of Protection One common stock. As a result of the
transaction, Western Resources obtained an 82.4% ownership position in
Protection One and was treated as the accounting acquiror.
The table below shows results of operations of Westinghouse Security
Systems, the predecessor to the Western Resources security business, as well as
results of operations of the Western Resources security business for 1996 and
1997. Western Resources acquired Westinghouse Security Systems on December 30,
1996. To make a more informative comparison for investors, we add the results of
Westinghouse Security Systems to Western Resources security business results for
1996, and discuss changes in 1997 from the total of the two 1996 columns as
shown below:
<TABLE>
<CAPTION>
PROTECTION ONE PREDECESSOR
------------------------------------ -----------------
FISCAL YEARS ENDED DECEMBER 31, FISCAL YEAR ENDED
------------------------------------ DECEMBER 31,
1997 -----------------
RESTATED 1996 1996
----------------- --------------- -----------------
(DOLLARS IN THOUSANDS) (DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Monitoring and related services...................... $126,630 87.5% $6,382 78.8% $ 93,765 84.6%
Installation and rental.............................. 18,143 12.5 1,715 21.2 17,116 15.4
-------- ----- ------ ----- -------- -----
Total revenues..................................... 144,773 100.0% 8,097 100.0% 110,881 100.0%
Cost of revenues:
Monitoring and related services...................... 32,656 22.5% 1,761 21.7% 24,987 22.5%
Installation and other............................... 3,013 2.1 1,587 19.6 973 0.9
-------- ----- ------ ----- -------- -----
Total cost of revenues............................. 35,669 24.6 3,348 41.3 25,960 23.4
Gross profit....................................... 109,104 75.4 4,749 58.7 84,921 76.6
Selling, general and administrative expenses......... 80,755 55.8 5,091 62.9 60,166 54.3
Acquisition and transition expense................... 2,108 1.5 -- -- 101 0.1
Amortization of intangibles and depreciation
expense............................................ 39,822 27.5 609 7.5 21,613 19.5
Other charges........................................ 24,292 16.8 -- -- -- --
-------- ----- ------ ----- -------- -----
Operating income (loss)............................ $(37,873) (26.2)% $ (951) (11.7)% $ 3,041 2.7%
-------- ----- ------ ----- -------- -----
-------- ----- ------ ----- -------- -----
</TABLE>
REVENUES for 1997 were $144.8 million with $131.3 million related to WRSB,
$2.7 million related to Centennial Security, and $10.8 million related to
Protection One. The Western Resources security businesses' revenues for 1996
were $8.1 million and Westinghouse Security revenues for 1996 were $110.9
million for a total of $119.0 million. WRSB monitoring and service revenues
increased by $14.0 million, or 14.0%, substantially all of which resulted from
average account base growth. WRSB other revenues decreased by $1.7 million, or
9.0%. The decrease comes from a reduction of 25% in internally placed accounts,
offset partially by an increase in average placement revenue per account of 14%.
A sales force transition related to the mergers between Westinghouse and WRSB
and WRSB and Protection One caused the decrease in internally placed accounts.
COST OF REVENUES for 1997 was $35.7 million with $31.4 million related to
WRSB, $1.0 million related to Centennial Security, and $3.3 million related to
Protection One. Cost of revenues for 1996 was $3.3 million for WRSB and $26.0
million for Westinghouse Security for a total of $29.3 million. WRSB monitoring
and service costs increased by $2.1 million, or 8.2%, primarily due to the
additional personnel required to provide service to a larger account base.
GROSS PROFIT for 1997 was $109.1 million with $99.9 million related to WRSB,
$1.6 million related to Centennial Security, and $7.5 million related to
Protection One. Gross profit for 1996 was $4.7 million for
38
<PAGE>
WRSB and $84.9 million for Westinghouse Security for a total of $89.6 million.
Gross profit for WRSB increased by $10.3 million, or 11.5%, reflecting growth in
the average account base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE for 1997 was $80.8 million with
$77.7 million related to WRSB, $0.8 million related to Centennial Security, and
$2.3 million related to Protection One. Selling, general and administrative
expense for 1996 was $5.1 million for WRSB and $60.2 million for Westinghouse
Security for a total of $65.3 million. WRSB selling, general and administrative
expense increased by $12.4 million, or 18.9%, because of new advertising efforts
to establish market awareness of the "Westar Security Services" business name
and $3.5 million related to the costs of consolidating these operations.
AMORTIZATION OF INTANGIBLES AND DEPRECIATION EXPENSES for 1997 were $39.8
million with $35.5 million related to WRSB, $0.6 million related to Centennial
Security, and $3.7 million related to Protection One. Amortization and
depreciation expenses for 1996 were $0.6 million for WRSB and $21.6 million for
Westinghouse Security for a total of $22.2 million. Depreciation and
amortization increased by $13.3 million, or 59.9% for WRSB due to the
amortization of $196 million of goodwill arising from the acquisition of
Westinghouse Security. The goodwill is amortized over 40 years. In addition,
when Westinghouse Security was purchased, we wrote up customer accounts to their
fair market value. The value of customers accounts is amortized over 10 years
and has consequently increased amortization expense in 1997 compared to 1996.
OTHER CHARGES. In December 1997, Protection One incurred charges of $24.3
million to reflect the impairment of assets and the closing of business
activities of the Western Resources security business that were no longer of
continuing value to the combined operations. These charges were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1998
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
IMPAIRMENT OF CUSTOMER ACCOUNTS......................................... $ 12,750
MERGER RELATED COSTS:
Inventory and other asset losses...................................... 3,558
Disposition of fixed assets........................................... 4,128
Closure of duplicate facilities....................................... 1,991
Severance compensation and benefits................................... 1,865
-------
11,542
-------
Total Charges....................................................... $ 24,292
-------
-------
</TABLE>
IMPAIRMENT OF CUSTOMER ACCOUNTS--Protection One wrote down the value of the
customer base of the Western Resources security business due to excess
customer losses experienced in 1997. The excess customer losses were due to
(1) the effects of transitioning the customer base from one service provider
to another and (2) the relative quality of certain classes of the customer
accounts acquired in the Westinghouse Security Systems acquisition due to
use of a prior aggressive marketing plan accompanied by limited credit
checking by Westinghouse.
INVENTORY AND OTHER ASSET LOSSES--Protection One reduced the value of
inventory held at branches due to conversion to the external dealer program
as its primary marketing channel.
DISPOSITION OF FIXED ASSETS--Protection One reduced the net book value of
computer and telecommunication equipment due to plans to migrate in the
first quarter of 1998 certain monitoring, customer service and financial
operations to new software and hardware platforms. At December 31, 1998, we
continue to use certain of this equipment due to unplanned delays
experienced in the implementation of replacement systems. The remaining
equipment is expected to be fully retired in 1999.
39
<PAGE>
CLOSURE OF DUPLICATE FACILITIES--Protection One committed to a plan to close
38 WRSB branch locations in cities with two or more branches and our
customer base did not justify such a large presence. At December 31, 1998,
all such locations were closed and the amount accrued at December 31, 1997
had been expended except for remaining payments on vacated leased facilities
under non-cancellable agreements.
SEVERANCE COMPENSATION AND BENEFITS--Upon closing of the merger in November
1997, the affected employees were notified of their severance package.
Actual payments approximated the amount accrued.
PROTECTION ONE FACES YEAR 2000 ISSUES.
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 could result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. We are reviewing our computer programs, computer hardware and
embedded systems that we have identified as critical to our businesses and
operational needs to assess and correct any components that could be affected by
the change of the date to January 1, 2000. We have substantially completed the
review and assessment of our systems; however, we will continue our review of
systems as the need arises or prudency dictates, until January 1, 2000,
particularly with respect to the acquisition of businesses that include the
acquisition of additional information technology systems or non-information
technology systems and equipment, such as electrical, heating and cooling
systems. In addition, changes in the state of compliance or preparedness within
companies that provide services or equipment to us will require us to continue
these evaluations.
PROTECTION ONE PLAN
We established a formal Year 2000 readiness program to investigate and
correct Year 2000 problems in our information technology and non-information
technology systems. The plan is primarily being implemented by each of our
business units with on-going review by management.
Our Year 2000 readiness program addresses:
- commercial computer software, including mainframe, client/server and
desktop software;
- internally developed computer software, including mainframe, client/server
and desktop software;
- computer hardware, including mainframe, client/server and desktop,
network, communications and peripherals;
- devices using embedded computer chips, including controls, sensors,
facilities equipment, heating, ventilating and air conditioning equipment;
and
- relationships with third-party vendors and suppliers.
The goal of our Year 2000 readiness program is to:
- identify and assess all computer programs, computer hardware and embedded
systems critical to its business and operational needs that could be
potentially affected by the Year 2000 date change;
- repair or replace such systems found to be incompatible with Year 2000
dates; and
- develop and implement predetermined actions to be used as contingencies in
the event any critical business function fails unexpectedly or is
interrupted.
Our program is directed by a written policy that provides guidance and
methodology for the departments and business units to follow. Due to varying
degrees of exposure of departments and business units to the Year 2000 issue,
some are further along in the readiness process than others. In connection
40
<PAGE>
with our review of the progress made by our departments and business units, we
intend to take such actions as we deem necessary to ensure that all of its
departments and business units complete the Year 2000 readiness program on a
timely basis.
We have largely completed the remediation and initial testing phase of our
plan with respect to our North American monitoring operations where problems
that were identified are being corrected and tested. The majority of our current
efforts are in the planning of contingencies and verification of Year 2000
readiness, although our mobile services and European business units are
expending the majority of their current efforts on the identification,
remediation and testing phase of our plan. Our Year 2000 policy requires testing
as a method for verifying the Year 2000 readiness of business-critical items.
For those items that are impossible to test, other methods may be used to
identify the readiness status, provided adequate contingency plans are
established to provide a workaround or backup for the item. Development of
contingency plans commenced in January 1999 and is scheduled to conclude in June
1999, except for our European business unit which is expected to conclude this
phase in the third quarter of 1999.
We estimate the total cost to update all critical operating systems for Year
2000 readiness will be approximately $5.0 million, although no assurances can be
given that costs will not materially exceed this amount. As of December 31,
1998, approximately $1.1 million of these costs had been incurred. These costs
include labor for both company employees and contract personnel used in the Year
2000 program, and non-labor costs for software tools used in the remediation and
testing efforts, replacement software, replacement hardware, replacement
embedded devices and other such costs associated with testing and replacement.
Management continues to review the projected costs associated with the Year 2000
readiness program; however, there can be no assurance that its actual cost of
compliance will be as projected. To date, the costs of the Year 2000 readiness
program have been substantially all information technology-related.
Non-information technology systems are highly critical to our business, but are
largely beyond our ability to control. This includes, telephone, electricity,
water, transportation and governmental infrastructure.
We have twelve major call centers and/or monitoring centers (two in Irving,
Texas; Beaverton, Oregon; Wichita, Kansas; Chatsworth, California; Orlando,
Florida; Hagerstown, Maryland; Vancouver, British Columbia; Ottawa, Ontario;
Basingstoke, United Kingdom; Paris, France; and Marseilles, France) each of
which operates different applications and databases. While some business
interruptions are possible, Year 2000 related shutdown of all of our major sites
is not considered likely.
MOST REASONABLY LIKELY WORST CASE SCENARIO
Based on the results of our on-going review, we believe that we have
identified and remediated business critical issues such that the Year 2000 issue
will not pose material operational problems. However, the most reasonably likely
worst case scenario is to be found in the area of external services,
specifically firms providing electrical power, heating, ventilating and air
conditioning, and local and long distance telecommunications.
While we believe the total collapse of service providers is highly unlikely,
one or more of the following scenarios could occur:
- temporary disruption or unpredictable provision of nationwide
long-distance service;
- temporary or unpredictable provision of local telephone service; or
- temporary interruption or unpredictable provision of electrical power.
To the extent customers did not receive timely and adequate responses to
alarms, we would be required to rely on the legal disclaimer of liability for
the acts or omissions of third party agencies contained in our standard form of
customer agreement and, we believe, in most of the customer
41
<PAGE>
agreements that we have acquired through acquisitions. The enforceability of
such disclaimers may be subject to judicial scrutiny in jurisdictions in which
we operate.
CONCLUSION
We estimate the cost associated with the assessment of risk and the
execution of corrective action to be approximately $5.0 million. The costs of
the Year 2000 project and the date on which Protection One plans to complete the
Year 2000 modifications, estimated to be during 1999, is based on the best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, we believe we maintain the ability to generate
sufficient cash to fund future operations of the business. Generally, the cash
will be generated from a combination of our existing $500.0 million senior
credit facility, which had approximately $458 million of availability at
year-end subject to compliance with the provisions of the debt covenants in the
agreement, as well as recurring revenue from our security monitoring customer
base which generated $162.5 million of positive recurring EBITDA in 1998. Cash
flow from operations per the statement of cash flows was $85.2 million. EBITDA
does not represent cash flow from operations as defined by generally accepted
accounting principles, should not be construed as an alternative to operating
income and is indicative neither of operating performance nor cash flows
available to fund our cash needs. Items excluded from EBITDA are significant
components in understanding and assessing our financial performance. We believe
that presentation of EBITDA enhances an understanding of our financial
condition, results of operations and cash flows because EBITDA is used to
satisfy our debt service obligations and our capital expenditure and other
operational needs as well as to provide funds for growth. In addition, EBITDA is
used by senior lenders and subordinated creditors and the investment community
to determine the current borrowing capacity and to estimate the long-term value
of companies with recurring cash flows from operations. Our computation of
EBITDA may not be comparable to other similarly titled measures of other
companies.
OPERATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998. Our operating
activities provided net cash flows of $85.2 million, which was a significant
improvement over the prior fiscal years in which our operating activities were a
net user of cash. We believe this improvement is due to increased recurring
revenue generated from both price increases in the marketplace and additional
customer accounts added from our dealer program, as well as numerous business
combinations. Additionally, we continue to realize the benefits of centralized
management, monitoring and other administrative functions applied to a growing
customer base, resulting in improved operating cash flows.
INVESTING CASH FLOWS DURING 1998, we used a net $893.9 million in investing
activities, primarily to purchase new customer accounts from our external
dealers and to acquire other alarm monitoring businesses. This activity was
consistent with the growth model of prior years. We believe, however, that the
1999 investing activity will not approach the volume or the dollar amount of
this year's activity.
FINANCING CASH FLOWS DURING 1998, we substantially financed our acquisition
activity using the following instruments:
- Concurrent public and private placement of $406.3 million of our common
equity in June 1998;
- Issuance of $250.0 million of senior unsecured notes in August 1998;
- Issuance of $350.0 million of senior subordinated notes in December 1998;
and
42
<PAGE>
- Replacement of our $463.0 million senior credit facility maintained with
our parent, Western Resources, with a $500.0 million credit facility
maintained with a syndicate of banks.
MATERIAL COMMITMENTS. As a result of the 1998 financing activities, as well
as prior year activity, we have future, material, long-term commitments which
are listed below. We believe these commitments will be met through a combination
of refinancings and positive operating cash flows. As of December 31, 1998, we
have no financing commitments that will be required to be repaid in the next
twelve months.
- Convertible Senior Subordinated Notes: $103.5 million principal is due in
September of 2003. These notes are convertible into Protection One common
stock at a price of $11.19 per share, which is currently above the price
at which our shares are traded in the public stock markets.
- Senior Subordinated Discount Notes: $125.6 million principal is due in
June 2005.
- Senior Unsecured Notes: $250 million principal is due in August 2005.
- Senior Subordinated Notes: $350 million principal is due in January 2009.
- Revolving Credit Facility: At December 31, 1998, $42.4 million was drawn
down on our $500 million credit facility, which expires in December 2001.
As we discussed above, based upon current debt levels we estimate annual
interest payments associated with these debt instruments, to total approximately
$78.9 million. It is likely that our interest expense in 1999 will be higher
than this estimate, because we anticipate borrowing additional amounts under our
revolving credit facility.
All of these debt instruments contain restrictions based on EBITDA. EBITDA
is derived by adding to income (loss) before income taxes, the sum of interest
expense and depreciation and amortization expense. Our revolving credit facility
requires us to meet financial covenants and the indentures relating to our
public notes require us to meet financial covenants to borrow additional funds.
These financial requirements under the revolving credit facility and the
indentures are summarized below:
<TABLE>
<CAPTION>
DEBT INSTRUMENT FINANCIAL COVENANT
- -------------------------------------------- ------------------------------------------------
<S> <C>
Revolving credit facility................... Total consolidated debt/annualized most recent
quarter EBITDA less than 5.0 to 1.0 through
1999 and 4.5 to 1.0 thereafter
Consolidated annualized most recent quarter
EBITDA/latest four fiscal quarters interest
expense greater than 2.75 to 1.0
Senior subordinated notes................... Current fiscal quarter EBITDA/current fiscal
quarter interest expense greater than 2.25 to
1.0
Senior subordinated discount notes.......... Total debt/annualized fourth quarter EBITDA less
than 6.0 to 1.0
Senior debt/annualized fourth quarter EBITDA
less than 4.0 to 1.0
</TABLE>
At December 31, 1998, we were in compliance with all of these financial
covenants except for a violation of the provisions of the revolving credit
facility resulting from the need to restate our financial statements for 1997
and the first three quarters of 1998. We have obtained a waiver of this
requirement from the lenders under the revolving credit facility until such time
that our restated financial statements are filed with and accepted under the
revolving credit facility. These debt instruments also restrict the
43
<PAGE>
ability of Protection One to pay dividends to stockholders, but do not otherwise
restrict our ability to fund cash obligations.
RECENT DEVELOPMENTS. In October 1998, we announced that we entered into an
agreement to acquire Lifeline Systems, Inc., a leading provider of 24-hour
personal response monitoring services in North America. Based on the average
closing price of Protection One common stock for the three trading days prior to
April 8, 1999, the consideration in the transaction will approximate $129.2
million in cash and common stock of Protection One, based on the number of
shares of currently outstanding Lifeline common stock. We estimate that
approximately 66% of the purchase price, or approximately $84.9 million, will be
funded with borrowings under our revolving credit facility and the remainder
through the issuance of Protection One common stock. We have offered
shareholders of Lifeline Systems, Inc. the option to receive additional shares
of Protection One common stock in lieu of all or a portion of the cash
consideration. Closing the purchase of Lifeline Systems, Inc. is contingent upon
the effect, if any, the restatement of the Protection One financial statements
will have upon the provisions of the merger agreement between Lifeline and
Protection One.
The Protection One Board of Directors authorized a private placement of
common shares to Westar Capital, Inc., a wholly owned subsidiary of Western
Resources. The private placement will allow Westar Capital to maintain ownership
in excess of 80% of the issued and outstanding shares of Protection One's common
stock following the issuance of shares of common stock to stockholders of
Lifeline Systems, Inc. in connection with the acquisition of Lifeline Systems by
Protection One. Under the private placement, Protection One common stock will be
issued to Westar Capital at a price equal to the average closing price
determined in connection with the mergers related to Protection One's
acquisition of Lifeline Systems.
Western Resources also indicated that Westar Capital may acquire shares of
Protection One common stock in the open market or in privately negotiated
transactions depending upon market conditions. Any open market or private
purchases by Westar Capital will reduce or eliminate the need for it to purchase
shares in the private placement in order to maintain at least an 80% ownership
stake in Protection One. Westar Capital currently owns approximately 107.3
million shares, or about 84.6%, of Protection One's 126.8 million issued and
outstanding shares.
CAPITAL EXPENDITURES. We anticipate making capital expenditures of
approximately $25 million in 1999. Of such amount, we believe we will invest $15
million to complete the development and installation of our new software
platforms, $0.5 million for replacement of vehicles, $5 million for computer
hardware to replace and upgrade existing operations and $5 million for other
capital items. These are estimates and actual expenditures for these and
possibly other items not presently anticipated may vary from these estimates
during the course of 1999.
ITEM 7A. MARKET RISK DISCLOSURE
MARKET PRICE RISKS
We are exposed to market risk, including changes in the market price,
foreign currency exchange rates, equity instrument investment prices, as well as
interest rates.
FOREIGN CURRENCY EXCHANGE RATES
During 1998, we acquired overseas operations which have functional
currencies other than the US dollar. As of December 31, 1998 the unrealized loss
on currency translation, presented as a separate component of stockholders'
equity and reported within other comprehensive income was approximately $1.2
million pretax. From the date of acquisition of such operations, the weighted
average (based on net assets) currency exchange rate fluctuated 2%, on an
annualized basis. A 10% change in the currency exchange rates would have
approximately a $10.9 million effect on other comprehensive income.
44
<PAGE>
EQUITY INSTRUMENT INVESTMENTS
We have approximately $17.8 million of marketable securities, as of December
31, 1998. We do not hedge these investments and are exposed to the risk of
changing market prices.
INTEREST RATE EXPOSURE
We have approximately $42.4 million of long-term variable rate debt as of
December 31, 1998. A 1% change in the debt benchmark rate would impact net
income by approximately $0.2 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Protection One's consolidated financial statements and supplementary data,
together with the reports of Arthur Andersen LLP, independent public
accountants, are included elsewhere herein. See "Index to Financial Statements"
on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In January 1998, we retained Arthur Andersen LLP (Andersen) to serve as
principal accountant for us and our subsidiaries beginning with the calendar
year ended December 31, 1997, and dismissed the firm of Coopers & Lybrand LLP
(C&L). The dismissal of C&L as principal accountant and the appointment of
Andersen as principal accountant was unanimously approved by all the members of
our Board of Directors on January 16, 1998, as recommended by our audit
committee.
The decision to dismiss C&L and engage Andersen followed our combination
with the Western Resources security businesses, effective in November 1997, and
our decision to change our fiscal year to a calendar year as required by that
business combination. Andersen is the principal accountant for Western
Resources, Inc.
The audit reports of C&L on our consolidated financial statements as of and
for the fiscal years ended September 30, 1997 and 1996 did not contain an
adverse opinion or a disclaimer of opinion nor were they qualified or modified
as to uncertainty, audit scope or accounting principles. During fiscal years
1997 and 1996, there were no disagreements with C&L on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to C&L's satisfaction, would have caused it to
make reference to the subject matter of the disagreement in connection with its
reports. In addition, there were no reportable events as described under Item
304(a)(1)(v)(A) through (D) of Regulation S-K during fiscal years 1997 and 1996.
C&L has furnished us with a letter addressed to the Securities and Exchange
Commission stating that it agrees with the above statements.
45
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Information relating to our directors and nominees for directors is set
forth under the heading "Election of Directors" in the Proxy Statement relating
to the Annual Meeting of Stockholders to be held May 12, 1999, which will be
filed with the Securities and Exchange Commission prior to April 30, 1999, and
which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to our executive officers and executive compensation is
set forth under the heading "Executive Officers; Executive Compensation and
Related Information" in the Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 12, 1999, which will be filed with the Securities
and Exchange Commission prior to April 30, 1999, and which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security ownership of certain beneficial owners
and management is set forth under the headings "Security Ownership of certain
Beneficial Owners" in the Proxy Statement relating to the Annual Meeting of
Stockholders to be held May 12, 1999, which will be filed with the Securities
and Exchange Commission prior to April 30, 1999, and which is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions
concerning directors and executive officers is set forth under the heading
"Certain Relationships and Related Transactions" in the Proxy Statement relating
to the Annual Meeting of Stockholders to be held May 12, 1999, which will be
filed with the Securities and Exchange Commission prior to April 30, 1999, and
which is incorporated herein by reference.
46
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. The financial statements and financial statement schedules listed on
the accompanying Index to Financial Statements.
2. The following Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 Contribution Agreement dated as of July 30, 1997 (the "Contribution
Agreement"), between Western Resources and Protection One, Inc. ("POI")
(incorporated by reference to Exhibit 2.1 to the Current Report on Form
8-K filed by POI(1) and Protection One Alarm Monitoring, Inc.
("Monitoring")(2) dated July 30, 1997 (the "July 1997 Form 8-K")).
2.2 Amendment No. 1 dated October 2, 1997, to the Contribution Agreement
(incorporated by reference to Exhibit 99.1 to the Current Report of Form
8-K filed by POI and Monitoring dated October 2, 1997).
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
POI (incorporated by reference to Exhibit 2.3 to the Current Report on
Form 8-K filed by POI and Monitoring dated November 24, 1997 (the
"November 1997 Form 8-K")).
2.4 Assignment and Assumption Agreement (Guardian International Inc.) dated as
of November 24, 1997, among Western Resources, Westar Capital, Westar
Security and POI (incorporated by reference to Exhibit 2.4 to the
November 1997 Form 8-K).
2.5 Stock Purchase Agreement dated as of October 2, 1997, among Centennial
Security Holdings, Inc. ("Centennial"), the shareholders of Centennial
and Westar Capital (incorporated by reference to Exhibit 2.5 to the
November 1997 Form 8-K).
2.6 Stock Subscription Agreement dated as of October 4, 1997, between Guardian
International, Inc. ("Guardian") and Westar Capital (incorporated by
reference to Exhibit 2.6 to the November 1997 Form 8-K).
2.7 Asset Purchase Agreement among Multimedia Security Service, Inc.,
Multimedia Cablevision, Inc. and Monitoring dated January 15, 1998
(incorporated by reference to Exhibit 10.3 to Quarterly Report on Form
10-Q filed by POI and Monitoring on May 14, 1998).
2.8 Conditional Purchase Agreement, dated as of August 6, 1998, between
certain directors and/or officers of Compagnie Europeenne de
Telesecurite and Monitoring.+
2.9 Stock Subscription Agreement, dated as of October 21, 1998, between
Guardian and Westar Security.+
</TABLE>
- ------------------------
(1) The Commission File Number of POI is 0-24780.
(2) The Commission File Number of Monitoring is 33-73002-01.
47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.10 Amended and Restated Agreement and Plan of Contribution and Merger dated
as of October 21, 1998 by and among POI, Protection Acquisition Holding
Corporation, P-1 Merger Sub, Inc. (Mass.), P-1 Merger Sub, Inc. (Del.)
and Lifeline Systems, Inc. (incorporated by reference to Exhibit 2.1 to
Registration Statement on Form S-4 of Petroleum One Acquisition Holding
Corporation filed on December 10, 1998).
3.1 Fifth Amended and Restated Certificate of Incorporation of POI, as amended
(incorporated by reference to Exhibit 3.1 to the Annual Report on Form
10-K filed by POI and Monitoring for the year ended September 30, 1997
(the "Fiscal 1997 Form 10-K")).
3.2 By-laws of POI (incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q filed by POI and Monitoring for the quarter ended
March 31, 1996).
3.3 Certificate of Incorporation of Monitoring, as amended (incorporated by
reference to Exhibit 3.2 to the Registration Statement on Form S-3
(Registration Number 333-09401) originally filed by Monitoring and,
inter alia, POI on August 1,1996 (the "August 1996 Form S-3")).
3.4 Bylaws of Monitoring (incorporated by reference to Exhibit 3.2 to the
Annual Report on Form 10-K filed by POI and, inter alia, Monitoring for
the year ended September 30, 1994).
4.1 Indenture dated as of May 17, 1995, among Monitoring, as Issuer, POI,
inter alia, as Guarantor, and The First National Bank of Boston
("FNBB"), as Trustee (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (Registration No. 33-94684)
originally filed by POI and, inter alia, Monitoring on July 18, 1995
(the "1995 Form S-4")).
4.2 First Supplemental Indenture dated as of July 26, 1996, among Monitoring,
as Issuer, POI, inter alia, as Guarantor and State Street Bank and Trust
Company ("SSBTC") as successor to FNBB as Trustee (incorporated by
reference to Exhibit 4.2 to the Annual Report on Form 10-K filed by POI
and Monitoring for the year ended September 30, 1996 (the "Fiscal 1996
Form 10-K")).
4.3 Second Supplemental Indenture dated as of October 28, 1996, among
Monitoring as Issuer, POI inter alia, as Guarantor and SSBTC as Trustee
(incorporated by reference to Exhibit 4.3 to the Fiscal 1996 Form
10-K)).
4.4 Subordinated Debt Shelf Indenture dated as of August 29, 1996, among
Monitoring as Issuer, POI as Guarantor and SSBTC as Trustee
(incorporated by reference to Exhibit 4.3 to the August 1996 Form S-3).
4.5 Supplemental Indenture No. 1 dated as of September 20, 1996, among
Monitoring as Issuer, POI, inter alia, as Guarantor and SSBTC as Trustee
(incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K filed by POI and Monitoring and dated September 20,1996 (the
"September 1996 Form 8-K")).
4.6 Supplemental Indenture No. 2 dated as of October 28, 1996, among
Monitoring as Issuer, POI, inter alia, as Guarantor and SSBTC as Trustee
(incorporated by reference to Exhibit 4.6 to the Fiscal 1996 Form 10-K).
4.7 Amended and Restated Credit Agreement dated as of June 7, 1996, among
Monitoring, Heller Financial, Inc. ("Heller Financial") as Agent and the
financial institutions signatory thereto (the "Lenders") (incorporated
by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed
by POI and Monitoring for the quarter ended June 30, 1996).
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
4.8 Consent and First Amendment to Credit Agreement dated as of September 16,
1996, among Monitoring, Heller Financial as Agent and the Lenders
(incorporated by reference to Exhibit 10.1 to the September 1996 Form
8-K).
4.9 Second Amendment to Amended and Restated Credit Agreement dated as of
March 31, 1997, among Monitoring, Heller Financial as Agent and the
Lenders (incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q filed by POI and Monitoring for the quarter ended
March 31, 1997).
4.10 Third Amendment to Amended and Restated Credit Agreement dated as of
September 30, 1997, among Monitoring, Heller Financial as Agent and the
Lenders (incorporated by reference to Exhibit 4.10 to the Fiscal 1997
Form 10-K).
4.11 Form of Revolving Note executed by Monitoring in favor of each Lender
pursuant to the Amended and Restated Credit Agreement filed as Exhibit
4.7 (incorporated by reference to Exhibit 4.9 to the Fiscal 1996 Form
10-K).
4.12 Amended and Restated Guaranty dated as of June 7, 1996, executed by POI in
favor of Heller Financial as Agent (incorporated by reference to Exhibit
4.10 to the Fiscal 1996 Form 10-K).
4.13 Amended and Restated Stock Pledge Agreement dated as of June 7, 1996,
between POI and Heller Financial as Agent (incorporated by reference to
Exhibit 4.11 to the Fiscal 1996 Form 10-K).
4.14 Amended and Restated Security Agreement dated as of June 7, 1996, between
Monitoring and Heller Financial as Agent (incorporated by reference to
Exhibit 4.12 to the Fiscal 1996 Form 10-K).
4.15 Amended and Restated Continuing Security Interest and Conditional
Assignment of Patents, Trademarks, Copyrights and Licenses dated as of
June 7, 1996, between Monitoring and Heller Financial as Agent
(incorporated by reference to Exhibit 4.13 to the Fiscal 1996 Form
10-K).
4.16 Indenture, dated as of August 17, 1998, among Monitoring, as issuer, POI
as guarantor, and The Bank of New York, as trustee (incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form 9-4 filed
by POI and Monitoring on September 22, 1998).
4.17 Indenture, dated as of December 21, 1998, among Monitoring, as issuer,
POI, as guarantor, and The Bank of New York, as trustee.+
10.1 Stock Purchase Warrant dated as of September 16, 1991, issued by POI to
Merita Bank, Ltd. (formerly Kansallis-Osake-Pankki) (incorporated by
reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q filed by
POI and, inter alia, Monitoring for the quarter ended March 31, 1994).
10.2 Amended and Restated Stockholders' Agreement dated as of August 15, 1994,
among POI and the stockholders of POI named therein (incorporated by
reference to Exhibit 10.42 to the Registration Statement of Form S-1
(Registration No. 33-81292) originally filed by POI on July 8, 1994).
10.3 Warrant Agreement dated as of November 3, 1993, between Monitoring and
United States Trust Company of New York, as Warrant Agent (incorporated
by reference to Exhibit 4.3 to the Registration Statement on Form S-4
(Registration Statement 33-73002) originally filed by POI, Monitoring
and certain former subsidiaries of Monitoring on December 15, 1993 (the
"1993 Form S-4")).
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.4 Registration Rights Agreement dated as of November 3, 1993, among
Monitoring, POI, certain former subsidiaries of Monitoring and Bear,
Stearns & Co., Inc. (incorporated by reference to Exhibit 4.4 to the
1993 Form S-4).
10.5 Warrant Agreement dated as of May 17, 1995, between POI and The First
National Bank of Boston, as Warrant Agent (incorporated by reference to
Exhibit 10.40 to the 1995 Form S-4).
10.6 Common Stock Registration Rights Agreement dated May 17, 1995, among POI,
Morgan Stanley & Co. Incorporated and Montgomery Securities
(incorporated by reference to Exhibit 10.41 to the 1995 Form S-4).
10.7 Employment Agreement dated as of November 24, 1997, between Protection One
and James M. Mackenzie, Jr. (incorporated by reference to Exhibit 10.4
to the November 1997 Form 8-K).*
10.8 Employment Agreement dated as of November 24, 1997, between Protection One
and John W. Hesse (incorporated by reference to Exhibit 10.5 to the
November 1997 Form 8-K).*
10.9 Employment Agreement dated as of November 24, 1997, between Protection One
and John E. Mack, III (incorporated by reference to Exhibit 10.6 to the
November 1997 Form 8-K).*
10.10 Employment Agreement dated as of November 24, 1997, between Protection One
and Thomas K. Rankin (incorporated by reference to Exhibit 10.7 to the
November 1997 Form 8-K).*
10.11 Employment Agreement dated as of November 3, 1993, between Monitoring and
George A. Weinstock (incorporated by reference to Exhibit 10.13 to the
1993 Form S-4).*
10.12 Non-Competitive and Non-Solicitation Agreement dated as November 3, 1993,
between Monitoring and George A. Weinstock (incorporated by reference to
Exhibit 10.14 to the 1993 Form S-4).*
10.13 Consulting Agreement dated as of February 19, 1996, between POI and Dr.
Ben Enis (incorporated by reference to Exhibit 10.7 to the Quarterly
Report on Form 10-Q filed by POI and Monitoring for the quarter ended
June 30, 1996).*
10.14 1994 Stock Option Plan of POI, as amended (incorporated by reference to
Exhibit 10.23 to the Fiscal 1996 Form 10-K).*
10.15 1997 Long-Term Incentive Plan of POI (incorporated by reference to
Appendix F to POI's proxy statement dated November 7, 1997).*
10.16 Notes Registration Rights Agreement dated as of May 17, 1995, among POI,
Monitoring, Morgan Stanley & Co., Incorporated and Montgomery Securities
(incorporated by reference to Exhibit 4.2 to the 1995 Form S-4).
10.17 Agreement for Purchase and Sale of Assets, dated May 25, 1995, between
Alert Centre, Inc. and Monitoring (incorporated by reference to Exhibit
4.2 to the 1995 Form S-4).
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"), Monitoring and POI (incorporated by reference to Exhibit
2.1 to the Registration Statement on Form S-3 (Registration No. 33-5849)
originally filed by POI on June 12, 1996 (the "June 1996 Form S-3")).
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.19 Amendment No. 1 to Agreement dated as of June 28, 1996, among Metrol, the
Metrol Shareholders, Monitoring and POI (incorporated by reference to
Exhibit 2.2 to the June 1996 Form S-3).
10.20 Escrow Agreement dated May 31, 1996, among Metrol, the Metrol
Shareholders, Monitoring, POI and First National Bank of Denver, N.A. as
the Escrow Agent (incorporated by reference to Exhibit 2.3 to the
Current Report on Form 8-K filed by POI and Monitoring dated June 7,
1996 (the "June 1996 Form 8-K")).*
10.21 Registration Rights Agreement dated as of June 28, 1996, among POI and the
Metrol Shareholders (incorporated by reference to Exhibit 99.1 to the
June 1996 Form 8-K).
10.22 Stock Option Agreement dated as of July 30, 1997, between Western
Resources and Protection One (incorporated by reference to Exhibit 10.1
to the July 1997 Form 8-K).
10.23 Option and Voting Agreement dated as of July 30, 1997, between Western
Resources and Protection One (incorporated by reference to Exhibit 10.2
to the July 1997 Form 8-K).
10.24 Promissory Note dated as of March 2, 1998 between Westar Capital, Inc.,
and Protection One (incorporated by reference to Exhibit 99.1 to the
Current Report on Form 8-K filed by POI and Monitoring dated March 17,
1998).
10.25 Assignment, Assumption and Guaranty Agreement dated as of January 1, 1998
between Westar Capital, Inc. and Monitoring (incorporated by reference
to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by POI and
Monitoring on May 14, 1998).
10.26 Credit Facility Agreement between Westar Capital, Inc., as Lender, and
Monitoring, as borrower, dated as of April 1, 1998 (incorporated by
reference to Exhibit 99.1 to the Current Report on Form 8-K filed by POI
and Monitoring on May 15, 1998).
10.27 Revolving Credit Agreement among Monitoring, borrower, NationsBank, N.A.,
administrative agent, First Union National Bank, syndication agent,
Toronto Dominion (Texas), Inc., documentation agent, and Lenders named
therein, dated December 21, 1998 (the "Revolving Credit Agreement").+
10.28 First Amendment to the Revolving Credit Agreement, dated as of February
26, 1999.+
12.1 Statement regarding Computation of Earnings to Fixed Charges.+
16.1 Letter from Coopers & Lybrand to the Securities and Exchange Commission
re: Change in Certifying Accountant (incorporated by reference to
Exhibit 16 to Amendment No. 1 to the Current Report on Form 8-K filed by
POI and Monitoring dated February 5, 1998).
21.1 Subsidiaries of POI and Monitoring.+
23.1 Consent of Arthur Andersen LLP.+
27 Financial Data Schedule.+
99.1 Promissory Note to Westar Capital, Inc. (incorporated by reference to
Exhibit 99.1 to the Current Report on Form 8-K filed by POI and
Monitoring on March 17, 1998).
99.2 Registration Rights Agreement, dated December 21, 1998, among Monitoring,
POI and various subsidiary guarantors and Morgan Stanley & Co.
Incorporated, Chase Securities Inc; First Union Capital Markets,
NationsBanc Montgomery Securities LLC and TD Securities (USA), Inc. (the
"Placement Agents").+
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
99.3 Placement Agreement, dated December 16, 1998, among Monitoring, POI and
various subsidiary guarantors and the Placement Agents.+
</TABLE>
- ------------------------
* Each Exhibit marked with an asterisk constitutes a management contract or
compensatory plan or arrangement required to be filed or incorporated by
reference as an Exhibit to this report pursuant to Item 14(c) of Form 10-K.
+ Filed herewith.
(b) During the last quarter of the fiscal year covered by this Report, POI and
Monitoring filed three Reports on Form 8-K. The Current Report on Form 8-K
dated November 2, 1998 reported the proposed transaction with Lifeline
Systems, Inc. in response to Item 5. A Current Report on Form 8-K dated
December 9, 1998 reported the reorganization of its executive management
structure and changes in certain executive officers in response to Item 5. A
Current Report on Form 8-K dated December 17, 1998 reported an unregistered
offering of debt securities in response to Item 5.
52
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROTECTION ONE, INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. F-3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31,
1998, 1997 and 1996.................................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996.......................................................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997, and 1996.... F-6
Notes to Consolidated Financial Statements............................................................... F-7
WESTINGHOUSE SECURITY
Report of Independent Public Accountants................................................................. F-36
Statement of Operations for the 53-weeks Ended December 30, 1996......................................... F-37
Statement of Cash Flows for the 53-weeks Ended December 30, 1996......................................... F-38
Notes to Financial Statements............................................................................ F-39
FINANCIAL SCHEDULES
Report of Independent Public Accountants................................................................. S-1
Protection One, Inc. and Subsidiaries--Schedule II--Valuation and Qualifying Accounts.................... S-2
Westinghouse Security--Schedule II--Valuation and Qualifying Accounts.................................... S-3
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Protection One, Inc.:
We have audited the accompanying consolidated balance sheets of Protection
One, Inc. and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three years then ended. The consolidated financial statements as of December
31, 1997 and for the year then ended have been restated (See Note 2(a)). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Protection One, Inc. and
subsidiaries as of December 31, 1998 and 1997, and their consolidated results of
operations and their cash flows for each of the periods presented in conformity
with generally accepted accounting principles.
Dallas, Texas
January 19, 1999 (except with respect to the matter
discussed in Note 2(a) as to which the
date is April 5, 1999)
F-2
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1998
---------- 1997
----------
RESTATED
NOTE 2(A)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 10,025 $ 75,556
Restricted cash........................................................................ 11,987 --
Marketable securities.................................................................. 17,770 5,701
Receivables, net....................................................................... 61,262 20,302
Inventories............................................................................ 7,895 556
Prepaid expenses....................................................................... 3,867 367
Income tax receivable.................................................................. 5,886 25,200
Deferred tax assets, current........................................................... 49,543 40,186
Other.................................................................................. 19,605 3,120
---------- ----------
Total current assets................................................................. 187,840 170,988
Property and equipment, net.............................................................. 46,959 14,934
Customer accounts, net................................................................... 1,014,428 530,312
Goodwill and trademarks, net............................................................. 1,187,862 672,776
Deferred tax assets...................................................................... 44,028 16,383
Other.................................................................................... 30,202 9,174
---------- ----------
Total Assets............................................................................. $2,511,319 $1,414,567
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 16,374 $ 6,235
Accrued liabilities.................................................................... 77,412 56,163
Purchase holdbacks..................................................................... 42,303 11,444
Long-term debt, current portion........................................................ 40,838 21,217
Capital leases, current portion........................................................ 1,361 490
Deferred revenue....................................................................... 57,703 33,900
---------- ----------
Total current liabilities............................................................ 235,991 129,449
Long-term debt, net of current portion................................................... 926,784 343,338
Capital leases, net of current portion................................................... 187 604
Other liabilities........................................................................ 3,238 626
---------- ----------
Total Liabilities........................................................................ 1,166,200 474,017
Commitments and contingencies (see Note 15)
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized............................. -- --
Common Stock, $.01 par value, 150,000,000 shares authorized, 126,838,741 shares and
83,362,938 shares issued and outstanding at December 31, 1998 and 1997, respectively... 1,268 834
Additional paid-in capital............................................................... 1,392,256 983,082
Unrealized loss on marketable securities, net of tax..................................... (1,848) --
Unrealized loss on currency translation, net of tax...................................... (728) --
Retained losses.......................................................................... (45,829) (43,366)
---------- ----------
Total stockholders' equity............................................................. 1,345,119 940,550
---------- ----------
Total Liabilities and Stockholders' Equity............................................... $2,511,319 $1,414,567
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1996
--------- 1997 ---------
-----------
RESTATED
NOTE 2(A)
<S> <C> <C> <C>
Revenues:
Monitoring and related services................................................... $ 375,840 $ 126,630 $ 6,382
Installation and rental........................................................... 45,255 18,143 1,715
--------- ----------- ---------
Total revenues.................................................................. 421,095 144,773 8,097
Cost and expenses:
Monitoring and related services................................................... 103,521 32,656 1,761
Installation and other............................................................ 28,270 3,013 1,587
--------- ----------- ---------
Total cost of revenues.......................................................... 131,791 35,669 3,348
Gross profit.................................................................... 289,304 109,104 4,749
Selling, general and administrative expenses........................................ 111,798 80,755 5,091
Acquisition expense................................................................. 20,298 2,108 --
Amortization of intangibles and depreciation expense................................ 117,651 39,822 609
Other charges:
Impairment of customer accounts................................................... -- 12,750 --
Merger related costs.............................................................. -- 11,542 --
Employee severance costs.......................................................... 3,400 -- --
--------- ----------- ---------
Operating income (loss)......................................................... 36,157 (37,873) (951)
Interest expense:
Interest expense, net............................................................. 33,869 33,483 15
Interest expense to parent, net................................................... 22,121 -- --
Other (income) expense:
Non-recurring gain on contract repurchase......................................... (16,348) -- --
Non-recurring gain on exchange of securities...................................... (3,000) -- --
Other............................................................................. (1,222) -- --
--------- ----------- ---------
Income (loss) before income taxes and extraordinary gain............................ 737 (71,356) (966)
Income tax (expense) benefit........................................................ (4,791) 28,628 310
--------- ----------- ---------
Income (loss) before extraordinary gain............................................. (4,054) (42,728) (656)
Extraordinary gain, net of tax effect of $2,730..................................... 1,591 -- --
--------- ----------- ---------
Net income (loss)................................................................. $ (2,463) $ (42,728) $ (656)
--------- ----------- ---------
--------- ----------- ---------
Other comprehensive income:
Unrealized loss on marketable securities, net of tax effect of $1,107............. $ (1,848) $ -- $ --
Unrealized loss on currency translation, net of tax effect of $485................ (728) -- --
--------- ----------- ---------
Comprehensive income (loss)......................................................... $ (5,039) $ (42,728) $ (656)
--------- ----------- ---------
Net income (loss) per common share (basic and diluted):
Income (loss) before extraordinary gain per common share.......................... $ (.04) $ (.60) $ (.01)
Extraordinary gain per common share............................................... .02 -- --
--------- ----------- ---------
Net income (loss) per common share................................................ $ (.02) $ (.60) $ (.01)
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997
1998 --------- 1996
--------- ---------
RESTATED
NOTE 2(A)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ (2,463) $(42,728 ) $ (656)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Extraordinary gain............................................................. (1,591) -- --
Gain on exchange transaction................................................... (3,000) -- --
Gain on contract repurchase.................................................... (16,348) -- --
Amortization of intangibles and depreciation................................... 117,651 39,822 609
Accretion of debt premium...................................................... 3,034 1,026 --
Net deferred taxes............................................................. 13,208 (3,888 ) --
Provision for doubtful accounts................................................ 10,567 3,657 184
Other charges.................................................................. 3,400 36,592 --
Changes in assets and liabilities, net of effects of acquisitions:
Receivables.................................................................... (19,040) (2,467 ) (1,424)
Inventories.................................................................... (3,810) 940 (540)
Prepaid expenses............................................................... (3,821) 294 (32)
Other current assets........................................................... (13,615) (28,988 ) (200)
Accounts payable............................................................... (2,710) 492 41
Accrued liabilities............................................................ 5,925 (10,350 ) 1,749
Deferred revenue............................................................... (2,237) 670 178
--------- --------- ---------
Net cash provided by (used in) operating activities.......................... 85,150 (4,928 ) (91)
Cash flows from investing activities:
Purchase of property and equipment............................................. (32,711) (3,826 ) (977)
Purchase/placement of installed security systems............................... (277,667) (29,043 ) (1,392)
Purchase of marketable securities.............................................. (15,149) -- --
Distribution to equityholders in acquisition transaction....................... -- (106,321 ) --
Acquisition of alarm companies, net of cash received........................... (549,196) (17,494 ) (357,269)
Investment in Guardian......................................................... (14,224) -- --
Other investment............................................................... (5,000) -- (9,898)
--------- --------- ---------
Net cash used in investing activities........................................ (893,947) (156,684 ) (369,536)
Cash flows from financing activities:
Proceeds from equity offering.................................................. 406,264 -- --
Payments on long-term debt..................................................... (512,190) (63,749 ) --
Proceeds from long-term debt issuances......................................... 642,417 -- 53
Stock options and warrants exercised........................................... 878 -- --
Cash funding from parent....................................................... 213,910 300,749 369,629
Cost related to equity offering................................................ (4,867) -- --
Cost related to debt issuances................................................. (1,933) -- --
--------- --------- ---------
Net cash provided by financing activities.................................... 744,479 237,000 369,682
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents..................... (1,213) -- --
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents......................... (65,531) 75,388 55
Cash and cash equivalents:
Beginning of period............................................................ 75,556 168 113
--------- --------- ---------
End of period.................................................................. $ 10,025 $ 75,556 $ 168
--------- --------- ---------
--------- --------- ---------
Cash paid for interest........................................................... $ 18,422 $ 10,202 $ --
--------- --------- ---------
--------- --------- ---------
Cash paid for taxes.............................................................. $ 311 $ -- $ --
--------- --------- ---------
--------- --------- ---------
Non-cash financing:
Contribution of net assets from Parent....................................... $ -- $109,219 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- CONTRIBUTED PAID-IN RETAINED UNREALIZED STOCKHOLDERS'
SHARES AMOUNT CAPITAL CAPITAL LOSSES LOSS EQUITY
---------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995........... -- $ -- $ 5,373 $ -- $ 18 $ -- $ 5,391
Net investments and advances
from WRI.................. -- -- 379,229 -- -- -- 379,229
Contribution by WRI of Small
Subs...................... -- -- 26,466 -- -- -- 26,466
Net loss.................... -- -- -- -- (656) -- (656)
---------- ----------- ----------- ----------- ----------- ----------- ------------
DECEMBER 31, 1996........... -- -- 411,068 -- (638) -- 410,430
Net investment and advances
from WRI.................. -- -- 43,827 -- -- -- 43,827
Recapitalization............ 68,673,402 687 (454,895) 454,208 -- -- --
Shares issued--in reverse
purchase acquisition...... 14,689,230 147 -- 528,874 -- -- 529,021
Exercise of options......... 306 -- -- -- -- -- --
Net loss (As restated Note
2(a))..................... -- -- -- -- (42,728) -- (42,728)
---------- ----------- ----------- ----------- ----------- ----------- ------------
DECEMBER 31, 1997 (AS
RESTATED NOTE 2(A))....... 83,362,938 834 -- 983,082 (43,366) -- 940,550
Equity offerings, net of
cost...................... 42,764,644 427 -- 401,397 -- -- 401,824
Shares
issued--Acquisitions...... 539,584 5 -- 6,716 -- -- 6,721
Shares issued--ESPP......... 61,980 1 -- 532 -- -- 533
Exercise of options and
warrants.................. 109,595 1 -- 529 -- -- 530
Unrealized loss-marketable
securities................ -- -- -- -- -- (1,848) (1,848)
Unrealized loss-currency
translation............... -- -- -- -- -- (728) (728)
Net loss.................... -- -- -- -- (2,463) -- (2,463)
---------- ----------- ----------- ----------- ----------- ----------- ------------
DECEMBER 31, 1998........... 126,838,741 $ 1,268 $ -- $1,392,256 $ (45,829) $ (2,576) $1,345,119
---------- ----------- ----------- ----------- ----------- ----------- ------------
---------- ----------- ----------- ----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. THE COMPANY:
Protection One, Inc. ("Protection One", a Delaware corporation; the
"Company") is principally engaged in the business of providing security alarm
monitoring services, which include sales, installation and related servicing of
security alarm systems for residential and small business customers in North
America, the United Kingdom and Continental Europe.
Prior to November 24, 1997, Protection One was a standalone security
business based in Culver City, California. On November 24, 1997, pursuant to a
Contribution Agreement dated July 30, 1997, ("the Contribution Agreement")
between Protection One and Western Resources, Inc. (a publicly traded consumer
services company based in Topeka, Kansas; "WRI"), Protection One acquired
Centennial Security Holdings, Inc. ("Centennial"), WestSec, Inc., and Westar
Security, Inc. (WestSec and Westar, respectively; together the "Western
Resources Security Business" or "WRSB"). (See Note 2 for discussion of
consideration exchanged). As a result of the transaction, WRI owned
approximately 82.4% of Protection One at December 31, 1997.
The transaction was accounted for as a reverse purchase acquisition treating
WRSB as the accounting acquiror. Accordingly, the results of operation of
Protection One and Centennial are only included in the consolidated financial
statements since November 24, 1997 following principles of purchase accounting.
Furthermore, the 1996 historical financial statements of Protection One are
those of the accounting acquiror, WRSB.
On June 8, 1998 Protection One sold 4,500,000 shares of its Common Stock at
a price to the public of $9.50 per share, for aggregate proceeds of
approximately $42.8 million, in a firm commitment underwritten offering lead by
an underwriting group. On June 29, 1998 Protection One sold an additional
667,144 shares of its Common Stock at the same price, for aggregate proceeds of
approximately $6.3 million, to the underwriters pursuant to their exercise of an
over-allotment option. On June 8, 1998, concurrent with the public offering,
Protection One sold 33,000,000 shares of its Common Stock to Westar Capital (a
subsidiary of WRI), at a price of $9.50 per share, for aggregate proceeds of
approximately $313.5 million. Exempt from the registration requirements of the
Securities Act of 1933, Protection One sold an additional 4,597,500 shares of
its Common Stock to Westar Capital, pursuant to the exercise of an option
granted to Westar Capital, in connection with the private offering. As a result
of these offerings, WRI owned approximately 84.6% of Protection One at December
31, 1998.
On December 30, 1996, WRI, through its indirect wholly owned subsidiary,
WestSec, purchased the assets and assumed certain liabilities comprising the
security business of Westinghouse Security Systems ("Westinghouse Security
Systems") from Westinghouse Electric Corporation ("WEC"). Westinghouse Security
Systems is deemed to be a predecessor entity of Protection One. As such,
Westinghouse Security Systems' 1996 results of operations are presented
separately from Protection One's consolidated financial statements elsewhere in
this document.
During 1998, Protection One completed several acquisitions, which gave it a
presence outside the continental United States. The Company acquired Compagnie
Europeenne de Telesecurite ("CET") with locations in France, Germany, and the
Benelux region of Europe; Hambro Countrywide Security ("Hambro") in the United
Kingdom; and the security business of Rogers CanGuard, Inc. ("CanGuard") in
Canada. The CET acquisition added approximately 60,000 customers, with Hambro
and CanGuard adding approximately 13,000 and 35,000 customers, respectively (See
Note 3).
F-7
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. RESTATEMENT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) RESTATEMENT
The Company restated its consolidated financial statements as of December
31, 1997 and for the year then ended. The 1997 consolidated financial statements
were restated to (i) expense only as incurred the costs of transitioning the
customer-premise yard signs to the Protection One brand and (ii) to record as a
financing cost the increase in the estimated fair market value of the SAMCO
obligation. In 1997, the Company had previously recorded a charge of $12,300 to
eliminate the use of all acquired brand names and transition customers to the
Protection One brand. This December 1997 charge was reversed in the restatement
and the costs associated with changing customer-premise signs have been expensed
as incurred in 1998. In addition, the Company has also changed its accounting
policy for transitioning customer premise signage upon the purchase of
individual or groups of customer accounts acquired in business combinations to
expense any signage related transition costs as incurred. Previously the Company
accrued customer signage transition costs as a component of customer acquisition
cost. The impact of the restatement increases previously reported income in 1997
and reduces previously reported 1998 quarterly income as such costs are incurred
and expensed. The restatement does not impact the Company's previously reported
sales and net cash flows. In addition to the impact of the 1997 restatement on
the Company's 1998 quarterly financial statements, for 1998 the Company also
recorded adjustments which impact previously reported 1998 quarterly results.
These adjustments relate to adjustments to purchase price allocations recorded
in connection with business combinations and the provision of additional bad
debt expense.
The total effect of the restatement was to increase previously reported 1997
net income by $6.5 million or $.10 per share and to decrease current liabilities
by $12.3 million. The total effect of the 1998 restatement was to decrease 1998
net income by $12.9 million or $.12 per share and to reduce current liabilities
by approximately $22.2 million. The effect on net income of the yard sign change
was an increase in 1997 of $6.9 million and a decrease in 1998 of $9.9 million.
The effect of adjustments made to 1998 quarterly reported results is disclosed
in Note 19.
(B) CONSOLIDATION
All significant intercompany balances and transactions have been eliminated
in consolidation.
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(D) REVENUES
Revenues are recognized when monitoring, extended service protection,
patrol, repair and other services are provided. The Company does not receive
separate connection fees in any aspect of its business. Deferred revenues result
from customers who are billed for monitoring, extended service protection and
patrol and alarm response services in advance of the period in which such
services are provided, on a monthly, quarterly or annual basis. Deferred
revenues relating to the customer accounts acquired are recorded as part of the
allocation of the purchase price and are amortized to income during the period
in
F-8
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. RESTATEMENT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
which service is provided. Rental revenues are recorded on CET security
equipment operating leases with customers that have been sold with recourse
provisions to a third party financing company as rental payments are made over
the term of the rental agreements. Costs of providing service are charged to
income in the period incurred. Costs of services provided to dealers are
expensed as incurred and are included in acquisition expenses. Contracts for
services are generally for an initial noncancellable term of one to five years
with automatic renewal on an annual basis thereafter unless terminated by either
party.
(E) INVENTORIES
Inventories, comprised of alarm systems and parts, are stated at the lower
of average cost or market.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost and depreciated using
the straight-line method over estimated useful lives. Costs of property and
equipment acquired as a result of acquisition transactions are based on the fair
market value at the date of acquisition. When property and equipment are retired
or sold, the cost and the related allowance for depreciation are eliminated from
the property and allowance accounts. Gains or losses from retirements and
dispositions of property and equipment are recognized in income in the period
realized. Repair and maintenance costs are expensed as incurred.
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", long-lived assets held and used by Protection One are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an assets may not be recoverable. For purposes of evaluating
the recoverability of long-lived assets, the recoverability test is performed
using estimates of future undiscounted net cash flows of the respective
long-lived assets.
(G) INCOME TAXES
Deferred tax assets and liabilities reflect the tax effect of temporary
differences between the financial statement and tax basis of assets and
liabilities and the availability of net operating losses and tax credits.
(H) COMPREHENSIVE INCOME
During 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income". Accordingly, the
accompanying statements reflect the impact of foreign currency translations and
mark-to-market adjustments on investments available for sale as components of
comprehensive income (loss) along with net income (loss).
(I) CUSTOMER ACCOUNTS
Customer accounts are stated at cost. The cost includes amounts paid to
dealers and the estimated fair value of accounts acquired in business
acquisitions. Internal costs incurred in support of acquiring customer accounts
are expensed as incurred.
The cost of customer accounts is amortized on a straight-line basis over a
10-year period. It is the Company's policy to evaluate acquired customer account
loss on a quarterly basis utilizing historical loss rates for the customer
accounts in total and, when necessary, adjust amortization over the remaining
useful life. Accumulated amortization of the investment in customer accounts at
December 31, 1997 and 1998 was $28.5 and $116.5, respectively. As a result of
discussions with the staff of the SEC the Company is
F-9
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. RESTATEMENT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
reviewing its method of amortizing the cost of customer accounts. The Company
believes its amortization method is consistent with industry practices. A
significant change in the amortization method would likely have a material
effect on Company's results of operations.
(J) GOODWILL
The excess of acquisition cost over the fair value of net assets (goodwill)
of Protection One is being amortized using the straight-line method over 40
years. The Company periodically re-evaluates the original assumptions and
rationale utilized in the establishment of the carrying value and estimated life
of this asset. The Company is subject to a variety of changes in such areas as
competition, communication and alarm technology, market penetration rates, as
well as net customer losses, which could cause management to reassess its
estimate of the realizability of goodwill and its amortization period.
Management reviews goodwill for impairment or a change in amortization life
whenever events or changes in areas such as those discussed above, indicate that
the carrying amount of the asset may not be recoverable or the life should be
shortened. The determinants used for this evaluation include management's
estimate of the operations continuing ability to generate positive income from
operations and positive cash flow in future periods.
(K) CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a remaining maturity of three
months or less at the date acquired are cash equivalents. These investments,
consisting of money market funds, are stated at cost, which approximates market.
(L) RESTRICTED CASH
Restricted cash represents cash held in escrow pursuant to the Company's
1998 acquisition of Comsec (see Note 3).
(M) RECEIVABLES
Gross receivables, which consist primarily of trade accounts receivable, of
$78.3 million at December 31, 1998 and $25.5 million at December 31, 1997, have
been reduced by allowances for doubtful accounts of $17.0 million and $5.2
million, respectively.
(N) MARKETABLE SECURITIES
Management has determined that its marketable securities are
"Available-for-Sale" securities in accordance with Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities". Accordingly, any unrealized gains and losses are reported as
a component of Other Comprehensive Income in accordance with Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income". Gains
or losses on securities sold are calculated based on the specific identification
method.
(O) ADVERTISING COSTS
The Company expenses advertising costs based on the timing of the release of
the advertising materials. Printed materials, due to the short lead time between
incurrence of cost and the release, are generally expensed as incurred, whereas
broadcast advertising costs are generally recognized upon the first broadcast of
the respective advertisement. Total advertising expense was $3,659, $9,906 and
$2,320 during
F-10
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. RESTATEMENT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the years ended December 31, 1998, 1997 and 1996, respectively. There were no
deferred broadcast advertising costs as of December 31, 1998 or 1997.
(P) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables from a
large number of customers, including both residential and commercial, dispersed
across a wide geographic base. The Company extends credit to its customers in
the normal course of business, performs periodic credit evaluations and
maintains allowances for potential credit losses. The Company has customers
located throughout the United States, France, Canada, the United Kingdom,
Germany and the Benelux region of Europe. The Company does not believe a
significant risk of loss from a concentration of credit risk exists.
(Q) ACCOUNTING PRONOUNCEMENTS
Organizations that set accounting standards in the United States have issued
several accounting pronouncements that the Company will be required to adopt in
future reporting periods.
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. This Statement is
effective for all fiscal quarters, beginning after June 15, 1999. Management has
not traditionally been required to utilize derivative instruments in managing
its business, but anticipates using such instruments to offset the risks it
faces in its international operations. Management has not yet determined the
impact of adopting this pronouncement.
AICPA Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" provides guidance on accounting
for the costs of computer software developed or obtained for internal use,
generally requiring direct development costs to be capitalized while training
and data conversion costs should be expensed as incurred. The SOP is effective
for fiscal years beginning after December 15, 1998. Management anticipates the
adoption of this pronouncement in fiscal year 1999 will not have a material
impact on its financial statements. Protection One is currently in the process
of installing and implementing a new enterprise accounting system, for which the
accounting treatment has been substantially consistent with the new accounting
rule.
(R) RECLASSIFICATIONS
Certain prior period amounts were reclassified to conform to the December
31, 1998, presentation.
(S) INCOME (LOSS) PER SHARE
Income (loss) per share has been computed and presented in accordance with
Statement of Financial Accounting Standards No. 128 "Earnings Per Share." The
incremental shares, 1,208,274 and 83,199, respectively, that would have been
outstanding upon the assumed exercise of dilutive stock options and warrants do
not result in a change to net income (loss) per share for the years ended
December 31, 1998 and 1997. The weighted average shares outstanding used in the
computation of net income (loss) attributable to common shares was 107,998,917
for the year ended December 31, 1998 and 70,202,716 for
F-11
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. RESTATEMENT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the year ended December 31, 1997. While there were no actual shares issued or
outstanding for the year ended December 31, 1996, for purposes of calculating
loss per share, there were deemed to be 68,673,402 shares (number of new shares
issued to effect the reverse purchase transaction with WRI) for the year ended
December 31, 1996.
3. ACQUISITION TRANSACTIONS:
During the periods presented, Protection One has grown in large part through
business acquisitions, the most significant of which was its transaction with
WRI.
Pursuant to the Contribution Agreement, on November 24, 1997, the Company
issued to WRI an aggregate of 68,673,402 (the "Shares") of Common Stock, which
shares constituted 82.4% of the shares of Common Stock (the only voting
securities of the Company) outstanding immediately after such acquisition (the
"Acquisition Transaction"). In consideration of the issuance of the Shares to
WRI ("the "Share Issuance"), WRI transferred to the Company all of the
outstanding capital stock of WestSec, and Westar, and an aggregate of $367.4
million in cash and securities.
As provided in the Contribution Agreement, the Company paid
- to the holders of record of shares of Protection One Common Stock as of
the close of business on November 24, 1997 (other than WRI), a cash
dividend of $7.00 per share ("the Special Dividend");
- to the holders of options to purchase shares of Protection One Common
Stock (other than WRI) $7.00 in cash with respect to each share of Common
Stock issuable upon exercise of such options; and
- to a bank as the holder of record of a warrant issued by the Company in
1991 and to the holders of record of warrants issued by the Company in
1993, $7.00 in cash with respect to each share on Common Stock issuable
upon exercise of such warrants.
As a result of the payment of the Special Dividend, each warrant issued by
the Company in 1995 has become exercisable for 1.629 shares of Protection One
Common Stock at an exercise price of $4.05, and the 6 3/4% Convertible Senior
Subordinated Notes due 2003 issued by Protection One Alarm Monitoring, Inc., a
Delaware corporation, will be convertible into shares of Common Stock at a
conversion price of $11.19 per share.
Included in the marketable securities the Company received from WRI was
- all of the outstanding capital stock of Centennial Security Holdings,
Inc., a Delaware corporation ("Centennial"), and
- 2,885,000 shares ("the Guardian Common Shares") of the Class A Voting
Common Stock, par value $.001 per share, and 1,875,000 shares ("the
Guardian Preferred Shares") of the Series A 9 3/4% Convertible Cumulative
Preferred Stock of Guardian International, Inc., a Nevada corporation
("Guardian").
The Guardian Preferred Shares were convertible into an aggregate of
1,500,000 additional shares of Guardian common stock. During 1998, the Guardian
Common Shares and the Guardian Preferred Shares were exchanged for a new series
of redeemable preferred stock issued by Guardian (see Note 10).
The Acquisition Transaction has been accounted for as a reverse purchase
acquisition and, accordingly, the operating results of Protection One and
Centennial have been included in the consolidated
F-12
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. ACQUISITION TRANSACTIONS: (CONTINUED)
financial statements since November 24, 1997. The excess of the aggregate
purchase price over the fair market value of net assets acquired of
approximately $410 million related to Protection One and approximately $50
million related to Centennial is being amortized over 40 years.
On February 4, 1998, Protection One announced its decision to exercise its
option, effective January 1, 1998, to purchase the stock of Network Multifamily
Security Corporation ("Network"), which, based on management's significant
experience in the industry, it believes to be the leading provider of security
alarm monitoring to multi-family dwellings with approximately 200,000 customers.
Pursuant to the terms of the purchase option, Protection One gave Western
Resources cash consideration of approximately $180 million.
On March 2, 1998, Protection One completed the acquisition of 147,000
customers and related assets of Multimedia Security Services, Inc.
("Multimedia") for a cash purchase price of approximately $233 million. The
Multimedia purchase added to the Company's market positions in California,
Florida and Texas and added substantial numbers of customers in Kansas and
Oklahoma. In addition, Protection One will maintain Multimedia's monitoring and
customer service center in Wichita, Kansas.
On March 17, 1998, Protection One completed the acquisition of
Comsec/Narragansett Security, Inc. ("Comsec") for a cash purchase price of
approximately $49 million and the assumption of $16 million of debt. Comsec's
30,000 customers are located primarily in Connecticut, Maine, Massachusetts and
New Hampshire.
In the third quarter of 1998, Protection One acquired all of the outstanding
shares of a leading French security alarm company, Compagnie Europeenne de
Telesecurite ("CET") at a purchase price of 450FFR (approximately $75 U.S.) per
share, for a total of approximately $140 million. CET has approximately 60,000
customers and 36 branch offices located primarily in France, as well as Belgium,
Germany, the Netherlands and Switzerland.
During 1998, Protection One completed a total of 9 transactions in which a
total of $549.2 million in cash has been given to acquire stock or assets of the
target companies. Total purchase consideration has been allocated to the assets
and liabilities acquired based on management's estimates of their fair values.
Purchase consideration in excess of identified tangible and intangible assets is
recorded as goodwill. A significant component of total consideration is
allocated to acquired customer accounts and goodwill. The Company's purchase
price allocations for 1998 acquisitions are preliminary and may be adjusted as
additional information is obtained.
F-13
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. ACQUISITION TRANSACTIONS: (CONTINUED)
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1998 and 1997, assume all material business
combinations occurred at January 1, 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31
----------------------
1998(A) 1997(A)
---------- ----------
<S> <C> <C>
Revenues.............................................................. $ 562,130 $ 449,957
Income (loss) before extraordinary items.............................. (22,360) (20,420)
Net income (loss)..................................................... (22,256) (20,420)
Per common share, basic and diluted...................................
Income (loss) before extraordinary items............................ (.21) (.29)
Net income (loss)................................................... (.21) (.29)
</TABLE>
- ------------------------
(A) Excludes other charges of $3,400 in 1998 and $24,292 in 1997 and
nonrecurring gains of $(20,570) in 1998.
The pro forma financial information is not necessarily indicative of the
results of operations had the entities been combined for the entire period nor
do they purport to be indicative of results which will be obtained in the
future.
In conjunction with 1998 acquisitions, the acquisition of Protection One by
WRSB on November 24, 1997, and the acquisition of Westinghouse Security Systems
by WRSB on December 30, 1996, net cash paid was as follows:
<TABLE>
<CAPTION>
WESTINGHOUSE
1998 SECURITY
ACQUISITIONS PROTECTION ONE SYSTEMS
---------------- -------------- ---------------
<S> <C> <C> <C>
Assets acquired........................... $ 821,820 $ 998,758 $ 451,344
Liabilities assumed....................... (271,055) (362,042) (93,844)
Stock issued.............................. -- (529,021) --
---------------- -------------- ---------------
Cash paid................................. 550,765 107,695 357,500
Less cash acquired........................ 1,569 1,374 231
---------------- -------------- ---------------
Net cash paid............................. $ 549,196 $ 106,321 $ 357,269
---------------- -------------- ---------------
---------------- -------------- ---------------
</TABLE>
In connection with each acquisition the Company develops a plan to
consolidate the operations of the Company with those of Protection One.
Protection One's finance and administrative offices were relocated from
Portland, Oregon to Dallas, Texas and combined with those of the Western
Resources security business. Certain of the administrative operations of
Centennial, Multimedia, and Comsec, are being consolidated with those of
Protection One in Dallas. Costs incurred to effect this consolidation relate
principally to severance and relocation employees effected by the consolidation.
In connection with these consolidation activities, the Company has recorded
and utilized an accrual related to exit costs, as defined by generally accepted
accounting principles. Amounts remaining at December 31, 1998, relate to planned
activities associated with acquisitions which occurred in 1998. To the
F-14
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. ACQUISITION TRANSACTIONS: (CONTINUED)
extent these amounts are not utilized they will be recorded as a reduction in
goodwill recorded in the acquisitions (amounts in thousands).
<TABLE>
<CAPTION>
12/31/96 PROVISION UTILIZED 12/31/97 PROVISION UTILIZED 12/31/98
----------- ----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Severence and Relocation.................... $ -- $ 2,000 $ (775) $ 1,225 $ 1,000 $ (1,328) $ 897
</TABLE>
4. MARKETABLE SECURITIES:
Marketable equity securities are valued as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Cost..................................................................... $ 20,725 $ 5,701
Unrealized loss.......................................................... (2,955) --
--------- ---------
Aggregate fair value..................................................... $ 17,770 $ 5,701
--------- ---------
--------- ---------
</TABLE>
Gross realized gains were not material for fiscal years 1998 and 1997.
5. OTHER CHARGES:
In December 1997, Protection One incurred charges of $24.3 million to
reflect the impairment of assets and the closing of business activities of the
Western Resources security business that were no longer of continuing value to
the combined operations. These charges are as follows:
<TABLE>
<S> <C>
Impairment of customer accounts.................................... $ 12,750
Merger related costs:
Inventory and other asset losses................................. 3,558
Disposition of fixed assets...................................... 4,128
Closure of duplicate facilities.................................. 1,991
Severance compensation and benefits.............................. 1,865
---------
11,542
---------
Total charges.................................................. $ 24,292
---------
---------
</TABLE>
IMPAIRMENT OF CUSTOMER ACCOUNTS--Protection One wrote down the value of the
customer base of the Western Resources security businesses due to excess
customer losses experienced in 1997. The excess customer losses were due to (1)
the effects of transitioning the customer base from one service provider to
another and (2) the relative quality of certain classes of the customer accounts
customer acquired in an acquisition due to use of a prior aggressive marketing
plan accompanied by limited credit checking by Westinghouse Security Systems.
INVENTORY AND OTHER ASSET LOSSES--Protection One reduced the value of
inventory held at branches due to conversion to the external dealer program as
its primary marketing channel.
F-15
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
5. OTHER CHARGES: (CONTINUED)
DISPOSITION OF FIXED ASSETS--Protection One reduced the net book value of
computer and telecommunication equipment due to plans to migrate in the first
quarter of 1998 certain monitoring, customer service and financial operations to
new software and hardware platforms. At December 31, 1998 the Company continues
to use certain of this equipment due to unplanned delays experienced in the
implementation of replacement systems. The remaining equipment is expected to be
fully retired in 1999.
CLOSURE OF DUPLICATE FACILITIES--Protection One committed to a plan to close
38 Western Resources security businesses branch locations in cities with two or
more branches and where the customer base did not justify such a large presence.
At December 31, 1998, all such locations were closed and the amount accrued at
December 31, 1997 had been expended except for remaining payments on vacated
leased facilities under non-cancellable agreements.
SEVERANCE COMPENSATION AND BENEFITS--Upon closing of the merger in November
1997, the affected employees were notified of their severance package. Actual
payments approximated the amount accrued.
Protection One incurred approximately $3.4 million of severance and
relocation expenses associated with a reorganization of its operations in late
1998.
The activity which occurred related to the non recurring charge is set forth
below (amounts in thousands).
<TABLE>
<CAPTION>
MERGER RELATED CHARGES (DECEMBER 1997)
------------------------------------------------------------------------
12/31/96 PROVISION UTILIZED 12/31/97 UTILIZED 12/31/98
----------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Inventory and other asset losses.................... $ -- $ 3,558 $ (3,558) $ -- $ -- $ --
Disposition of fixed assets......................... -- 4,128 (4,128) -- -- --
Closure of duplicate facilities..................... -- 1,991 -- 1,991 (966) 1,025
Severance/benefits.................................. -- 1,865 -- 1,865 (1,865) --
</TABLE>
6. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Office equipment........................................................ $12,442 $ 5,690
Furniture and fixtures.................................................. 6,237 4,009
Data processing and telecommunication................................... 36,057 4,634
Leasehold improvements.................................................. 1,826 1,351
Vehicles................................................................ 3,720 1,987
Other................................................................... 777 439
------- -------
61,059 18,110
Less accumulated depreciation and amortization.......................... 14,100 3,176
------- -------
$46,959 $14,934
------- -------
------- -------
</TABLE>
F-16
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
6. PROPERTY AND EQUIPMENT: (CONTINUED)
Included in property and equipment at December 31, 1998 and December 31,
1997 were $1,660 and $452, respectively, of assets held under capital leases.
The accumulated amortization on such assets at December 31, 1998 and December
31, 1997 was $373 and $0, respectively.
Virtually all property and equipment are depreciated over estimated useful
lives ranging from five to ten years. The depreciation and amortization charge
(including amortization of assets held under capital leases) was $7,221, $1,938,
and $289 for the years ended December 31, 1998, December 31, 1997 and December
31, 1996 respectively. The Company believes there are no impairments of
long-lived assets based on review of expected cash flows from the use of such
assets.
7. CUSTOMER ACCOUNTS:
The following is a rollforward of the investment in customer accounts (at
cost) for the following years:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---------- --------
<S> <C> <C>
Beginning customer accounts, net........................................ $ 530,312 $265,530
Acquisition of customer accounts........................................ 581,667 301,566
Amortization of customer accounts....................................... (88,025) (23,985)
Special charge to recognize abnormal customer loss...................... -- (12,750)
Non-cash charges against purchase holdbacks............................. (9,526) (49)
---------- --------
Ending customer accounts, net........................................... $1,014,428 $530,312
---------- --------
---------- --------
</TABLE>
In conjunction with certain purchases of customer accounts, the Company
withholds a portion of the purchase price as a reserve to offset qualifying
losses of the acquired customer accounts for a specified period as provided for
in the purchase agreements, and as a reserve for purchase price settlements of
assets acquired and liabilities assumed. As of December 31, 1997, purchase
holdbacks were $11.4 million. Virtually all of this amount was brought forward
in the Acquisition Transaction. Also in connection with the Acquisition
Transaction, the Company took a charge for excess customer losses as the Company
integrated the operations of Westinghouse Security Systems (see Note 5). The
balance of the purchase holdbacks was $42.3 million at December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
PURCHASE HOLDBACKS:
Balance, beginning of year............................. $ 11,444 $ 146
Purchase holdbacks acquired in acquisition............. 1,029 10,610
Purchase holdback additions............................ 71,644 1,369
Non-cash charges against customer accounts............. (9,526) (341)
Cash payments to sellers............................... (32,288) (340)
--------- ---------
Balance, end of year................................... $ 42,303 $ 11,444
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
7. CUSTOMER ACCOUNTS: (CONTINUED)
The portion of purchase price of acquired customer accounts that is subject
to a purchase holdback is capitalized and an equivalent current liability
established at the time of purchase. Purchase holdback periods are negotiated
between Protection One and sellers or dealers, but typically range from zero to
12 months. At the end of the period prescribed by the purchase holdback,
Protection One verifies customer losses experienced during the period and
calculates a final payment to the seller or dealer. The purchase holdback is
extinguished at the time of final payment and a corresponding reduction is made
in the customer intangible to the extent of customer losses.
8. GOODWILL AND TRADEMARKS, NET:
Goodwill and trademarks consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Goodwill and trademarks............................... $1,219,264 $ 679,839
Less accumulated amortization......................... 31,402 7,063
--------- ---------
$1,187,862 $ 672,776
--------- ---------
--------- ---------
</TABLE>
The amortization of goodwill charged to expense was $24,339, and $6,543, and
$520 for the years ended December 31, 1998, December 31, 1997 and December 31,
1996 respectively.
9. LONG-TERM DEBT:
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
New Senior Credit Facility.............................. $ 42,417 $ --
Senior Subordinated Notes............................... 350,000 --
Senior Unsecured Notes.................................. 250,000 --
Senior Subordinated Discount Notes...................... 125,590 191,926
Convertible Senior Subordinated Notes................... 103,500 103,500
CET Recourse Financing Agreements....................... 93,541 --
Other................................................... 2,574 --
SAMCO Contract Financing................................ -- 69,129
Less current portion.................................... (40,838) (21,217)
--------- ---------
$ 926,784 $ 343,338
--------- ---------
--------- ---------
</TABLE>
NEW SENIOR CREDIT FACILITY
In December 1998, the Company's wholly owned subsidiary, Protection One
Alarm Monitoring, Inc. ("Monitoring") entered into a new credit agreement (the
"New Senior Credit Facility"). The New Senior Credit Facility will provide for
revolving borrowings of up to $500 million. The New Senior Credit Facility
F-18
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
9. LONG-TERM DEBT: (CONTINUED)
expires in December 2001. Availability under the facility was approximately $458
million at December 31, 1998.
The New Senior Credit Facility is fully and unconditionally guaranteed by
Protection One and all domestic subsidiaries of Monitoring.
Borrowings under the New Senior Credit Facility bear interest at the lower
of a defined base rate (plus applicable margin) or defined Eurodollar rate (plus
applicable margin). The applicable margins, which vary dependent on the
Company's credit rating, were 0% and 1.25% for base rate borrowings and
Eurodollar borrowings respectively, at December 31, 1998.
As of December 31, 1998, the balance on the New Senior Credit Facility was
$42.4 million, at a weighted average interest rate of 6.8%.
Availability of funds under the New Senior Credit Facility is subject to
meeting certain financial covenants which include a leverage ratio test not to
exceed 5.0 to 1.0 in 1999 and an interest coverage ratio as of the last day of
any quarter not to be less than 2.75 to 1.0. Other covenants limit the Company's
ability to incur liens, pay dividends, make loans or advances or to sell assets.
SENIOR SUBORDINATED NOTES
In December 1998, the Company completed an offering for $350 million of
Senior Subordinated Notes (the "Senior Subordinated Notes") bearing an interest
rate of 8 1/8% due January 15, 2009. Interest will be payable semi-annually in
cash on January 15 and July 15 of each year, beginning on July 15, 1999. Net
proceeds of the offering were used to repay the indebtedness outstanding under
the Senior Credit Facility with Westar Capital and for general corporate
purposes and working capital.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of Monitoring, and rank equally with the other unsecured senior subordinated
indebtedness of Monitoring. They are fully and unconditionally guaranteed on a
senior subordinated basis by Protection One and all domestic subsidiaries of
Monitoring. Additionally, the Notes are redeemable, at Monitoring's option, in
whole or in part, at a price determined by a make-whole calculation plus accrued
interest, if any.
The indenture under which the Senior Subordinated Notes were issued contains
covenants which, among other matters, limit the Company and its subsidiaries
ability to incur certain indebtedness, make restricted payments and merge,
consolidate or sell assets.
SENIOR UNSECURED NOTES
On August 17, 1998, the Company completed an offering of Senior Unsecured
Notes (the "Senior Unsecured Notes") in the amount of $250 million bearing an
interest rate of 7 3/8% due August 15, 2005. Interest will be payable
semi-annually on February 15 and August 15 of each year, commencing with
February 15, 1999. Substantially all of the proceeds from the offering ($233
million) were used to repay borrowings under the Senior Credit Facility with
Westar Capital.
The Senior Unsecured Notes are unsecured obligations of Monitoring, and rank
equally with the other senior indebtedness of Monitoring (including the New
Senior Credit Facility), and rank senior to all subordinated indebtedness of
Monitoring. They are fully and unconditionally guaranteed on a senior
F-19
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
9. LONG-TERM DEBT: (CONTINUED)
unsecured basis by Protection One and all domestic subsidiaries of Monitoring.
Additionally, the Notes are redeemable, at Monitoring's option, in whole or in
part, at any time and from time to time, upon not less than 30 nor more that 60
days notice at a price determined by a make-whole calculation plus accrued
interest, if any.
The indenture, under which the Senior Unsecured Notes were issued contains
covenants which, among other matters, limit the Company and its subsidiaries
ability to undergo a change of control, incur certain liens, enter into certain
sale and leaseback transactions, issue subsidiary guarantees and merge,
consolidate or sell assets.
SENIOR SUBORDINATED DISCOUNT NOTES
The Senior Subordinated Discount Notes (the "Discount Notes") are unsecured
subordinated obligations of the Company's wholly owned Monitoring (see Note 17),
limited to $166 million aggregate principal amount at maturity, and will mature
on June 30, 2005. In connection with the Acquisition Transaction, the notes were
restated to fair market value for book purposes reflecting a current market
yield of approximately 6.4%. This resulted in bond premium being recorded to
reflect the increase in value of the notes as a result of the decline in
interest rates since the note issuance. The revaluation has no impact on the
expected cash flow to existing noteholders.
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, no interest was payable prior to
December 31, 1998. From and after June 30, 1998, cash interest on the notes
accrued at the rate of 13 5/8% per annum, payable in cash semiannually on June
30 and December 31, of each year, commencing December 31, 1998.
The Discount Notes are fully, unconditionally and jointly and severally
guaranteed on a senior subordinated basis by Protection One. They contain
covenants which, among other matters, limit the Company and its Subsidiaries'
ability to incur indebtedness, pay dividends, sell assets, make stock
distributions or sell shares of certain subsidiaries.
On June 29, 1998, pursuant to the indenture governing the Discount Notes,
the Company redeemed 35% of the Discount Notes with the proceeds from an
underwritten public equity offering. The redemption price of approximately $65.0
million was lower than the corresponding amount recorded on the balance sheet.
This resulted in an extraordinary gain, net of taxes, of approximately $1.6
million.
CONVERTIBLE SENIOR SUBORDINATED NOTES
The Convertible Senior Subordinated Notes ("Convertible Notes") are
unsecured subordinated obligations of Monitoring and rank equal to the Discount
Notes. The Convertible Notes mature on September 15, 2003, and previously were
convertible, at any time, into Common Stock at a price of $17.95 per shares,
subject to adjustment. Subsequent to the Acquisition Transaction, the
Convertible Notes maintain a conversion price of $11.19 per share.
Interest on the Convertible Notes accrues at the rate of 6 3/4% per annum,
payable in cash semiannually on March 15 and September 15 of each year,
commencing March 15, 1997. The Convertible Notes are redeemable, at the
Company's option, in whole or in part, at any time or from time to time, on or
after
F-20
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
9. LONG-TERM DEBT: (CONTINUED)
September 19, 1999, and prior to maturity, upon not less than 30 days prior
notice at certain specified redemption prices plus accrued and unpaid interest.
The Convertible Notes are fully, unconditionally and jointly and severally
guaranteed on a senior subordinated basis by Protection One.
The indenture under which the Convertible Notes were issued contains
covenants which limit the Company and its subsidiaries' ability to incur certain
indebtedness.
REVOLVING CREDIT FACILITY
At December 31, 1997, Protection One had a $100 million revolving credit
facility (the "Revolving Credit Facility") which matured in January 2000. The
outstanding balance of the Revolving Credit Facility was paid on November 25,
1997, with proceeds from the Acquisition Transaction and the facility was
terminated in February 1998.
SAMCO CONTRACTS
Rights to certain of our security alarm monitoring contracts (the
"Contracts") were previously sold to investors by Westinghouse Security Systems
(WSS). For financial reporting purposes, the transaction was treated as a
financing arrangement and the proceeds received were recorded as long-term debt.
Generally, principal and interest payments on the debt consisted of 65% of the
monitoring revenues under the contracts. To effect the transfer of this
agreement as part of the WSS acquisition, the Company committed to repurchase
the Contracts at the higher of the fair market value of the contracts or a
minimum purchase price when the underlying debt of the financing company came
due in 1998. In the initial purchase price valuation this debt was valued at $65
million. In the final purchase price allocation the value was set at $68.5
million based upon management's estimate of what the fair market value would be
in 1998 when the contracts had to be repurchased. As the debt was to be redeemed
at the fair market value of the underlying contracts, the Company recorded
interest expense in 1997 of $583 thousand to reflect its estimate of the
increase in the fair market value of the customer accounts, net of reductions in
the value of the accounts for customer losses as provided for under the
agreement. During 1998, the Company repurchased all of the Contracts for an
amount less than that recorded on the balance sheet and recognized other
non-recurring income for this gain of approximately $16.3 million.
CET RECOURSE FINANCING AGREEMENTS
The Company's subsidiary CET has recognized as a financing transaction cash
received through the sale of security equipment and future cash flows to be
received under security equipment operating lease agreements with customers to a
third-party financing company. A liability has been recorded for the proceeds of
these sales as the finance company has recourse to CET in the event of
nonpayment by customers of their equipment rental obligations. The implicit
interest rate in the financing is 15%. Accordingly, the liability is reduced,
rental revenue is recognized, and interest expense is being recorded as these
recourse obligations are reduced through the cash receipts paid to the financing
company over the term of the related equipment rental agreements which average
four years. The liability is increased as new security monitoring equipment and
equipment rental agreements are sold to the finance company that have recourse
provisions.
F-21
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
9. LONG-TERM DEBT: (CONTINUED)
COVENANT COMPLIANCE
The Company was in compliance with all covenants, including waivers relating
to the aforementioned debt as of December 31, 1998 and 1997 except that the
requirement to restate our 1997 and 1998 financial statements resulted in a
violation of certain covenants under the Revolving Credit Facility. We have
obtained a waiver of this requirement until such time that our restated
financial statements are filed under the provisions of the Revolving Credit
Facility.
10. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARY:
At December 31, 1997, Protection One owned common stock and preferred stock
representing a 41% ownership in Guardian International, Inc., ("Guardian") at an
aggregate cost of $9.2 million. Such securities were contributed by WRI to
Protection One pursuant to the Contribution Agreement. Since Protection One did
not exercise control over Guardian's operations, Protection One accounted for
the investment under the equity method of accounting, recognizing its
proportionate share of the income or losses of Guardian. For the 36 days ended
December 31, 1997, Protection One's equity in income of the unconsolidated
subsidiary, Guardian, was $25. For the year ended December 31, 1998, prior to
the exchange transaction discussed below, the amount included in Protection
One's earnings was a loss of $0.4 million.
On September 30, 1998, Protection One entered into an agreement to exchange
all of its common and preferred stock investment in Guardian International, Inc.
for a new series of redeemable preferred stock issued by Guardian, which carries
a current annual cash dividend rate of 7%. The exchange transaction resulted in
the recognition by Protection One of a non-recurring $3 million gain, equal to
the net present value of the new securities received being greater than the book
value of the old securities exchanged. In connection with the exchange,
Protection One will utilize the cost method in place of the equity method of
accounting for its investment in Guardian, since the new redeemable preferred
stocks carries no voting rights and the Company does not exercise significant
influence over the activities of Guardian. In addition, in October 1998,
Protection One made an additional investment of $10 million for a new series of
convertible preferred stock issued by Guardian, which carries a current annual
dividend rate of 6%.
11. ISSUANCE OF COMMON STOCK
On June 8, 1998 Protection One sold 4,500,000 shares of its common stock at
a price to the public of $9.50 per share, for aggregate proceeds of
approximately $42.8 million, in a firm commitment underwritten offering lead by
an underwriting group. On June 29, 1998 Protection One sold an additional
667,144 shares of its Common Stock at the same price, for aggregate proceeds of
approximately $6.3 million, to the underwriters pursuant to their exercise of an
over-allotment option.
On June 8, 1998, concurrent with the public offering, Protection One sold
33,000,000 shares of its Common Stock to Westar Capital, (a subsidiary of WRI),
at a price of $9.50 per share, for aggregate proceeds of approximately $313.5
million. Exempt from the registration requirements of the Securities Act of
1933, Protection One sold an additional 4,597,500 shares of its common stock to
Westar Capital, pursuant to the exercise of an option granted to Westar Capital,
in connection with the private offering.
F-22
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
12. STOCK WARRANTS AND OPTIONS:
The following is a detail of previously issued options and warrants of
Protection One:
In January 1993, Protection One issued 103,697 warrants ("KOP Warrants") to
purchase shares of Common Stock at an exercise price of $3.633 per share. The
outstanding warrants expire in January 2001.
On November 3, 1993, Protection One issued 1,400,000 warrants to purchase
840,000 shares of Common Stock as part of a units offering. Each warrant, when
exercised, will entitle the holder to receive six-tenths (0.6) of one share of
Common Stock at an exercise price of $0.167 per share, subject to adjustment.
The outstanding warrants expire on November 1, 2003.
The 1994 Stock Option Plan (the "Plan"), approved by the Protection One
stockholders in June 1994, provides for the award of incentive stock options to
directors, officers and key employees under the Plan. 1,300,000 shares are
reserved for issuance, subject to such adjustment as may be necessary to reflect
changes in the number or kinds of shares of common stock or other securities of
Protection One. The Plan provides for the granting of options that qualify as
incentive stock options under the Internal Revenue Code and options that do not
so qualify.
During fiscal year 1995, Protection One granted options to purchase an
aggregate of 266,000 shares of common stock including 132,000 shares to officers
of Protection One. Each option has a term of 10 years and vests 20% on each of
the third through seventh anniversaries of the commencement of the participant's
employment with Protection One. The purchase price of the shares issuable
pursuant to the options is equal to the fair market value of common stock at the
date of option grant. Pursuant to the Acquisition Transaction, the vesting of
these options accelerated on November 24, 1997 and all remaining options are
currently exercisable.
In connection with the issuance of the Senior Subordinated Discount Notes in
May 1995, Protection One issued warrants to purchase 531,200 shares of common
stock at an exercise price of $6.60 per share. The outstanding warrants expire
in May 2005. In accordance with the terms of the warrant agreement, in the event
that the Company issues common stock at below market price (as defined in the
warrant agreement), both the number of common shares purchasable upon exercise
of the warrant and the exercise price per share of common stock payable upon
exercise of the warrant are adjusted according to an anti-dilution formula
defined in the agreement. At November 24, 1997, the number of shares purchasable
was adjusted to 754,652 at an exercise price of $4.05. As a result of further
adjustments in June 1998, the number of shares purchasable was adjusted to
786,277 at an exercise price of $3.89.
During fiscal year 1996, Protection One granted options to purchase an
aggregate of 638,800 shares of Common Stock including 400,000 shares granted to
officers of Protection One. Each option has a term of 10 years and vests 20% on
each of the first through fifth anniversaries of the later of November 15, 1995,
or the commencement of the participant's employment with Protection One. The
purchase price of the shares issuable pursuant to the options is equal to (or
greater than) the fair market value of the common stock at the date of the
option grant. Pursuant to the Acquisition Transaction, the vesting of these
options accelerated on November 24, 1997 and all remaining options are currently
exercisable.
On July 9, 1997, Protection One granted an option to purchase an aggregate
of 50,000 shares of common stock. The option has a term of four years. The
purchase price of the shares issuable pursuant to the option is greater than the
fair market value of the common stock at the date of the option grant.
F-23
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
12. STOCK WARRANTS AND OPTIONS: (CONTINUED)
During fiscal year 1997, Protection One granted options to purchase an
aggregate of 375,444 shares of common stock to employees including 100,000
shares granted to officers of Protection One. Each option has a term of 10 years
and vests 20% on each of the first through fifth anniversaries of the later of
December 6, 1996, or the commencement of the participant's employment with
Protection One. The purchase price of the shares issuable pursuant to the
options is equal to (or greater than) the fair market value of the common stock
at the date of the option grant. Pursuant to the Acquisition Transaction, the
vesting of these options accelerated on November 24, 1997 and all remaining
options are currently exercisable.
The 1997 Long-Term Incentive Plan (the "LTIP"), approved by the Protection
One stockholders on November 24, 1997, provides for the award of incentive stock
options to directors, officers and key employees. Under the LTIP, 4.2 million
shares are reserved for issuance, subject to such adjustment as may be necessary
to reflect changes in the number or kinds of shares of common stock or other
securities of Protection One. The LTIP provides for the granting of options that
qualify as incentive stock options under the Internal Revenue Code and options
that do not so qualify.
During 1998, Protection One granted options under the LTIP to purchase an
aggregate of 1,246,500 shares of common stock to employees, including 690,000
shares granted to officers of Protection One. Each option has a term of 10 years
and vests 100% on the third anniversary of the option grant. The purchase price
of the shares issuable pursuant to the options is equal to (or greater than) the
fair market value of the common stock at the date of the option grant.
A summary of warrant and option activity for Protection One from the date of
the Acquisition Transaction is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WARRANTS EXERCISE
AND OPTIONS PRICE
----------- -------------
<S> <C> <C>
Outstanding and exercisable at November 24, 1997 (1)................................. 2,366,741 $ 5.805
Granted.............................................................................. -- --
Exercised............................................................................ (306) 0.050
Surrendered.......................................................................... -- --
-----------
Outstanding and exercisable at December 31, 1997..................................... 2,366,435 $ 5.805
Granted.............................................................................. 1,246,500 $ 11.033
Exercised............................................................................ (109,595) 5.564
Surrendered.......................................................................... (117,438) 10.770
Adjustment to May 1995 warrants...................................................... 36,837 --
-----------
Outstanding at December 31, 1998..................................................... 3,422,739 $ 7.494
-----------
-----------
Exercisable at December 31, 1998..................................................... 2,263,239 $ 5.681
-----------
-----------
</TABLE>
- ------------------------
(1) As WRSB had no outstanding stock at or prior to November 24, 1997 there were
no related options.
F-24
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
12. STOCK WARRANTS AND OPTIONS: (CONTINUED)
The table below summarizes stock options and warrants outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER REMAINING WEIGHTED
OF CONTRACTUAL AVERAGE
RANGE OF SHARES OF LIFE IN EXERCISE
DESCRIPTION EXERCISE PRICE COMMON STOCK YEARS PRICE
- --------------------------------------------------- ------------------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
EXERCISABLE
Fiscal 1995........................................ $6.375 - $9.125 136,560 6 years $ 6.588
Fiscal 1996........................................ 8.00 - 10.313 349,000 7 years 8.062
Fiscal 1996........................................ 13.750 - 15.5 142,000 7 years 14.883
Fiscal 1997........................................ 9.500 217,000 8 years 9.500
Fiscal 1997........................................ 15.000 50,000 8 years 15.000
Fiscal 1997........................................ 14.268 50,000 3 years 14.268
KOP Warrants....................................... 3.633 103,697 2 years 3.633
1993 Warrants...................................... 0.167 428,400 5 years 0.167
1995 Note Warrants................................. 3.890 786,277 6 years 3.890
Other.............................................. 0.050 305 8 years 0.050
--------------
2,263,239
NOT EXERCISABLE
1998 options....................................... $11.033 1,120,500 9 years $ 11.033
1998 options....................................... 9.50 - $12.50 39,000 9 years 11.942
--------------
1,159,500
--------------
OUTSTANDING........................................ 3,422,739
--------------
--------------
</TABLE>
In connection with the Acquisition Transaction, Protection One issued to
Western Resources a call option on an additional 2,750,238 shares of common
stock at a price of $15.50 per share. The option expires on the earlier of a) 45
days following the last date on which any Protection One convertible notes are
still outstanding, or b) October 31, 1999.
Pursuant to Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation", the Company has elected to continue accounting
for its stock option plans under APB Opinion No. 25 "Accounting for Stock Issued
to Employees".
No compensation cost has been recognized for issuance under the plans in
1998. Had compensation cost for the plan been determined based on the fair value
at the grant date consistent with Statements of Financial Accounting Standards
Statement No. 123, the Company's net income and income per share would have been
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Net loss:
As reported.............................................................. $ (2,463)
Pro forma................................................................ (3,933)
Net loss per common share (basic and diluted):
As reported.............................................................. $ (0.02)
Pro forma................................................................ (0.04)
</TABLE>
F-25
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
12. STOCK WARRANTS AND OPTIONS: (CONTINUED)
The weighted average fair value of options granted during 1998 and estimated
on the date of grant was $6.87. The fair value was calculated using the
following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Dividend yield............................................................. 0.00%
Expected stock price volatility............................................ 61.72%
Risk free interest rate.................................................... 5.50%
Expected option life....................................................... 6 years
</TABLE>
As the Western Resources security businesses had no outstanding stock at or
prior to November 24, 1997, there were no related options. No options were
granted by the Company in the period from such date to December 31, 1997.
13. INCOME TAXES:
Components of income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Federal--
Current............................................................. $ 6,798 $ 21,640
Deferred............................................................ (10,103) 3,411
State--
Current............................................................. 1,541 3,090
Deferred............................................................ (3,105) 487
Foreign tax expense, current.......................................... (2,652) --
---------- ----------
(7,521) 28,628
Less tax on extraordinary gain........................................ (2,730) --
---------- ----------
Total............................................................... $ (4,791) $ 28,628
---------- ----------
---------- ----------
</TABLE>
The difference between the income tax (expense) benefit at the federal
statutory rate and income tax (expense) benefit in the accompanying statements
of operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Federal statutory tax rate................................................. (35)% 35%
State income taxes, net of Federal benefit................................. (5)% 6%
Non-deductible goodwill.................................................... (610)% (1)%
--------- ---
(650)% 40%
--------- ---
--------- ---
</TABLE>
F-26
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
13. INCOME TAXES: (CONTINUED)
PROTECTION ONE
Components of the income tax benefit from losses recorded for the year ended
December 31, 1997 include Protection One from the date of the Acquisition
Transaction and WRSB for the calendar year then ended. Protection One and
subsidiaries were included in the federal income tax return filed by Western
Resources for calendar year 1997. A tax sharing agreement between Protection One
and Western Resources provides for the payment to Protection One by Western
Resources for tax benefits utilized by Western Resources and accordingly, the
receivable of $25.2 million for the year ended December 31, 1997, is included in
the accompanying consolidated balance sheet. In November 1998, Protection One
received payment from WRI for the 1997 tax receivable. As of December 31, 1998,
Protection One had a receivable of $5.9 million for current year tax losses
anticipated to be utilized by Western Resources in its 1998 federal income tax
return.
At December 31, 1997, Protection One had approximately $68 million in net
operating loss carryforwards for federal income tax return purposes. Current tax
regulations limit the use of these NOL carryforwards first to 1) the taxable
income earned by Protection One and consolidated subsidiaries subsequent to
November 24, 1997, and 2) as a result of an ownership change of Protection One,
as defined in Section 382 of the Internal Revenue Code, realization of these
amounts is subject to further certain annual limitations for total taxable
income generated. As a result, Management has determined that it is more likely
than not that the NOL carryforwards will not be utilized and that a valuation
allowance is appropriate in accordance with Statements of Financial Accounting
Standards No. 109 "Accounting for Income Taxes".
Deferred income tax assets and liabilities were composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax asset (liability) current:
Accrued liabilities................................................. $ 12,127 $ 19,413
Accounts receivable, due to allowance............................... 15,583 2,083
Acquisition holdbacks............................................... 12,238 6,684
Other............................................................... 9,595 12,006
---------- ----------
$ 49,543 $ 40,186
---------- ----------
---------- ----------
Deferred tax asset (liability) noncurrent:
Recourse financing contracts........................................ $ 30,162 $ --
Net operating loss carryforwards.................................... 27,327 16,943
Valuation allowance................................................. (27,327) (16,943)
Customer accounts................................................... 15,208 1,580
Property & equipment................................................ (1,762) 3,429
OID amortization.................................................... 6,592 16,824
Other............................................................... (6,172) (5,450)
---------- ----------
$ 44,028 $ 16,383
---------- ----------
---------- ----------
</TABLE>
F-27
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
13. INCOME TAXES: (CONTINUED)
WESTERN RESOURCES SECURITY BUSINESSES
The income tax attributes of Westar Security, Inc. were consolidated into
the tax returns filed by Western Resources for calendar year 1996. As a result,
the net loss was benefited for financial reporting purposes since the tax losses
were able to be utilized by Western Resources. No cash was paid for income taxes
for the year ended December 31, 1996.
14. EMPLOYEE BENEFIT PLANS:
401(K) PLAN
The Company maintains a tax-qualified, defined contribution plan that meets
the requirements of Section 401(k) of the Internal Revenue Code (the "Protection
One 401(k) Plan"). The Company, at its election, also may make contributions to
the Protection One 401(k) Plan, which contributions will be allocated among
participants based upon the respective contributions made by the participants
through salary reductions during the applicable plan year. The Company's
matching contribution may be made in Common Stock, in cash or in a combination
of both stock and cash. For the year ended December 31, 1997, Protection One
made a matching contribution to the plan of $34. The Company made a matching
contribution in 1998 of approximately $992.
The Western Resources security businesses also maintained a savings plan
which qualified under Section 401(k). The savings plan allowed eligible
employees to contribute up to 15% of their income on a pretax basis, with a
discretionary employer match of 50% of the employee's contribution up to the
first 6% of the employee's compensation. During the year ended December 31,
1997, matching contributions equal to $721 were made. The plan sponsor merged
this plan into the Protection One 401(k) Plan on July 1, 1998. Most of the
participants have completed the rollover of their assets into the Protection One
401(k) Plan.
Through Protection One's 1998 acquisitions, a number of defined contribution
plans have been acquired. These plans either have been merged in 1998 or will be
merged in 1999 into the Protection One 401(k) Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan is designed to qualify as an "Employee
Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue
Code, and will allow eligible employees to acquire shares of common stock at
periodic intervals through their accumulated payroll deductions. A total of
650,000 shares of common stock have been reserved for issuance under the
Employee Stock Purchase Plan.
The purchase price of shares of common stock purchased under the Employee
Stock Purchase Plan during any purchase period will be the lower of 85% of the
fair market value of the common stock on the first day of that purchase period
and 85% of the fair market value of the common stock on the purchase date.
F-28
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
14. EMPLOYEE BENEFIT PLANS: (CONTINUED)
Termination of a participant's employment for any reason (including death,
disability or retirement) cancels participation in the Employee Stock Purchase
Plan immediately. The Employee Stock Purchase Plan will in all events terminate
upon the earliest to occur of
- the last business day in September 2005,
- the date on which all shares available for issuance under the plan have
been sold and
- the date on which all purchase rights are exercised in connection with an
acquisition of Protection One of all or substantially all of its assets.
15. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities for lease terms maturing through 2012.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<S> <C>
Year ended December 31,
1999............................................................. $ 8,015
2000............................................................. 6,731
2001............................................................. 5,736
2002............................................................. 4,682
2003............................................................. 3,700
Thereafter....................................................... 6,797
---------
$ 35,661
---------
---------
</TABLE>
Total rent expense for the years ended December 31, 1998, 1997 and 1996, was
$7,220, $4,654 and $3,409, respectively.
On January 8, 1997, Innovative Business Systems, Ltd. ("IBS") filed suit
against Western Resources, Westinghouse Electric Corporation ("WEC"),
Westinghouse Security Systems, Inc. ("Westinghouse Security Systems") and
WestSec in Dallas County, Texas district court (Cause No. 97-00184) alleging,
among other things, breach of contract against WEC and interference with
contract against Western Resources and WestSec in connection with the sale by
WEC of the assets of Westinghouse Security Systems to Western Resources and
WestSec. On November 9, 1998 WEC settled this matter and the litigation was
dismissed.
The Company is a party to claims and matters of litigation incidental to the
normal course of its business. The ultimate outcome of these matters cannot
presently be determined; however, in the opinion of management of the Company,
the resolution of these matters will not have a material adverse effect upon the
Company's combined financial position or results of operations.
16. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS:
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and other accrued
liabilities, the carrying amounts approximate fair market value due to their
short maturities.
F-29
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
16. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
The carrying value of the Company's marketable securities approximated fair
value as the carrying value is based on quoted market prices for the securities.
The carrying amount of the Company's bank borrowings under its New Senior
Credit Facility approximates fair value because the interest rates are based on
floating rates identified by reference to market rates.
The fair value of the Company's other long-term debt either approximate
carrying value or are estimated based on quoted market prices for the issues. As
December 31, 1998, the fair value of the Company's other long-term debt was
$841,209, compared to a carrying value of $831,664. Due to the adjustments
recorded in purchase accounting, as of December 31, 1997, Protection One debt is
believed to be reflected in the financial statements at an amount approximating
fair market value at such date.
The estimated fair values may not be representative of actual values of the
financial instruments that could have been realized at year-end or may be
realized in the future.
17. SUPPLEMENTAL SUBSIDIARY COMPANY SUMMARIZED FINANCIAL INFORMATION:
Protection One is a guarantor of all outstanding debt of Monitoring.
Protection One has no other assets or operation outside the investments in its
subsidiaries. Separate audited financial statements for Monitoring as the debt
issuer are not provided for either year because Monitoring is wholly owned and
guarantees are full and unconditional. The summarized financial information of
Monitoring from the date of the Acquisition Transaction through December 31,
1997, is presented below:
<TABLE>
<CAPTION>
SUMMARIZED BALANCE SHEET
- --------------------------------------------------------------------------- DECEMBER 31, 1997
-----------------
(AS RESTATED)
<S> <C>
Assets
Current assets........................................................... $ 110,350
Customer accounts and intangibles, net................................... 221,360
Goodwill and patents..................................................... 398,891
Other noncurrent assets.................................................. 42,076
Liabilities and Stockholder Equity
Deferred revenue......................................................... 16,457
Other current liabilities................................................ 20,710
Long-term debt, net of current portion................................... 301,605
Other long-term liabilities.............................................. 703
Stockholders' equity..................................................... 464,086
</TABLE>
<TABLE>
<CAPTION>
SUMMARIZED STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------ FOR THE PERIOD FROM
NOVEMBER 24, 1997,
TO DECEMBER 31, 1997
--------------------
(AS RESTATED)
<S> <C>
Revenues................................................................ $ 10,812
Gross Profit............................................................ 7,527
Net loss................................................................ 5,451
</TABLE>
F-30
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
17. SUPPLEMENTAL SUBSIDIARY COMPANY SUMMARIZED FINANCIAL INFORMATION:
(CONTINUED)
During 1998, significant legal reorganizations have taken place such that as
at December 31, 1998, Monitoring essentially has no independent operations.
Hence, there is no separate disclosure of Monitoring's financial statements for
this year.
18. SEGMENT REPORTING
Protection One is principally engaged in the business of providing security
alarm monitoring services, which include sales, installation, equipment rental
and related servicing of security alarm systems for over 1.5 million residential
and small business customers through the operation of two segments. The Company
identifies its segments based on management responsibility within North America
and its international units in Europe. Protection One's reportable segments
offer similar products and services; however, they are managed separately based
on the respective geographical locations.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information." Statement of Financial Accounting Standards No. 131
established standards for reporting information about operating segments in
annual financial statements. It also established standards for related
disclosures about products and services and geographic areas. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. Protection One's operating decision making group
consists of various members of management. The operating segments are managed
separately because each operating segment represents a strategic business unit
that serves different geographic markets.
Protection One's reportable segments include Protection One North America;
and Protection One Europe. Protection One North America provides security alarm
monitoring services, which include sales, installation and related servicing of
security alarm systems for residential and small business customers and
multi-family accounts in the United States and Canada. Protection One Europe
provides security alarm services to residential and business customers in
Europe. The Company's mobile security division is in the start up phase and is
not material enough yet to be a reportable segment.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Revenues are
attributed to geographic areas based on the location of the assets producing the
revenues.
F-31
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
18. SEGMENT REPORTING (CONTINUED)
Reportable segments (in millions):
<TABLE>
<CAPTION>
PROTECTION ONE NORTH AMERICA
--------------------------------------- PROTECTION ONE TOTAL
MONITORING MULTIFAMILY TOTAL EUROPE CONSOLIDATED
----------- --------------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers:
Monitoring and related services....................... $ 321 $ 29 $ 350 $ 26 $ 376
Installation and rental............................... 23 4 27 18 45
----------- --- --------- ----- ------
Total............................................... 344 33 $ 377 $ 44 $ 421
Amortization of intangibles and depreciation expense.... 108 6 $ 114 $ 4 $ 118
Interest expense........................................ 39 13 52 4 56
Net income (loss)....................................... (5) -- (5) 3 (2)
Segment assets.......................................... 1,987 223 2,210 301 2,511
Expenditures for property............................... 29 1 30 3 33
Expenditures for subscriber accounts.................... 271 5 276 2 278
</TABLE>
Protection One currently has operations based in three foreign countries.
Financial data for these locations for 1998 is as follows:
<TABLE>
<CAPTION>
FRANCE UK CANADA
---------- --------- ---------
<S> <C> <C> <C>
Total Revenues.................................................................. $ 34,994 $ 8,731 $ 3,756
Total Assets.................................................................... 275,229 25,855 30,129
</TABLE>
In 1997, Protection One operated under a single reportable segment providing
alarm monitoring services to over 750,000 residential and small business
customers in the United States. Accordingly, no further segment presentation
beyond the consolidated financial statements is warranted.
19. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of the restated unaudited quarterly financial
information for 1998 and 1997:
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------ ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
- ---------------------------------------------------------------
Revenues....................................................... $ 76,795 $ 97,041 $ 103,261 $ 143,998
Gross profit................................................... 52,802 65,561 70,706 100,235
Income (loss) before extraordinary gain........................ 398 (199) 1,206 (5,459)
Net income..................................................... 398 1,392 1,206 (5,459)
Basic and diluted income (loss) per share:
Income (loss) before extraordinary gain...................... -- -- .01 (.05)
Net income (loss)............................................ -- .02 .01 (.05)
1997
- ---------------------------------------------------------------
Revenues....................................................... $ 32,576 $ 31,338 $ 32,814 $ 48,045
Gross profit................................................... 23,981 22,256 21,867 41,000
Net income (loss).............................................. (4,269) (6,619) (6,777) (25,063)
Basic and diluted income (loss) per share...................... (.06) (.09) (.10) (.35)
</TABLE>
F-32
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
19. UNAUDITED QUARTERLY FINANCIAL INFORMATION (CONTINUED)
In addition to the impact of the 1997 restatement on the Company's 1998
quarterly financial statements, for 1998 the Company also recorded adjustments
which impact prior 1998 quarterly periods. These adjustments relate to
adjustments to purchase price allocations recorded in connection with business
combinations and the provision of additional bad debt expense. The impact of the
adjustment made to the 1998 quarterly reported results of operations for these
items on an after tax basis is as follows:
<TABLE>
<S> <C>
Expense yard signs as incurred..................................... $ 9,887
Increase expense provision for bad debts........................... 3,677
Other.............................................................. 659
---------
Decrease to net income........................................... $ 12,905
---------
---------
</TABLE>
These adjustments have been reflected in the appropriate quarterly periods
above. The impact of these adjustments, including the impact of the 1997
restatement adjustments, on the Company's previously reported quarterly results
as reported on 1998 Form 10-Q is as follows:
<TABLE>
<CAPTION>
AS BASIC AND BASIC AND BASIC AND
PREVIOUSLY DILUTED PER DILUTED PER AS DILUTED PER
1998 REPORTED SHARE RESTATEMENT SHARE RESTATED SHARE
- -------------------------------------- ------------ ----------- ----------- ----------- ---------- -----------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
gain:
March 31............................ $ 1,193 $ .01 $ (795) $ (.01) $ 398 $ --
June 30............................. 4,376 .04 (4,575) (.05) (199) --
September 30........................ 2,793 .02 (1,587) (.01) 1,206 .01
December 31......................... 488 .01 (5,947) (.06) (5,459) (.05)
Net Income:
March 31............................ 1,193 .01 (795) (.01) 398 --
June 30............................. 5,967 .06 (4,575) (.04) 1,392 .02
September 30........................ 2,793 .02 (1,587) (.01) 1,206 .01
December 31......................... 488 .01 (5,947) (.06) (5,459) (.05)
</TABLE>
For 1997 quarterly amounts, the adjustment related to the WRSB signage and
increases in the liability accrued to repurchase customer accounts under the
SAMCO contract financing impacted the fourth quarter as follows:
<TABLE>
<CAPTION>
AS AS
1997 REPORTED PER SHARE RESTATEMENT PER SHARE RESTATED PER SHARE
- ---------------------------------------------- ---------- --------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss)
December 31................................. (31,638) (.45) 6,575 .10 (25,063) (.35)
</TABLE>
F-33
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
20. SUBSEQUENT EVENTS--MERGERS AND ACQUISITIONS (UNAUDITED):
In October, 1998, the Company announced that it had entered into an
agreement to acquire Lifeline Systems, Inc., the leading provider of personal
emergency response and support services ("PERSS") in North America. Based on the
average closing price of Protection One common stock for the three trading days
prior to April 8, 1999, the consideration in the transaction will approximate
$129.2 million or $22.05 per share in cash and common stock of a newly formed
holding company for Protection One, based on the number of shares of currently
outstanding Lifeline shares. Under the terms of the agreement approved by the
Board of Directors of Protection One and Lifeline, each Lifeline share will be
converted into the right to receive either, (a) $14.50 in cash and a certain
number of shares of the holding company common stock based on the average
closing price of Protection One's common stock prior to the consummation of the
transaction and adjusted for a variable exchange rate, or (b) at the
stockholder's option, additional shares of the holding company's common stock in
lieu of all or a portion of such cash. The acquisition will be accounted for as
a purchase and is intended to qualify as a tax-free reorganization to the extent
of the holding company common stock received in the transaction. On December 10,
1998, the Company filed a Form S-4 Registration Statement under the Securities
Act of 1993 with the Securities and Exchange Commission related to the shares to
be issued in the transaction. Lifeline has advised us that it is evaluating the
restatement of our financial statements.
The Protection One Board of Directors has also authorized a private
placement of common shares to Westar Capital, Inc., a wholly owned subsidiary of
Western Resources. The private placement will allow Westar Capital to maintain
ownership in excess of 80% of the issued and outstanding shares of Protection
One's common stock following the issuance of shares of common stock to
stockholders of Lifeline Systems, Inc. in connection with the acquisition of
Lifeline Systems by Protection One. Under the private placement, Protection One
common stock will be issued to Westar Capital at a price equal to the average
closing price determined in connection with the mergers related to Protection
One's acquisition of Lifeline Systems.
Additionally, Western Resources has indicated that Westar Capital may
acquire shares of Protection One common stock in open market or privately
negotiated transactions depending upon market conditions. Any open market or
private purchases by Westar Capital will reduce or eliminate the need for it to
purchase shares in the private placement in order to maintain at least an 80%
ownership stake in Protection One. Westar Capital currently owns approximately
107.3 million shares, or about 84.6%, of Protection One's 126.8 million issued
and outstanding shares.
SHAREHOLDER LITIGATION
Based on public releases, we understand that purported class action lawsuits
have been filed against us and certain of our officers and directors alleging
violations of federal securities laws arising from our public announcement that
we have decided to restate our financial statements for the year ended December
31, 1997 and each of the first three quarters of 1998. We have not been served
with process and, therefore, cannot provide more details with respect to these
or any other claims alleged in these actions.
F-34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders of Protection One, Inc.:
We have audited the accompanying statement of operations and cash flows of
Westinghouse Security (a predecessor of Protection One, Inc.) for the 53 weeks
ended December 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Westinghouse Security (a predecessor of Protection One, Inc.) for the 53 weeks
ended December 30, 1996, in conformity with generally accepted accounting
principles.
Kansas City, Missouri
August 22, 1997
F-35
<PAGE>
WESTINGHOUSE SECURITY
STATEMENT OF OPERATIONS
(PREDECESSOR FINANCIAL STATEMENT FOR PROTECTION ONE, INC.)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
53 WEEKS ENDED
DECEMBER 30, 1996
-----------------
<S> <C>
Revenues:
Monitoring and related services.............................................................. $ 93,765
Installation and other....................................................................... 17,116
--------
Total revenues........................................................................... 110,881
Cost and expenses:
Monitoring and related services.............................................................. 24,987
Installation and other....................................................................... 973
--------
Total cost of revenues................................................................... 25,960
--------
Gross profit............................................................................. 84,921
Selling, general and administrative expense.................................................... 60,166
Acquisition and transition expenses............................................................ 101
Amortization of intangibles and depreciation expense........................................... 21,613
--------
Operating income......................................................................... 3,041
Other (income) expense:
Interest expense, net........................................................................ 10,879
--------
Loss before income taxes..................................................................... (7,838)
Income tax benefit............................................................................. 2,978
--------
Net loss................................................................................. $ (4,860)
--------
--------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-36
<PAGE>
WESTINGHOUSE SECURITY
STATEMENT OF CASH FLOWS
(PREDECESSOR FINANCIAL STATEMENT FOR PROTECTION ONE, INC.)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
53 WEEKS ENDED
DECEMBER 30, 1996
-----------------
<S> <C>
Cash flow from operating activities:
Net loss....................................................................................... $ (4,860)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................................. 1,052
Amortization of intangibles.................................................................. 20,562
Provision for doubtful accounts.............................................................. 3,108
Changes in assets and liabilities, net of effects of acquisitions:
Restricted cash.............................................................................. 119
Receivables.................................................................................. (2,170)
Inventories.................................................................................. 1,491
Prepaid expenses and deposits................................................................ (182)
Other current assets......................................................................... (65)
Accounts payable............................................................................. (1,835)
Accrued liabilities.......................................................................... 5,876
Deferred revenue............................................................................. 633
-------
Net cash provided by operating activities................................................ 23,729
Cash flows from investing activities:
Purchase of property and equipment........................................................... (1,219)
Customer account installations and purchases................................................. (39,241)
-------
Net cash used in investing activities.................................................... (40,460)
Cash flows from financing activities:
Funding from Westinghouse.................................................................... 21,880
Repayments of long-term debt................................................................. (5,146)
-------
Net cash provided by financing activities................................................ 16,734
-------
Net increase in cash and cash equivalents...................................................... 3
Cash and cash equivalents:
Beginning of period.......................................................................... 134
-------
End of period................................................................................ $ 137
-------
-------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-37
<PAGE>
WESTINGHOUSE SECURITY
NOTES TO FINANCIAL STATEMENTS
(PREDECESSOR FINANCIAL STATEMENTS FOR PROTECTION ONE, INC.)
(DOLLAR AMOUNTS IN THOUSANDS)
1. BACKGROUND INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
On December 30, 1996, Western Resources, Inc. ("Western Resources"), through
its indirect wholly owned subsidiary, WestSec, Inc. ("WestSec"), purchased the
assets and assumed certain liabilities comprising the security business of
Westinghouse Security Systems ("Westinghouse Security Systems") (the "Company"),
from Westinghouse Electric Corporation ("Westinghouse"). The historical results
of operations of Westinghouse Security Systems are presented herein (as
predecessor financial statements for Protection One, Inc.) and do not reflect
the adjustments related to the Western Resources' purchase at December 30, 1996.
Prior to 1996, Westinghouse Security Systems closed its fiscal year on December
20.
Westinghouse Security Systems provided alarm monitoring services and sold,
installed and serviced security alarm systems principally for residential and
small business customers. Most of the Westinghouse Security Systems customers
were in the southern portion of the United States.
REVENUES
Monitoring revenues, generally derived from contracts for an initial
noncancellable term, are recognized monthly as services are provided. Amounts
billed in advance are deferred and are recognizable in the month service occurs.
Installation revenues are recognized in the period of installation of the alarm
system. Service revenues are recognized in the period that the services are
provided.
INVENTORIES
Inventories, comprised of alarm systems and parts, held for installation and
service, are stated at the lower of average cost or market. For the 53 weeks
ended December 30, 1996, approximately $1,634 was charged to expense resulting
from the writedown of inventory to its respective market values.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
straight-line method over its estimated useful life (five to ten years for
furniture and other equipment). When property and equipment is retired or sold,
the cost and the related accumulated depreciation is eliminated from their
respective accounts. Gains or losses from retirements and dispositions of
property and equipment are recognized in the period realized. Repair and
maintenance costs are expensed as incurred.
INCOME TAXES
Westinghouse Security Systems historically has been included in the
consolidated federal income tax return filed by Westinghouse. Income taxes have
been allocated to Westinghouse Security Systems as if they were filing a
separate tax return. Westinghouse Security Systems accounts for income taxed in
accordance with Statement of Financial Accounting Standards No. 109 which
requires that deferred tax assets and liabilities be established for the basis
differences between the reported amounts of assets and liabilities for financial
reporting purposes and income tax purposes.
F-38
<PAGE>
WESTINGHOUSE SECURITY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(PREDECESSOR FINANCIAL STATEMENTS FOR PROTECTION ONE, INC.)
(DOLLAR AMOUNTS IN THOUSANDS)
1. BACKGROUND INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ADVERTISING COSTS
Westinghouse Security Systems generally expensed broadcast and print
advertising costs based on the timing of the release of the advertising
materials. Advertising costs are generally recognized upon the first broadcast
of the respective advertisement.
CUSTOMER ACCOUNTS
Customer accounts installed are stated at cost. Direct costs of installed
accounts are capitalized. These direct costs include materials and equipment on
customer premises, direct installation labor, and other direct installation
costs. Accounts purchased are capitalized at amounts paid to acquire these
accounts. Such capitalized costs are amortized on a straight-line basis over the
average customer life estimated to be ten years.
GOODWILL
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over 40 years.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Westinghouse Security Systems
considered all highly liquid investments purchased with a remaining maturity of
three months or less at the date acquired to be cash equivalents.
RELATED PARTY TRANSACTIONS
Westinghouse Security Systems received a number of administrative and
support services from Westinghouse, participated in certain Westinghouse
employee benefit plans, and its results of operations were included in certain
of Westinghouse's consolidated income tax returns. Further information about
such relationships and transactions is included in Notes 2, 3, and 4.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-39
<PAGE>
WESTINGHOUSE SECURITY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(PREDECESSOR FINANCIAL STATEMENTS FOR PROTECTION ONE, INC.)
(DOLLAR AMOUNTS IN THOUSANDS)
2. INCOME TAXES:
Components of income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED
DECEMBER 30, 1996
-----------------
<S> <C>
Federal-
Current.................................................................. $ 9,462
Deferred................................................................. (7,172)
State-
Current.................................................................. 1,303
Deferred................................................................. (615)
-------
Total................................................................ $ 2,978
-------
-------
</TABLE>
The difference between the income tax benefit at the federal statutory rate
and income tax benefit in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED
DECEMBER 30, 1996
---------------------
<S> <C>
Federal statutory tax rate................................................. (35)%
State income taxes net of Federal benefit.................................. (3)%
--
(38)%
--
--
</TABLE>
No cash was paid for income taxes for the 53 weeks ended December 30, 1996.
3. RELATED PARTY TRANSACTIONS
During 1996, Westinghouse Security Systems purchased products from and sold
products to other Westinghouse operations on a limited basis. Westinghouse
Security Systems was charged directly for the costs of certain services that
Westinghouse provided. These services included information system support,
certain accounting functions, such as transaction processing, legal services,
human resources and telecommunications. Westinghouse also provided Westinghouse
Security Systems with other services, as needed, including printing,
productivity and other consulting services. For the 53 weeks ended December 30,
1996, approximately $1.1 million was charged to Westinghouse Security Systems
for these services, primarily for telecommunications. Historically, these
transactions were not settled in cash, but instead recorded in intercompany
payable accounts.
Westinghouse allocated a portion of its corporate expenses to its business
units and subsidiaries. These allocated costs include certain corporate
overhead, including among others, corporate legal, environmental and insurance.
These corporate expenses were allocated primarily based on payroll costs and
revenue. Such allocations were not necessarily indicative of actual results and
it is not practical for management to estimate the level of expenses that might
have been incurred had Westinghouse Security Systems operated as a standalone
entity. Amounts allocated to Westinghouse Security Systems by Westinghouse
approximated $802 in 1996.
F-40
<PAGE>
WESTINGHOUSE SECURITY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(PREDECESSOR FINANCIAL STATEMENTS FOR PROTECTION ONE, INC.)
(DOLLAR AMOUNTS IN THOUSANDS)
4. EMPLOYEE BENEFIT PLANS
WRSB maintained savings plans which qualify under Section 401 (k) of the
Internal Revenue Code. The savings plans allowed eligible employees to
contribute up to 15% of their income on a pretax basis to such savings plans.
Westinghouse Security Systems, at its discretion, may have elected to match 50%
of the employee's contribution up to the first 6% of the employee's
compensation. The charge to operations for Westinghouse Security Systems'
matching contribution approximated $449 in 1996.
5. COMMITMENTS AND CONTINGENCIES
Westinghouse Security Systems leased office space and other equipment under
noncancellable operating leases that require aggregate minimum future rentals
of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1997................................................................................. $ 2,206
1998................................................................................. 1,739
1999................................................................................. 1,248
2000................................................................................. 882
2001................................................................................. 642
Thereafter........................................................................... 1,701
---------
$ 8,418
---------
---------
</TABLE>
Total rental expense recognized for the 53 weeks ended December 30, 1996,
for operating leases was approximately $3,409.
Westinghouse Security Systems was a party to claims and matters of
litigation incidental to the normal course of its business. The resolution of
these matters is not expected to have a material adverse effect on Westinghouse
Security Systems financial position or results of operations.
F-41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Protection One, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements listed in the index on F-1 of this Annual Report on
Form 10-K and have issued our reports thereon. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedules listed in the index of financial statements are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic financial statements. The consolidated financial
statements and Schedule II--Valuation and Qualifying Accounts of Protection One
as of December 31, 1997 and for the year then ended have been restated. (See
Note 2(a) to the consolidated financial statements of Protection One.) These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Dallas, Texas
January 19, 1999, (except with respect
to the matter discussed
in Note 2(a) to the consolidated
financial statements as to
which the date is April 5, 1999).
S-1
<PAGE>
PROTECTION ONE, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS ACCOUNTS END OF
DESCRIPTION OF PERIOD AND EXPENSES (a) DEDUCTIONS (b) PERIOD
- ---------------------------------------- ----------- --------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowances deducted from assets for
doubtful accounts..................... $ 50 $ 184 $ 4,179 $ -- $ 4,413
YEAR ENDED DECEMBER 31, 1997
Allowances deducted from assets for
doubtful accounts, as restated........ 4,413 3,657 4,578 (7,441) 5,207
YEAR ENDED DECEMBER 31, 1998
Allowances deducted from assets for
doubtful accounts..................... 5,207 10,567 2,289 (1,070) 16,993
</TABLE>
- ------------------------
(a) Allowances associated with receivables purchased in conjunction with
acquisition of customer accounts and business acquisitions.
(b) Results from write-offs of accounts receivable.
S-2
<PAGE>
WESTINGHOUSE SECURITY (PREDECESSOR ENTITY)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS OTHER DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS (a) END OF PERIOD
- ----------------------------------------- ----------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
53 WEEKS ENDED DECEMBER 31, 1996
Allowances deducted from assets for
doubtful accounts...................... $ 2,656 $ 3,108 $ -- $ (1,585) $ 4,179
</TABLE>
- ------------------------
(a) Results from write-offs of accounts receivable.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN E. MACK III Chief Executive Officer
- ------------------------------ (Principal Executive April 13, 1999
John E. Mack III Officer)
Acting Chief Financial
/s/ TONY SOMMA Officer, Secretary and
- ------------------------------ Treasurer (Principal April 13, 1999
Tony Somma Financial and Accounting
Officer)
/s/ PETER C. BROWN
- ------------------------------ Director April 13, 1999
Peter C. Brown
/s/ ROBERT M. CHEFITZ
- ------------------------------ Director April 13, 1999
Robert M. Chefitz
/s/ HOWARD A. CHRISTENSEN
- ------------------------------ Director April 13, 1999
Howard A. Christensen
/s/ BEN M. ENIS
- ------------------------------ Director April 13, 1999
Ben M. Enis
/s/ JOSEPH J. GARDNER
- ------------------------------ Director April 13, 1999
Joseph J. Gardner
/s/ WILLIAM J. GREMP
- ------------------------------ Director April 13, 1999
William J. Gremp
/s/ STEVEN L. KITCHEN
- ------------------------------ Director April 13, 1999
Steven L. Kitchen
/s/ DOUGLAS T. LAKE
- ------------------------------ Chairman of the Board of April 13, 1999
Douglas T. Lake Directors
/s/ CARL M. KOUPAL, JR.
- ------------------------------ Director April 13, 1999
Carl M. Koupal, Jr.
/s/ JAMES M. MACKENZIE, JR.
- ------------------------------ Director April 13, 1999
James M. MacKenzie, Jr.
/s/ JOHN C. NETTELS, JR.
- ------------------------------ Director April 13, 1999
John C. Nettels, Jr.
/s/ JAMES Q. WILSON
- ------------------------------ Director April 13, 1999
James Q. Wilson
</TABLE>
<PAGE>
CONDITIONAL PURCHASE AGREEMENT
CONDITIONAL PURCHASE AGREEMENT, dated as of August 6, 1998
(this "Agreement"), between certain directors and or officers of Compagnie
Europeenne de Telesecurite, a French SOCIETE ANONYME (the "Company"), namely:
Henri de Pescara, Christophe de Pescara, Patrick Fornas, Benoit Aucouturier
(acting on behalf of C.A.F.F. SA), Michel Ginot, Francois de Pescara, and
John Metzger (acting on behalf of FERN SA) (the "Managers"), and Protection
One Alarm Monitoring, Inc., a Delaware corporation, purchasing on behalf of a
wholly-owned (directly or indirectly) French entity, either formed or in the
process of being formed on the date hereof (the "Buyer"),
WHEREAS, the Buyer has approached the Managers to discuss a
possible transaction involving the Company,
WHEREAS, the Buyer has, in the course of such discussions,
expressed the wish to acquire control of the Company through the acquisition
of a block of shares of its common stock, but also the desire to have an
option to purchase the shares of the Company held by the Managers if it was
unable to acquire control of the Company in a block sale,
WHEREAS, the Managers consider that the acquisition of a
controlling interest in the Company by the Buyer would be in the best
interest of the Company and would enable it to expand its activities both
domestically and internationally more quickly and more efficiently,
WHEREAS, the Buyer desires to purchase all of the
outstanding shares of the common stock of the Company held directly or
indirectly by the Managers (the "Manager Shares"), and the Managers signing
this Agreement desire to sell all of the Manager Shares, on the terms and
conditions set forth herein,
-1-
<PAGE>
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF MANAGER SHARES
1.1 QUALIFICATION AND TITLE TO SHARES. Each of the Managers
warrants to the Buyer as follows:
(a) The Manager Shares represent more than 15% of the
outstanding shares of common stock of the Company.
(b) Each Manager holds his shares in an account at Banque
Vernes, and has given or will give irrevocable instructions to Banque Vernes
to transfer the Manager Shares to the Buyer upon the satisfaction of the
condition provided for in Section 1.2 below, or upon exercise of the option
as provided in Section 1.3 below.
(c) Each Manager has the power and the authority to enter
into this Agreement. No impediment to the Manager's power or right to sell
his Manager Shares exists, whether under the by-laws of the Company, the laws
of France, the laws of any other jurisdiction, or any private contract. The
number of Manager Shares which he offers to the Buyer pursuant to this
Agreement is the total number of all the Manager Shares owned, held, or
controlled by that Manager. Each Manager has no option to purchase, and shall
acquire no option to purchase, additional shares in the Company. Each Manager
shall refrain from purchasing any additional shares in the Company between
the date of this Agreement and the date of the Closing as defined in Section
1.5 below. Each Manager owns his Manager Shares free and clear of any liens
or encumbrances, and can transfer good title in the Manager Shares to the
Buyer.
-2-
<PAGE>
1.2 CONDITIONAL AGREEMENT TO PURCHASE.
(a) Upon the terms and subject to the conditions of this
Agreement and in reliance upon the representations, warranties and agreements
set forth herein, the Managers hereby agree to sell to the Buyer and the
Buyer agrees to purchase from the Managers the Manager Shares at the Purchase
Price as defined in Section 1.4 below.
(b) The foregoing obligations shall be conditional upon the
Buyer having purchased, prior to 8:00 p.m., Paris time, on August 10, 1998,
in one or several transactions consummated simultaneously, a block of the
Company's shares other than the Manager Shares representing not less than 35%
of the outstanding shares of the common stock of the Company at a price equal
to the Purchase Price (the "Block Trade").
(c) The Buyer agrees that it shall use its best efforts to
consummate the Block Trade by giving appropriate instructions to the broker
of its choice in sufficient time to complete the transaction or transactions
referred to in Section 1.2(b) above.
1.3 FAILURE OF CONDITIONAL PURCHASE. If by 8:00 P.M., Paris
time, on August 10, 1998 the Buyer has not been able to consummate the Block
Trade despite its best efforts as described in Section 1.2(c) above, then,
and until September 10, 1998, the Buyer shall have the exclusive option to
purchase the Manager Shares at the Purchase Price subject to the
compatibility of such price with French Stock Exchange regulations at the
time of the exercise of such option, such option to be exercised by notice as
provided for in Section 3.4 below.
1.4 PURCHASE PRICE. The Buyer shall purchase the Manager
Shares for 450 FF per share(the "Purchase Price").
1.5 TRANSFER AND SETTLEMENT PROCEDURES. The settlement
mechanism described in this Section shall be referred to as the "Closing".
The Closing shall take place immediately or as soon as practically possible
after the
-3-
<PAGE>
settlement of the Block Trade. In the event that the Buyer exercises its
option under Section 1.3 of this Agreement, the Closing shall take place
three business days after such exercise. At the Closing, the Managers shall
deliver to the Buyer acceptable evidence of transfer of title in the Manager
Shares to the Buyer and the Buyer shall deliver to the Managers the Purchase
Price.
1.6 REPRESENTATIONS AND WARRANTIES OF THE PARTIES.
Each Party hereto represents and warranties to the other that it shall comply
in all respects with French Stock Exchange regulations in connection with the
performance of this Agreement.
Furthermore, the Buyer represents that it shall commence a tender offer for
the remainder of the outstanding stock of the Company, following the
completion of the Block Trade, as provided for by French Stock Exchange
regulations.
ARTICLE II
RESIGNATIONS; NON-COMPETITION
2.1 At the Buyer's request, upon the purchase of the
Manager Shares, the Managers will use their best efforts to deliver to the
Buyer the resignations of such directors of the Company as may be determined
by the Buyer.
2.2 In the event that a Manager were to cease to be a
director or officer of the Company for any reason whatsoever, then such
Manager shall refrain from performing any professional activity in France
whether as a director, officer, employee, consultant or otherwise, directly
or indirectly, with or without compensation, for a corporation or other
business organization competing directly with the Company for a period of
twelve months from the effective date of termination of such Manager's
professional relationship with the Company, and shall refrain from soliciting
any of the company's customers existing at the time of such termination for a
period of twenty-four months from that same date.
-4-
<PAGE>
ARTICLE III
MISCELLANEOUS
3.1 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
3.2 EXPENSES. Except as otherwise expressly provided in
this Agreement, whether or not the transactions contemplated in this
Agreement are consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be borne by the
party incurring such costs and expenses.
3.3 FINDER'S FEES. Each party represents and warrants to
the other that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission from the Company or any of its
Subsidiaries in connection with the transactions contemplated by this
Agreement.
3.4 NOTICES. Notice to all of the Managers shall be deemed
to have been given by sending a fax to Henri de Pescara at the following
number: 33.01.43.18.28.89, followed by written confirmation. Such notice
shall be deemed effective as of the date and time at which the fax
transmission is sent.
3.5 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the Republic of France without
regard to the principles of conflicts of laws.
3.6 CONSENT TO JURISDICTION. Any legal action or proceeding
with respect to this Agreement or any matters arising out of or in connection
with this Agreement, and any action for enforcement of any judgment in
respect thereof, shall be brought exclusively in the courts of the Republic
of France. Moreover, the Buyer and the Managers hereby agree to submit to the
jurisdiction of Paris courts.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed hereunder as of the date first above written.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF SHAREHOLDER SHARES SOLD SIGNATURE
------------------- ----------- ---------
<S> <C> <C>
Henri de Pescara 38,174 /s/ Henri de Pescara
------------------------------
Christophe de Pescara 53,029 /s/ Christophe de Pescara
------------------------------
Patrick Fornas 44,938 /s/ Patrick Fornas
------------------------------
CAFF by Benoit Aucouturier 58,891 /s/ CAFF by Benoit Aucouturier
------------------------------
Michel Ginot 48,282 /s/ Michel Ginot
------------------------------
FERN by John Metzger 50,716 /s/ FERN by John Metzger
------------------------------
Francois de Pescara 27,200 /s/ Francois de Pescara
------------------------------
</TABLE>
/s/ John E. Mack III
- ------------------------------------------------
Protection One Alarm Monitoring, Inc.
(on behalf of a wholly-owned (direct or indirect)French entity, either formed
or in the process of being formed on the date hereof)
By: John E. Mack III
Executive Vice President
New Business Developments
-6-
<PAGE>
STOCK SUBSCRIPTION AGREEMENT
STOCK SUBSCRIPTION AGREEMENT dated as of October 21, 1998, between
Guardian International, Inc., a Nevada corporation (the "Company"), and
Westar Security, Inc., a Kansas corporation (the "Purchaser").
RECITALS
1. Westar Capital, Inc., a Kansas corporation ("Westar Capital") and
affiliate of the Purchaser, acquired 2,500,000 shares (the "Acquired Common
Stock") of the Company's Class A Voting Common Stock, $.001 par value per
share (the "Common Stock") and 1,875,000 shares of the Company's Series A
9 3/4% Convertible Cumulative Preferred Stock, $.001 par value per share (the
"Series A Preferred Stock"), pursuant to the Stock Subscription Agreement
dated as of October 14, 1997 between Westar Capital and the Company (the
"Prior Subscription Agreement"). On November 24, 1997, Westar Capital
assigned its rights and obligations under the Prior Subscription Agreement,
and all of its right, title and interest in and to the Acquired Common Stock
and Series A Preferred Stock, to the Purchaser. The Purchaser later acquired
1,600,000 shares of Series B 10 1/2% Convertible Cumulative Preferred Stock,
$.001 par value per share (the "Series B Preferred Stock") pursuant to the
Stock Subscription Agreement dated as of February 23, 1998 between the
Company and the Purchaser. To date, the Company has issued 162,132 shares of
Series A Preferred Stock as PIK dividends on the Series A Preferred Stock and
104,232 shares of Series B Preferred Stock as PIK dividends on the Series B
Preferred Stock (collectively, the "PIK Shares"). From time to time, the
Purchaser has acquired in the open market, and as of the date hereof
currently owns, an aggregate of 480,000 shares of Common Stock (the "Open
Market Common Stock"). Collectively, the Open Market Common Stock, the
Acquired Common Stock, the Series A Preferred Stock, the Series B Preferred
Stock and the PIK Shares are hereinafter collectively referred to as the
"Exchange Securities."
2. The Purchaser desires to acquire from the Company, and the
Company wishes to sell to the Purchaser, a series of redeemable preferred
stock to be issued by the Company in exchange for the Exchange Securities, on
the terms and conditions set forth below.
3. In addition, the Purchaser desires to acquire from the Company,
and the Company wishes to sell to the Purchaser, a series of convertible
preferred stock to be issued by the Company for cash, on the terms and
conditions set forth below.
<PAGE>
AGREEMENT
1. AUTHORIZATION OF SECURITIES; PURCHASE PRICE.
1.1 REDEEMABLE PREFERRED STOCK. The Company has authorized the
issuance and sale to the Purchaser of 16,397 shares of Series C 7.00%
Redeemable Cumulative Preferred Stock, par value $.001 per share (the
"Redeemable Preferred"), for the surrender to the Company for cancellation of
the Exchange Securities. The Redeemable Preferred will have the terms and
conditions set forth in the Certificate of Designations attached hereto as
EXHIBIT A (the "Redeemable Preferred Certificate of Designations").
1.2 CONVERTIBLE PREFERRED STOCK. The Company has authorized the
issuance and sale to the Purchaser of 10,000 shares of Series D 6.00%
Convertible Cumulative Preferred Stock, par value $.001 per share (the
"Convertible Preferred" and together with the Redeemable Preferred, the
"Preferred Shares"), for an aggregate cash purchase price of $10,000,000 (the
"Cash Consideration"). The Convertible Preferred will have the terms and
conditions set forth in the Certificate of Designations attached hereto as
EXHIBIT B (the "Convertible Preferred Certificate of Designations," and
together with the Redeemable Preferred Certificate of Designations, the
"Certificates of Designations").
2. CLOSING. The Company will sell to the Purchaser and, subject to
the terms and conditions hereof, the Purchaser will purchase from the
Company, at the closing provided for in this Section 2, the Preferred Shares.
The closing of the sale and purchase of the Preferred Shares (the "Closing")
shall take place on the date hereof at the offices of the Company at 3880 N.
28th Terrace, Hollywood, Florida, 33020 or by mail if the parties agree,
unless otherwise agreed between the Purchaser and the Company. At the
Closing, the Company will deliver to the Purchaser one or more stock
certificates (as the Purchaser may designate), each dated the date of the
Closing (the "Closing Date") and duly registered in the Purchaser's name (or
in the name of any nominee the Purchaser designates to hold the Preferred
Shares for its account), representing (i) the Redeemable Preferred against
the surrender for cancellation to the Company of all certificates
representing the Exchange Securities together with stock powers duly executed
in blank, and (ii) the Convertible Preferred against the receipt of the Cash
Consideration from the Purchaser by wire transfer of immediately available
funds payable to the Company.
3. DELIVERIES AT CLOSING.
3.1 OPINIONS OF COUNSEL. The Purchaser shall have received an
opinion from Steel Hector & Davis LLP, counsel to the Company, dated the
Closing Date and substantially in the form of EXHIBIT C, and an opinion from
Lionel Sawyer & Collins, Nevada counsel to the Company, dated the Closing
Date in the form of EXHIBIT D. The Company shall have received an opinion
from Richard D. Terrill, Esq. and Renee T. Kingsley, Esq., counsel to the
Purchaser, dated the Closing Date and substantially in the form of EXHIBIT E.
-2-
<PAGE>
3.2 WAIVERS AND CONSENTS. All waivers and consents required to be
obtained by the Company in connection with the Closing shall be satisfactory
in substance and form to the Purchaser, including but not limited to the
consent of Heller Financial, Inc. ("Heller").
3.3 CORPORATE ACTION.
a. The Company shall have delivered to the Purchaser certified
copies of (a) the resolutions duly adopted by an independent committee (the
"Independent Committee") of the board of directors of the Company (the "Board
of Directors") comprised of directors who shall not be officers or employees
of the Company or its affiliates or of the Purchaser or its affiliates or
related by blood or marriage to or affiliated with any of Harold Ginsburg,
Sheilah Ginsburg, Richard Ginsburg or Rhonda Ginsburg (collectively, the
"Ginsburgs") and by the full board of directors of the Company authorizing
the execution, delivery and performance of this Agreement, the issuance and
sale of the Preferred Shares, the reservation for issuance upon conversion of
the Convertible Preferred of an aggregate of 6,000,000 shares of Common
Stock, and the consummation of all other transactions contemplated by this
Agreement, (b) the Articles of Incorporation (the "Articles") and Bylaws of
the Company, each as amended to date, (c) a certificate executed by an
officer of the Company confirming the incumbency of the Company's officers
and (d) such other items as reasonably requested by the Purchaser or its
counsel.
b. The Purchaser shall have delivered to the Company a
secretary's certificate confirming the authority of John W. Hesse,
Secretary/Treasurer of the Purchaser, to execute and deliver this Agreement,
all the agreements referenced herein and any instrument required to
consummate the sale and purchase of the Preferred Shares.
3.4 CERTIFICATES OF DESIGNATIONS. The Certificates of Designations
shall have been filed with the Secretary of State of the State of Nevada and
shall be in full force and effect under the laws of such state.
3.5 SURRENDER AND CANCELLATION OF EXCHANGE SECURITIES. The Purchaser
shall surrender for cancellation to the Company all certificates representing
the Exchange Securities, along with stock powers duly executed in blank. The
Certificate of Amendment to the Articles reflecting the cancellation of the
Series A Preferred Stock, the Series B Preferred Stock and the PIK Shares
shall be filed with the Secretary of State of the State of Nevada and shall
be in full force and effect under the laws of such state.
3.6 FAIRNESS OPINION. Raymond James & Associates, Inc. shall have
delivered a fairness opinion stating that the transactions contemplated
hereby are fair from a financial point of view to the shareholders of the
Company. The Company shall bear all costs associated with such fairness
opinion.
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3.7 OTHER AGREEMENTS.
(a) The Stockholders Agreement attached hereto as EXHIBIT F
(the "Stockholders Agreement") shall have been executed and delivered by the
Company, the Ginsburgs and the Purchaser, and the Stockholders Agreement
dated as of October 21, 1997 by and among the Company, Westar Capital and the
Ginsburgs shall have been terminated and of no further force and effect.
(b) The Registration Rights Agreement attached hereto as
EXHIBIT G (the "Registration Rights Agreement") shall have been executed and
delivered by the Company and the Purchaser, and the Registration Rights
Agreement dated October 21, 1997 between the Company and Westar Capital, as
amended by the Amendment to Registration Rights Agreement dated as of
February 23, 1998, shall have been terminated and of no further force and
effect.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants that:
4.1 ORGANIZATION; GOOD STANDING; VALID AND BINDING. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has all requisite corporate power and
authority to own and operate its properties, to carry on its business as now
conducted and proposed to be conducted, to enter into this Agreement, to
issue and sell the Preferred Shares, and to carry out the terms hereof. Each
of the Company's subsidiaries is duly organized, validly existing and in good
standing under the laws of its state of incorporation. Each of the Company
and its subsidiaries is duly qualified as a foreign corporation to do
business, and is in good standing in each jurisdiction where the character of
its properties owned or leased or the nature of its activities makes
qualification necessary, except where failure to so qualify would not
individually or in the aggregate have a material adverse effect on the
business, assets, liabilities, prospects, results of operations or condition,
financial or otherwise, of the Company and its subsidiaries, taken as a whole
("Material Adverse Effect"). The execution, delivery and performance of this
Agreement, the Stockholders Agreement, the Registration Rights Agreement and
all other agreements contemplated hereby to which the Company is a party have
been duly authorized by the Company. Each of such agreements has been duly
and validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, liquidation, moratorium,
receivership, conservatorship, readjustment of debts, fraudulent conveyance
or similar laws affecting the enforcement of creditors rights generally and
general equitable principles. The Preferred Shares have been duly authorized,
and when issued as contemplated by the Agreement, will be validly issued,
fully paid, non-assessable and entitled to the rights and privileges of the
applicable Certificate of Designations relating thereto. When shares of
Common Stock shall be issued pursuant to the terms of the Convertible
Preferred Certificate of
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Designations, such shares shall be duly authorized, validly issued, fully
paid and non-assessable shares of Common Stock.
4.2 INFORMATION FURNISHED; BUSINESS. The Company has furnished the
Purchaser with true and complete copies of (a) the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1997, as amended to date,
(b) any and all of the Company's Current Reports on Form 8-K which have been
filed with the Securities and Exchange Commission ("SEC") since December 31,
1997, (c) the Company's Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 1998 and June 30, 1998, as amended to date, (d) unaudited
financial statements for the quarter ended September 30, 1998 and (e) all
other reports and documents filed by the Company with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), since
January 1, 1998 (collectively, "SEC Documents"). The financial statements
contained in the SEC Documents have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
(except as stated in the notes thereto), and present fairly (consisting, in
the case of unaudited statements, only of normal recurring adjustments) the
financial condition of the Company as of their respective dates and the
results of operations and cash flows for the respective periods. Except as
disclosed in the SEC Documents or as set forth on Schedule 4.2, since January
1, 1998 there has been no Material Adverse Effect. Since January 1, 1998, the
Company has made all filings required to be made in compliance with the
Exchange Act, and such filings, as modified by subsequent reports filed
pursuant to the Exchange Act conformed in all material respects to the
requirements of the Exchange Act, and the rules and regulations of the SEC
thereunder, and such filings did not contain any untrue statement of a
material fact and did not omit to state any material fact necessary in order
to make the statements contained therein not misleading in light of the
circumstances under which such statements were made as of their respective
dates of filing.
4.3 LITIGATION. Except as disclosed on Schedule 4.3, there are no
actions, proceedings or investigations nor any judgment, decree, injunction,
rule, or order pending or threatened to which the Company or any of its
subsidiaries is a party or which question or affect the validity of this
Agreement, the Preferred Shares or any action taken or to be taken pursuant
hereto, or which might have, either in any case or in the aggregate, a
Material Adverse Effect, or in any liabilities on the part of the Company
which, either in any case or in the aggregate, are or might be material and
which liabilities have not been disclosed in the notes to the Company's
financial statements contained in the SEC Documents and adequately reserved
for on the Company's balance sheet at September 30, 1998.
4.4 COMPLIANCE WITH OTHER INSTRUMENTS. Except for consents and
approvals required to be obtained as set forth on Schedule 4.4, the
execution, delivery and performance of this Agreement, the Stockholders
Agreement, the Registration Rights Agreement and the other agreements
contemplated hereby, the issuance of the Preferred Shares and the application
of proceeds from the sale of the Convertible Preferred do not and will not
result in any violation of or be in conflict with or constitute (with or
without due notice or lapse of time or both) a default or result in an
adverse event under any term of the Articles of Incorporation, as amended
(the
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"Charter"), or By-Laws of the Company or its subsidiaries, or of any material
agreement, instrument, obligation, license, judgment, decree, order, statute,
rule or governmental regulation applicable to the Company or its
subsidiaries, its assets or properties or result in the imposition or
creation of any lien or encumbrance upon any asset or property of the Company
or its subsidiaries. The Company is not in violation of any term of its
Charter or By-Laws, or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation which is material to the business,
operations, prospects or affairs of the Company or its subsidiaries.
4.5 GOVERNMENTAL CONSENTS. Except for such consents, approvals,
authorizations, registrations or qualifications as are set forth on Schedule
4.5, neither the Company nor any of its subsidiaries is or will be required
to obtain any consent, approval or authorization of, or to make any
declaration or filing with, any governmental authority as a condition
precedent to the valid execution and delivery of this Agreement and the other
agreements contemplated hereby, and the valid offer, issue and delivery of
the Preferred Shares, including Blue Sky laws. Schedule 4.5 correctly sets
forth the names and jurisdictions of domicile of each subsidiary of the
Company.
4.6 CAPITAL STOCK. Schedule 4.6 correctly describes each class of
the authorized capital stock of the Company on the date hereof after giving
effect to the transactions contemplated hereby, including, as to each such
class, the number of shares thereof authorized and the number of shares
thereof issued and outstanding. Except as disclosed on schedule 4.6, all of
the outstanding shares of the Company are validly authorized and issued and
outstanding, fully paid and non-assessable and free of preemptive rights. The
Company and its subsidiaries do not have any outstanding securities
convertible into or exchangeable for capital stock and no outstanding
options, warrants or other rights to subscribe for or purchase, or agreements
for the purchase from or the issue or sale by the Company or its subsidiaries
of, capital stock, other than as set forth in such Schedule 4.6, which
correctly describes each such security, right or agreement and the number of
shares subject thereto, whether or not reserved for on the books of the
Company. Schedule 4.6 also sets forth all shares of capital stock reserved or
required for issuance pursuant to any employee benefit, stock option or other
similar plan.
4.7 DISCLOSURE. There is no fact known to the Company which
materially adversely affects the business, operations, affairs, prospects,
properties, assets or condition of the Company which has not been set forth
in this Agreement or in the schedules attached hereto. No representation or
warranty contained in this Agreement, the other agreements contemplated
hereby, or the Schedules hereto or thereto, or any officer's certificate
furnished hereunder or thereunder, at the date hereof, or at the Closing
Date, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
SEC Documents or as set forth on the Schedules attached hereto, since
September 30, 1998, the Company has conducted its business in the ordinary
course consistent with past practices in all material respects.
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4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 4.9 and in the SEC Documents, and except for liabilities incurred
after September 30, 1998 in the ordinary course of business and consistent
with past practices, the Company does not have any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of a nature required by
GAAP to be reflected in a consolidated balance sheet (or reflected in the
notes thereto).
4.10 NO DEFAULT. Except as set forth on Schedule 4.10 hereto,
neither the Company nor any of its subsidiaries is in violation, breach of,
or default under (and no event has occurred which with notice or the lapse of
time or both would constitute a violation, breach of, or default under) any
term, condition or provision of (i) any material note, bond, mortgage, deed
of trust, security interests, indenture, license, contract, agreement, plan
or other instrument or obligation to which the Company or any such subsidiary
is a party or by which the Company or any such subsidiary or any of their
respective properties or assets may be bound or affected, (ii) any order,
writ, injunction, decree, statute, rule or regulation applicable to the
Company, any subsidiary of the Company or any of their respective properties
or assets or (iii) any registration, license, permit or other consent or
approval of any governmental agency, except in each case for breaches,
defaults or violations which would not individually or in the aggregate have
a material adverse effect on the business, assets, liabilities, results of
operations or condition, financial or otherwise, of the Company and its
subsidiaries, taken as a whole.
4.11 NO GENERAL SOLICITATION. The Preferred Shares have not been
offered or sold by any form of general solicitation or general advertising
which would result in the violation of the federal securities laws or any
applicable state securities laws.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants that:
5.1 NO DISTRIBUTION. The Purchaser is acquiring the Preferred Shares
for its own account with the present intention of holding such securities for
purposes of investment, and it has no intention of selling such securities in
a public distribution in violation of the federal securities laws or any
applicable state securities laws. The Purchaser understands that the
Preferred Shares are "restricted securities" as defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), and have not been
registered pursuant to the provisions of the Securities Act, in as much as
the proposed purchase of the Preferred Shares is taking place in a
transaction not involving any public offering.
5.2 SOPHISTICATION. The Purchaser is knowledgeable, experienced and
sophisticated in financial and business matters and is able to evaluate the
risks and benefits of the investment in the Preferred Shares.
5.3 ECONOMIC RISK. The Purchaser is able to bear the economic risk
of its investment in the Preferred Shares for an indefinite period of time
because the Preferred Shares have not
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<PAGE>
been registered under the Securities Act and, therefore, cannot be sold
unless subsequently registered under the Securities Act or an exemption from
such registration is available.
5.4 ACCESS TO INFORMATION. The Purchaser has been furnished or
otherwise had full access to such other information concerning the Company
and its subsidiaries as it has requested and that was necessary to enable the
Purchaser to evaluate the merits and risks of an investment in the Company,
and after a review of this information, has had an opportunity to ask
questions and receive answers concerning the financial condition and business
of the Company and the terms and conditions of the securities purchased
hereunder, and has had access to and has obtained such additional information
concerning the Company and the securities as it deemed necessary. The
Purchaser has carefully reviewed the information furnished pursuant to
Section 4.2.
5.5 ACCREDITED INVESTOR. The Purchaser is an "accredited investor"
as defined in Rule 501(a) of Regulation D promulgated under the Securities
Act.
5.6 RESTRICTIVE LEGEND.
a. The Purchaser understands that the certificate(s)
representing the Preferred Shares (and any Common Stock issued upon
conversion of the Convertible Preferred or as dividends on the Preferred
Shares) will bear a restrictive legend thereon (the "Restrictive Legend") as
follows:
"The securities represented by this certificate have been acquired
directly or indirectly from the Company without being registered under
the Securities Act of 1933, as amended (the "Act"), or any other
applicable securities laws, and are restricted securities as that term
is defined under Rule 144 promulgated under the Act. These securities
may not be sold, pledged, transferred, distributed or otherwise
disposed of in any manner unless they are registered under the Act and
all other applicable securities laws, or unless the request for
transfer is accompanied by a favorable opinion of counsel, reasonably
satisfactory to the Company, stating that the transfer will not result
in a violation of the Act and all other applicable state securities
law."
b. REMOVAL OF RESTRICTIVE LEGEND. Subject to the provisions
of the Stockholders Agreement and this Section 5.6(b), Preferred Shares are
transferable in (i) a public offering registered under the Securities Act (a
"Public Offering"), (ii) in a transaction pursuant to Rule 144, or (iii) any
other legally available means of transfer under federal and state securities
laws. In connection with the transfer of any Preferred Shares pursuant to
subsections (ii) and (iii) above, a holder must first satisfy the following
conditions: (i) delivery of written notice to the Company describing in
reasonable detail the transfer or proposed transfer, (ii) together with a
favorable opinion of counsel which (to the Company's reasonable satisfaction)
is knowledgeable in securities laws matters stating that the transfer will
not result in a violation of the Act and all
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other applicable state securities law and that such transfer of Preferred
Shares may be effected without registration of such Preferred Shares under
the Securities Act. Upon satisfaction of such conditions to the reasonable
satisfaction of the Company, the holder shall submit certificates
representing the number of Preferred Shares to be so transferred to the
Company and the Company shall reissue certificates for such Preferred Shares
without the Restrictive Legend.
5.7 ADDITIONAL PURCHASER REPRESENTATIONS. The Purchaser is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. The execution, delivery and performance of
this Agreement, the Stockholders Agreement, the Registration Rights Agreement
and all other agreements contemplated hereby to which such Purchaser is a
party have been duly authorized by the Purchaser. Each of such agreements
constitutes a valid and binding obligation of the Purchaser, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
liquidation, moratorium, receivership, conservatorship, readjustment of
debts, fraudulent conveyance or similar laws affecting the enforcement of
creditors rights generally and general equitable principles. The Purchaser
has made or obtained all material third party and governmental filings,
consents and approvals to be made or obtained prior to the Closing by the
Purchaser in connection with the consummation of the transactions hereunder.
The execution and delivery by the Purchaser of the Agreement and the
fulfillment of and compliance with the respective terms thereof by the
Purchaser do not and shall not (a) conflict with or result in a breach of the
terms, conditions or provisions of, (b) constitute a default under or (c)
result in a violation of the organizational documents of the Purchaser or any
material agreement or instrument to which Purchaser is subject.
5.8 REPRESENTATIONS REGARDING EXCHANGE SECURITIES. The Purchaser has
good and marketable title to the Exchange Securities, free and clear of all
liens, encumbrances, claims, options or other agreements.
6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY THE COMPANY. In addition to all other sums
due hereunder or provided for in this Agreement and any other rights and
remedies available to Purchaser under applicable law, the Company agrees to
hold harmless and indemnify the Purchaser and all directors, officers and
controlling persons of the Purchaser (within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (individually referred to as an "Indemnified
Person") from and against any losses, claims, damages, costs and expenses,
and liabilities (including attorneys' fees and expenses of investigation)
incurred by each Indemnified Person pursuant to any action, suit, proceeding
or investigation against any one or more of the Company and such Indemnified
Person, and arising out of or in connection with a breach by the Company of
any agreement, representation, warranty, covenant or obligation contained in
this Agreement and any and all costs and expenses incurred by any Indemnified
Person in connection with the enforcement of its rights under this Agreement
and the other agreements contemplated hereby. The Company further agrees,
promptly upon demand by an Indemnified Person, from time to time, to
reimburse
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each Indemnified Person for, or pay, any loss, claim, damage, liability or
expense as to which the Company has indemnified the Indemnified Person
pursuant to this Agreement.
6.2 INDEMNIFICATION BY THE PURCHASER. In addition to all other sums
due hereunder or provided for in this Agreement, the Purchaser agrees to hold
harmless and indemnify the Company and all directors, officers and
controlling persons of the Company (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) (individually referred to
as an "Indemnified Person") from and against any losses, claims, damages,
costs and expenses and liabilities (including attorneys' fees and expenses of
investigation) incurred by each Indemnified Person pursuant to any action,
suit, proceeding or investigation against any one or more of the Purchaser
and such Indemnified Person, and arising out of or in connection with a
breach by the Purchaser of any agreement, representation, warranty, covenant
or obligation contained in this Agreement and any and all costs and expenses
incurred by any Indemnified Person in connection with the enforcement of its
rights under this Agreement. The Purchaser further agrees, promptly upon
demand by an Indemnified Person, from time to time, to reimburse each
Indemnified Person for, or pay, any loss, claim, damage, liability or expense
as to which the Purchaser has indemnified the Indemnified Person pursuant to
this Agreement.
6.3 PROCEDURE. Each Indemnified Person agrees to give prompt written
notice to the indemnifying party after the receipt by the Indemnified Person
of any written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such Indemnified
Person will claim indemnification or contribution pursuant to this Agreement,
provided that the failure of any Indemnified Person to give notice shall not
relieve the indemnifying party of its obligations except to the extent that
the indemnifying party is actually prejudiced by the failure to give notice.
If any such action is brought against an indemnified party, the indemnifying
party will be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party will not be liable
to such indemnified party for any legal or other expenses incurred by the
latter in connection with the defense thereof unless (i) in the reasonable
opinion of counsel for the indemnified party a conflict or potential conflict
of interest exists between the indemnified party and indemnifying party, (ii)
the indemnified party reasonably objects to such assumption on the basis that
there may be defenses available to it which are different from or in addition
to the defenses available to the indemnifying party, (iii) the indemnifying
party has failed to timely assume the defense of any such action or
proceeding or (iv) the indemnifying party and its counsel do not actively and
vigorously pursue the defense of such action, in the sole discretion of the
indemnified party. Whether or not such defense is assumed by the indemnifying
party, the indemnifying party will not be subject to any liability for any
settlement made without its consent. No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. An indemnifying party who elects not to assume the defense of an
action or where a potential conflict of interest or other defenses may able
available, shall
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not be obligated to pay the fees and expenses of more than one national
counsel and any local counsel where appropriate for all parties indemnified
by such indemnifying party with respect to such action, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such action. Cost and expenses incurred by the indemnified party
shall be reimbursed, from time to time, by the indemnifying party as and when
bills are received or expenses are incurred.
6.4 GROSS UP. Any payment required to be made under this Section 6
shall be increased so that the net amount retained by the Indemnified Person,
after deduction of any federal, state, local or foreign tax due thereon
(assuming a maximum effective total statutory tax rate), shall be equal to
the amount otherwise due.
7. EXCHANGE AND REPLACEMENT OF SECURITIES. Upon surrender of any
Preferred Share certificate by the Purchaser for exchange at the office of
the Company, the Company, at its expense (exclusive of applicable transfer
taxes or other similar taxes), will issue or cause to be issued, in exchange,
a new Preferred Share certificate in such denominations as may be requested
for the same number of Preferred Shares and registered as the Purchaser may
request. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Preferred Share certificate, upon
delivery of a written agreement of indemnity reasonably satisfactory to the
Company in form or amount, or, in the case of any such mutilation upon
surrender and cancellation thereof, the Company, at its expense, will issue
or cause to be issued a new Preferred Share certificate in replacement of
such lost, stolen, destroyed or mutilated Preferred Share certificate.
8. SURVIVAL. All agreements, representations and warranties
contained herein or made in writing by or on behalf of the Company or by or
on behalf of the Purchaser in connection with the transactions contemplated
hereby shall survive the execution and delivery of this Agreement, all
investigations made by Purchaser or on Purchaser's behalf, and the issuance
and delivery of the Preferred Shares.
9. NO BROKER. Each party hereto represents and warrants that it has
incurred no obligation or liability, contingent or otherwise, for brokerage
or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
10. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
hand delivered or sent by first class registered or certified mail (return
receipt requested), postage prepaid, to the respective addresses of the
Company and the Purchaser set forth below, unless subsequently changed by
written notice. Any notice shall be deemed to be effective when it is
received.
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To the Purchaser:
Westar Security, Inc.
6225 N. State Hwy 161, Ste. 400
Irving, Texas 75038
Attention: Chief Financial Officer
Phone: 972-916-6044
Fax: 972-916-6698
With a copy to:
Renee T. Kingsley, Esq.
Protection One, Inc.
6225 N. State Hwy 161, Ste. 400
Irving, Texas 75038
Phone: 972-916-6142
Fax: 972-916-6699
To the Company:
Guardian International, Inc.
3880 North 28th Terrace
Hollywood, Florida 33020-1118
Attention: Richard Ginsburg, President and Chief Executive Officer
Phone: 954-926-5200
Fax: 954-926-1822
With a copy to:
Harvey Goldman, Esq.
Steel Hector & Davis LLP
200 South Biscayne Boulevard
41st Floor
Miami, FL 33131-2398
Phone: 305-577-7011
Fax: 305-577-7001
11. COSTS AND EXPENSES. Whether or not the transactions contemplated
hereby close, each party will bear its own costs and expenses for due
diligence and for the preparation and negotiation of this Agreement and the
other agreements contemplated hereby. The Company agrees to pay, or cause to
be paid, all documentary and similar taxes levied under the laws of the
United States of America or any state or local taxing authority thereof or
therein in connection with the issuance and sale of the Preferred Shares and
the execution and delivery of the other
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documents contemplated hereby and any modification of any of such documents
and will hold the Purchaser harmless without limitation as to time against
any and all liabilities with respect to all such taxes.
12. MUTUAL COVENANTS. Each of the Company and Purchaser agrees to
promptly use its best efforts to secure such consents as may be necessary to
effect the transactions contemplated hereunder.
13. PRESS RELEASES. Simultaneously with the execution of this
Agreement, the parties hereto shall issue a press release in mutually
acceptable form (the "Press Release"). The parties hereto agree to consult
with each other prior to the release of any other press release regarding the
transactions contemplated herein, and no such other press release shall be
made unless it is mutually acceptable to the parties hereto, provided,
however, that information may be released in a press release without the
prior approval of the other party only if and only to the extent, in the
reasonable opinion of legal counsel to the releasing party, that the release
of such information in a press release is required by law. In any such event,
the non-releasing party shall receive no less than 24 hours prior written
notice of the release of any such information (which notice shall contain the
language to be released).
14. ASSIGNMENT, SUCCESSORS AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement, and any assignment will be
null and void, without the prior written consent of the other party, except
that the Purchaser may assign any of its rights under this Agreement to any
"affiliate" of the Purchaser as defined in Regulation D promulgated under the
Securities Act of 1933, as amended. This Agreement will apply to, be binding
in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any person other than the parties to this
Agreement any legal or equitable right, remedy or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all
of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
15. SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions
of this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable. In the
event any provision of this Agreement shall be held invalid, the parties
agree to enter into such further agreements as may be necessary in order to
carry out the intent and purposes of the parties herein.
16. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Florida without
regard to conflicts of law principles thereunder.
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17. ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may be not amended
except by a written agreement executed by the party to be charged with the
Amendment.
18. WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor the delay by any
party in exercising any right, power, or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such
right, power or privilege will preclude any other or further exercise of such
right, power or privilege or the exercise of any other right, power or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by any party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except
in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of an obligation of such
party or of the right of the party giving such notice or demand to take
further notice or demand as provided in this Agreement or the documents
referred to in this Agreement.
19. SECTION HEADINGS; COUNTERPARTS. The headings in this Agreement
are for purposes of reference only and shall not limit or otherwise affect
the meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
20. DISPUTE RESOLUTION. Any dispute arising from, relating to, or in
connection with the matters contained herein shall be resolved in accordance
with procedures set forth in EXHIBIT H hereto.
21. USE OF PROCEEDS. The Company agrees that it will use the Cash
Consideration for the following purposes: (i) repayment of amounts due and
owing from time to time to Heller pursuant to the Second Amended and Restated
Loan and Security Agreement with Heller dated as of February 23, 1998; (ii)
for working capital purposes; (iii) for acquisitions, whether of accounts,
assets or of other companies; and (iv) for the repurchase by the Company in
the open market of Common Stock from time to time as market conditions
warrant within the sole discretion of the Independent Committee; provided,
however, that the Board of Directors shall have full and unfettered
discretion as to the timing and amount of such use of proceeds, and provided,
further, however, that in no event shall in excess of 10% of the cash
proceeds (i) from the issuance of the Convertible Preferred Stock pursuant to
this Agreement, or (ii) from issuances in the future of additional shares of
the series of Convertible Preferred Stock, be used for open market purchases
described in subsection (iv) above.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on their behalf as of the date first written above.
GUARDIAN INTERNATIONAL, INC.
By: /s/ Richard Ginsburg
-------------------------------------------
Richard Ginsburg,
President and Chief Executive Officer
WESTAR SECURITY, INC.
By: /s/ John W. Hesse
---------------------------------------
Name: John W. Hesse
-------------------------------------
Its: Secretary and Treasurer
--------------------------------------
-15-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROTECTION ONE ALARM MONITORING, INC.,
as Issuer,
PROTECTION ONE, INC.,
and
THE OTHER GUARANTORS LISTED
ON THE SIGNATURE PAGES HERETO,
as Guarantors
8 1/8% SENIOR SUBORDINATED NOTES DUE 2009
--------------
INDENTURE
Dated as of December 21, 1998
--------------
THE BANK OF NEW YORK,
as Trustee
--------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
<S> <C>
310(a)(1) . . . . . . . . . . . . . . 7.07
(b) . . . . . . . . . . . . . . . 7.04; 7.08
311 . . . . . . . . . . . . . . . . . 7.04
312(a) . . . . . . . . . . . . . . . 2.04
(b) . . . . . . . . . . . . . . . 13.01; 13.04
(c) . . . . . . . . . . . . . . . 13.02; 13.04
313(a) . . . . . . . . . . . . . . . 13.02
(c) . . . . . . . . . . . . . . . 7.06; 13.03
314(a) . . . . . . . . . . . . . . . 4.11; 13.06
(e) . . . . . . . . . . . . . . . 13.06
315(a) . . . . . . . . . . . . . . . 7.02
(b) . . . . . . . . . . . . . . . 7.02
(c) . . . . . . . . . . . . . . . 7.02
(d) . . . . . . . . . . . . . . . 7.02
(e) . . . . . . . . . . . . . . . 7.08
316(a) . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . 13.15
318(c) . . . . . . . . . . . . . . . 12.01
</TABLE>
* This Cross Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . . . . . . . . . .1
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . 24
Section 1.03. Incorporation by Reference of Trust Indenture Act. . . . . . . 25
Section 1.04. Rules of Construction. . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 2THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.01. Form and Dating. . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.02. Restrictive Legends. . . . . . . . . . . . . . . . . . . . . . 27
Section 2.03. Execution, Authentication and Denominations. . . . . . . . . . 29
Section 2.04. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . 30
Section 2.05. Paying Agent to Hold Money in Trust. . . . . . . . . . . . . . 31
Section 2.06. Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . 32
Section 2.07. Book-Entry Provisions for Global Notes . . . . . . . . . . . . 32
Section 2.08. Special Transfer Provisions. . . . . . . . . . . . . . . . . . 35
Section 2.09. Replacement Notes. . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.10. Outstanding Notes. . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.11. Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . 39
Section 2.12. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 2.13. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 2.14. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 3REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.02. Selection of Notes to Be Redeemed. . . . . . . . . . . . . . . 40
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . 41
Section 3.04. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . 42
Section 3.05. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . 42
Section 3.06. Optional Redemption. . . . . . . . . . . . . . . . . . . . . . 42
Section 3.07. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 4COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.01. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.02. Maintenance of Office or Agency. . . . . . . . . . . . . . . . 43
Section 4.03. Compliance Certificate . . . . . . . . . . . . . . . . . . . . 44
Section 4.04. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.05. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . 44
(i)
<PAGE>
Section 4.06. Limitation on Incurrence of Additional Indebtedness. . . . . . 45
Section 4.07. Limitation on Senior Subordinated Debt . . . . . . . . . . . . 45
Section 4.08. Limitation on Restricted Payments. . . . . . . . . . . . . . . 46
Section 4.09. Limitation on Asset Sales. . . . . . . . . . . . . . . . . . . 48
Section 4.10. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.11. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.12. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . 50
Section 4.13. Offer to Repurchase upon Change of Control . . . . . . . . . . 51
Section 4.14. Money for Payments to Be Held in Trust . . . . . . . . . . . . 52
Section 4.15. Officer Certificate as to Events of Default. . . . . . . . . . 53
Section 4.16. Fall-Away Event. . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 5SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.01. Merger, Consolidation, or Sale of Assets . . . . . . . . . . . 54
Section 5.02. Successor Person Substituted.. . . . . . . . . . . . . . . . . 55
ARTICLE 6DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.02. Acceleration.. . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.03. Collection of Indebtedness and Suits for Enforcement by
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.04. Trustee May File Proofs of Claim.. . . . . . . . . . . . . . . 58
Section 6.05. Trustee May Enforce Claims Without Possession of Notes.. . . . 59
Section 6.06 Application of Money Collected.. . . . . . . . . . . . . . . . 59
Section 6.07. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . 60
Section 6.08. Unconditional Right of Holders to Receive Principal,
Premium and Interest.. . . . . . . . . . . . . . . . . . . . . 60
Section 6.09. Restoration of Rights and Remedies.. . . . . . . . . . . . . . 61
Section 6.10. Rights and Remedies Cumulative.. . . . . . . . . . . . . . . . 61
Section 6.11. Delay or Omission Not Waiver.. . . . . . . . . . . . . . . . . 61
Section 6.12. Control by Holders.. . . . . . . . . . . . . . . . . . . . . . 61
Section 6.13. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . 62
ARTICLE 7TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.01. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.02. Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . 63
Section 7.03. Trustee Not Responsible for Recitals or Issuance of
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.04. May Hold Notes.. . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.05. Money Held in Trust. . . . . . . . . . . . . . . . . . . . . . 65
Section 7.06. Compensation and Reimbursement.. . . . . . . . . . . . . . . . 65
Section 7.07. Corporate Trustee Required; Eligibility; Conflicting
Interest.. . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.08. Resignation and Removal; Appointment of Successor. . . . . . . 67
Section 7.09. Acceptance of Appointment by Successor.. . . . . . . . . . . . 68
(ii)
<PAGE>
Section 7.10. Merger, Conversion, Consolidation or Succession to
Business.. . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.11. Appointment of Authenticating Agent. . . . . . . . . . . . . . 69
ARTICLE 8DEFEASANCE AND COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . . 71
Section 8.01. Option to Effect Defeasance or Covenant Defeasance . . . . . . 71
Section 8.02. Defeasance and Discharge.. . . . . . . . . . . . . . . . . . . 71
Section 8.03. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . 72
Section 8.04. Conditions to Defeasance or Covenant Defeasance. . . . . . . . 72
Section 8.05. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions. . . . . . . . . 74
Section 8.06. Repayment to Company.. . . . . . . . . . . . . . . . . . . . . 74
Section 8.07. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE 9AMENDMENTS AND SUPPLEMENTS TO THE INDENTURE . . . . . . . . . . . . . . . 75
Section 9.01. Without Consent of Holders.. . . . . . . . . . . . . . . . . . 75
Section 9.02. With Consent of Holders. . . . . . . . . . . . . . . . . . . . 76
Section 9.03. Execution of Amendments and Supplements. . . . . . . . . . . . 77
Section 9.04. Effect of Amendments and Supplements.. . . . . . . . . . . . . 77
Section 9.05. Conformity with Trust Indenture Act. . . . . . . . . . . . . . 77
Section 9.06. Reference in Notes to Amendments and Supplements.. . . . . . . 77
ARTICLE 10NOTE GUARANTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 10.01. Note Guarantee.. . . . . . . . . . . . . . . . . . . . . . . . 78
Section 10.02. Obligations Unconditional. . . . . . . . . . . . . . . . . . . 80
Section 10.03. Guarantors May Consolidate, Etc., on Certain Terms.. . . . . . 80
Section 10.04. Notice to Trustee. . . . . . . . . . . . . . . . . . . . . . . 81
Section 10.05. Execution and Delivery of Note Guarantee.. . . . . . . . . . . 81
Section 10.06. Additional Guarantors. . . . . . . . . . . . . . . . . . . . . 82
ARTICLE 11SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . 82
Section 11.01. Satisfaction and Discharge.. . . . . . . . . . . . . . . . . . 82
Section 11.02. Application of Trust Money.. . . . . . . . . . . . . . . . . . 83
Section 11.03. Repayment of Trust Money.. . . . . . . . . . . . . . . . . . . 83
ARTICLE 12MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 12.01. Trust Indenture Act Controls.. . . . . . . . . . . . . . . . . 84
Section 12.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE 13HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY. . . . . . . . . . . . 85
Section 13.01. Disclosure of Names and Addresses of Holders.. . . . . . . . . 85
Section 13.02. Reports by Trustee.. . . . . . . . . . . . . . . . . . . . . . 85
Section 13.03. Reports by Company.. . . . . . . . . . . . . . . . . . . . . . 86
(iii)
<PAGE>
Section 13.04. Communication by Holders of Notes with Other Holders of
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 13.05. Certificate and Opinion as to Conditions Precedent.. . . . . . 87
Section 13.06. Statements Required in Certificate or Opinion. . . . . . . . . 87
Section 13.07. Rules by Trustee and Agents. . . . . . . . . . . . . . . . . . 88
Section 13.08. No Personal Liability of Directors, Officers, Employees
and Stockholders.. . . . . . . . . . . . . . . . . . . . . . . 88
Section 13.09. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 13.10. No Adverse Interpretation of Other Agreements. . . . . . . . . 88
Section 13.11. Successors.. . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 13.12. Severability.. . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 13.13. Counterpart Originals. . . . . . . . . . . . . . . . . . . . . 89
Section 13.14. Table of Contents, Headings, Etc.. . . . . . . . . . . . . . . 89
Section 13.15. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . 89
Section 13.16. Legal Holidays.. . . . . . . . . . . . . . . . . . . . . . . . 90
Section 13.17. Benefits of Indenture. . . . . . . . . . . . . . . . . . . . . 91
ARTICLE 14SUBORDINATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 14.01. Notes Subordinated to Senior Indebtedness . . . . . . . . . . 91
Section 14.02. No Payment on Notes in Certain Circumstances. . . . . . . . . 91
Section 14.03. Payment over of Proceeds upon Dissolution, Etc. . . . . . . . 93
Section 14.04. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 14.05. Obligations of Company Unconditional. . . . . . . . . . . . . 96
Section 14.06. Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . 96
Section 14.07. Reliance on Judicial Order or Certificate of
Liquidating Agent . . . . . . . . . . . . . . . . . . . . . . 97
Section 14.08. Trustee's Relation to Senior Indebtedness . . . . . . . . . . 98
Section 14.09. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness. . . . . . . 98
Section 14.10. Holders Authorize Trustee to Effectuate Subordination
of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 14.11. Not to Prevent Events of Default. . . . . . . . . . . . . . . 99
Section 14.12. Trustee's Compensation Not Prejudiced . . . . . . . . . . . . 99
Section 14.13. No Waiver of Subordination Provisions . . . . . . . . . . . . 99
Section 14.14. Payments May Be Paid Prior to Dissolution . . . . . . . . . . 99
Section 14.15. Consent of Holders of Senior Indebtedness Under the
Senior Credit Facility. . . . . . . . . . . . . . . . . . . .100
Section 14.16. Trust Moneys Not Subordinated . . . . . . . . . . . . . . . .100
Section 14.17. Notice to Representative of Designated Senior
Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . .100
ARTICLE 15 SUBORDINATION OF NOTE GUARANTEES. . . . . . . . . . . . . . . . . . . .101
Section 15.01. Note Guarantees Subordinated to Guarantor Senior
Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . .101
Section 15.02. No Payment on Note Guarantees in Certain Circumstances. . . .101
Section 15.03. Payment over of Proceeds upon Dissolution, Etc. . . . . . . .103
Section 15.04. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . .105
(iv)
<PAGE>
Section 15.05. Obligations of Guarantor Unconditional. . . . . . . . . . . .105
Section 15.06. Notice to Trustee . . . . . . . . . . . . . . . . . . . . . .106
Section 15.07. Reliance on Judicial Order or Certificate of
Liquidating Agent . . . . . . . . . . . . . . . . . . . . . .106
Section 15.08. Trustee's Relation to Guarantor Senior Indebtedness . . . . .107
Section 15.09. Subordination Rights Not Impaired by Acts or Omissions
of a Guarantor or Holders of Guarantor Senior
Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . .107
Section 15.10. Holders Authorize Trustee to Effectuate Subordination
of Note Guarantees. . . . . . . . . . . . . . . . . . . . . .107
Section 15.11. Not to Prevent Events of Default. . . . . . . . . . . . . . .108
Section 15.12. Trustee's Compensation Not Prejudiced . . . . . . . . . . . .108
Section 15.13. No Waiver of Subordination Provisions . . . . . . . . . . . .108
Section 15.14. Payments May Be Paid Prior to Dissolution . . . . . . . . . .109
Section 15.15. Consent of Holders of Guarantor Senior Indebtedness
Under the Senior Credit Facility. . . . . . . . . . . . . . .109
Section 15.16. Notice to Representative of Designated Guarantor
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . .109
</TABLE>
(v)
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
</TABLE>
(vi)
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
</TABLE>
(vii)
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
</TABLE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE
Exhibit C FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
TRANSFERS TO NON-QIB ACCREDITED INVESTOR
Exhibit D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
TRANSFERS PURSUANT TO REGULATION S
Exhibit E FORM OF NOTE GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
(viii)
<PAGE>
INDENTURE dated as of December 21, 1998 among Protection One Alarm
Monitoring, Inc., a Delaware corporation (the "Company"), the Guarantors and
The Bank of New York, a New York banking corporation, as trustee (the
"Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 8 1/8% Senior Subordinated Notes due 2009 (the "Initial Notes") and the
8 1/8% Senior Subordinated Notes due 2009 to be issued in connection with
Exchange Offer (the "Exchange Notes" and, together with the Initial Notes,
the "Notes"):
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be a
part of and to govern indentures qualified under the Trust Indenture Act of
1939, as amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal
and proportionate benefit of all Holders, as follows.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article 1 have the meanings
assigned to them in this Article 1 and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the SEC adopted under the
Trust Indenture Act;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting
<PAGE>
principles" with respect to any computation required or permitted
hereunder shall mean such accounting principles as are generally
accepted at the date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
or at the time it merges or consolidates with Parent Guarantor or any of its
Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and not incurred by such Person in connection with,
or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary or such acquisition, merger or consolidation.
"Act", when used with respect to any Holder, has the meaning specified
in Section 14.15.
"Additional Interest" means additional interest then owing on the Notes
pursuant to Section 2(d) of the Registration Rights Agreement.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Parent Guarantor 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 accounting for acquisitions in conformity with GAAP),
after deducting therefrom (i) all current liabilities of the Parent Guarantor
and its Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recent
quarterly or annual consolidated balance sheet of the Parent Guarantor and
its Restricted Subsidiaries, prepared in conformity with GAAP and filed with
the SEC or provided to the Trustee.
"Adjusted Treasury Rate" means with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.50%.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, Co-Registrar, Paying Agent or
authenticating agent.
<PAGE>
3
"Asset Acquisition" means (i) any transaction pursuant to which any
Person shall become a Restricted Subsidiary or shall be consolidated or
merged with Parent Guarantor or any Restricted Subsidiary or (ii) the
acquisition by Parent Guarantor or any Restricted Subsidiary of assets of any
Person comprising a division or line of business of such Person.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by Parent Guarantor or any of
its Restricted Subsidiaries to any Person other than Parent Guarantor or any
of its Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Restricted Subsidiary owned by Parent Guarantor or any Restricted Subsidiary,
(ii) all or substantially all of the property and assets of an operating unit
or business of Parent Guarantor or any of its Restricted Subsidiaries or
(iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary or in any Affiliate of Parent
Guarantor not controlled, directly or indirectly, by Parent Guarantor) of
Parent Guarantor or any of its Restricted Subsidiaries outside the ordinary
course of business of Parent Guarantor or such Restricted Subsidiary and, in
each case, that is not governed by the provisions of this Indenture
applicable to mergers, consolidations and sales of assets of Parent
Guarantor; PROVIDED that "Asset Sale" shall not include (a) sales, transfers
or other dispositions of inventory, receivables, equipment leases, capital
lease obligations and other current assets, (b) sales, transfers or other
dispositions of assets constituting a Restricted Payment permitted to be made
under Section 4.08, (c) bona fide sales, transfers or other dispositions of
assets for consideration (including cash equalization payments) at least
equal to the fair market value (as determined by the Board of Directors of
Parent Guarantor) of the assets sold, transferred or disposed of, to the
extent that the consideration received would satisfy clause (i)(B) of Section
4.09(b), (d) sales or other dispositions of delinquent accounts receivable
for collection in the ordinary course of business, (e) sales or other
dispositions of obsolete assets or assets no longer useful in the conduct of
Parent Guarantor's or such Restricted Subsidiary's business, (f) sales or
other dispositions resulting from any casualty or condemnation of property,
(g) licenses and sublicenses of intellectual property and general intangibles
and licenses, leases or subleases in the ordinary course of business, or (h)
sales or other dispositions of assets in any given fiscal year in an amount
less than or equal to $5 million.
"Authenticating Agent" means any Person authorized by the Trustee to act
on behalf of the Trustee to authenticate Notes as specified in Section 2.02.
"Authorized Newspaper" means a newspaper, in the English language,
customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays, and of general circulation in The City of New
York. Where successive publications are required to be made in Authorized
Newspapers, the successive publications may be made in the same or
<PAGE>
4
in different newspapers in The City of New York meeting the foregoing
requirements and in each case on any Business Day.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" or "board of directors" means, as to any Person,
either the board of directors of such Person, or any duly authorized
committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors (or a committee of the Board of Directors empowered
to adopt such resolution) and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Business Day" means any day (other than a day which is a Saturday,
Sunday or legal holiday in the state of New York) on which banks are open for
business in New York, New York.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated) of capital stock of such Person and (ii)
with respect to any Person that is not a corporation, any and all partnership
or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligation
of such Person to pay rent or other amounts under a lease to which such
Person is a party that is required to be classified and accounted for as a
capital lease obligation under GAAP, and for purposes of this definition, the
amount of such obligation at any date shall be the capitalized amount of such
obligation at such date, determined in accordance with GAAP.
"Cedel" means Cedel Bank, SA or its successors.
"Change of Control" means (i) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Exchange Act), other than the Principal and its Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more
than 50% of the Voting Stock of Parent Guarantor or the Company (measured by
voting power rather than number of shares) or (ii) the first day on which a
majority of the members of the Board of Directors of Parent Guarantor or the
Company are not Continuing Directors.
"Change of Control Triggering Event" means the occurrence of both a
Change of Control and a Rating Decline.
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5
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement.
"Company" means Protection One Alarm Monitoring, Inc., and any and all
successors thereto.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chief Executive Officer, its President,
its Chief Financial Officer, any Vice President, its Treasurer or any Assistant
Treasurer, its Secretary or any Assistant Secretary and delivered to the
Trustee.
"Comparable Treasury Issue" means the United States Treasury Security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
Notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the
Reference Treasury Dealer Quotations for such redemption date, after excluding
the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if
the Trustee obtains fewer than three such Reference Treasury Dealer Quotations,
the average of all such Quotations.
"Conditional Redemption" means a redemption pursuant to a notice of
redemption that provides that such redemption is subject to the occurrence of
any event before the date fixed for such redemption as described in such notice
of redemption.
"Consolidated EBITDA" means, for any period, the net income of Parent
Guarantor and its Restricted Subsidiaries for such period plus, to the extent
such amount was deducted in calculating such net income (i) Consolidated
Interest Expense, (ii) income taxes, (iii) depreciation expense, (iv)
amortization expense, (v) all other non-cash items, extraordinary items,
nonrecurring and unusual items and cumulative effects of changes in accounting
principles reducing such net income, less all non-cash items, extraordinary
items, nonrecurring and unusual items and cumulative effects of changes in
accounting principles increasing such net income, all as determined on a
consolidated basis for Parent Guarantor and its Restricted Subsidiaries in
<PAGE>
6
conformity with GAAP, (vi) upfront expenses resulting from equity offerings,
investments, mergers, recapitalizations, option buyouts, Dispositions, Asset
Acquisitions and similar transactions to the extent such expenses reduce net
income and (vii) gains or losses on Dispositions; PROVIDED that Consolidated
EBITDA shall not include (x) the net income (or net loss) of any Person that is
not a Restricted Subsidiary, except (I) with respect to net income, to the
extent of the amount of dividends or other distributions actually paid to Parent
Guarantor or any of its Restricted Subsidiaries by such Person during such
period and (II) with respect to net losses, to the extent of the amount of
investments made by Parent Guarantor or any Restricted Subsidiary in such Person
during such period; (y) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (iii) of Section 4.08(a)
(and in such case, except to the extent includable pursuant to clause (x)
above), the net income (or net loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with Parent
Guarantor or any Restricted Subsidiary or all or substantially all of the
property and assets of such Person are acquired by Parent Guarantor or any of
its Restricted Subsidiaries; and (z) the net income of any Restricted Subsidiary
(other than the Company) to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such net
income is not at the time permitted by the operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary (other than any
agreement or instrument evidencing Indebtedness or Preferred Stock outstanding
on the Issue Date or incurred or issued thereafter without violation of this
Indenture; PROVIDED that the terms of any such agreement restricting the
declaration and payment of dividends or similar distributions apply only in the
event of a default with respect to a financial covenant or a covenant relating
to payment (beyond any applicable period of grace) contained in such agreement
or instrument and PROVIDED such terms are determined by Parent Guarantor to be
customary in comparable financings and such restrictions are determined by
Parent Guarantor not to materially affect the Company's ability to make
principal or interest payments on the Notes when due).
"Consolidated Interest Expense" means, with respect to Parent Guarantor for
any period, without duplication, the sum of (i) the interest expense of such
Person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount (other than discount arising solely as a
result of the Incurrence of Indebtedness that is part of an investment unit
together with one or more additional securities), (b) the net cost under
Interest Swap Agreements (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit,
bankers' acceptance financing or similar facilities and (e) all accrued interest
and (ii) the interest component of Capitalized Lease Obligations paid or accrued
by such Person and its Restricted Subsidiaries during such period as determined
on a consolidated basis in accordance with GAAP; EXCLUDING, HOWEVER, (x) any
amount of such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded in the calculation of Consolidated EBITDA
<PAGE>
7
pursuant to clause (z) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Consolidated EBITDA pursuant to clause (z) of the definition
thereof) and (y) the amortization of deferred financing costs related to the
issuance of the Notes or to the funding of the Senior Credit Facility, all as
determined on a consolidated basis for the Parent Guarantor and its Restricted
Subsidiaries in conformity with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Parent Guarantor or the Company, as applicable,
who (i) was a member of such Board of Directors on the date of this Indenture or
(ii) was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Convertible Notes" means the Company's 63/4% Convertible Subordinated
Notes due 2003.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Custodian" means the Trustee, as custodian with respect to the Notes in
global form, or any successor entity thereto.
"Debt" means notes, bonds, debenture or other similar evidence of
indebtedness for money borrowed.
"Debt Rating" shall mean the rating assigned to the Notes by Moody's or
S&P, as the case may be.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees, and their
respective successors.
"Designated Guarantor Senior Indebtedness" means (i) all Obligations
guaranteed by a Guarantor under the Senior Credit Facility and (ii) any other
Guarantor Senior Indebtedness of the Guarantor which, at the date of
determination, has an aggregate principal amount outstanding
<PAGE>
8
of, or under which, at the date of determination, the holders thereof are
committed to lend up to, at least $35.0 million and is specifically
designated by the Company in the instrument evidencing or governing such
Guarantor Senior Indebtedness as "Designated Guarantor Senior Indebtedness"
for purposes of this Indenture.
"Designated Senior Indebtedness" means (i) all Obligations under the Senior
Credit Facility and (ii) any other Senior Indebtedness of the Company which, at
the date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed to
lend up to, at least $35.0 million and is specifically designated by the Company
in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of this Indenture.
"Discount Notes" means the Company's 135/8% Senior Subordinated Discount
Notes due 2005.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, or transfer, lease, conveyance
or other disposition of all or substantially all of such Person's assets or
Capital Stock.
"Disqualified Capital Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control if such Capital Stock requires that
the Change of Control Offer with respect to the Notes be completed prior to any
similar offer being made with respect to such Capital Stock), in whole or in
part, on or prior to the final maturity date of the Notes; PROVIDED, HOWEVER,
that only the portion of Capital Stock which so matures or is mandatorily
redeemable or is so redeemable at the sole option of the holder thereof prior to
the final maturity date of the Notes shall be deemed Disqualified Capital Stock.
"Domestic Subsidiary" means a subsidiary organized under the laws of one of
the states of the United States or the District of Columbia.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Excess Proceeds" means the amount of such Net Cash Proceeds required to be
applied (or to be committed to be applied) during the period specified in
Section 4.09(b)(i) and not applied as so required by the end of such period.
<PAGE>
9
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"GAAP" means generally accepted accounting principles in the United States
of America, including 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 the SEC 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 this Indenture shall be computed in
conformity with GAAP as in effect on the date of this Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, the
Senior Indebtedness of such Guarantor.
"Guarantors" means Protection One, Inc., a Delaware corporation ("Parent
Guarantor"), the Subsidiaries named on the signature pages of this Indenture,
and each other Person that executes a Note Guarantee in accordance with the
provisions of this Indenture, and their respective successors and assigns.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means with respect to any Person, without duplication, any
liability of such Person (i) for borrowed money, (ii) evidenced by bonds,
debentures, notes or other similar instruments, (iii) constituting Capitalized
Lease Obligations, (iv) incurred or assumed as the deferred purchase price of
property or services, or pursuant to conditional sale obligations and title
retention agreements (but excluding trade accounts payable arising in the
ordinary course of business), (v) for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi) for
Indebtedness of others guaranteed by such Person, (vii) for Interest Swap
Agreements, Commodity Agreements and Currency Agreements and (viii) for
<PAGE>
10
Indebtedness of any other Person of the type referred to in clauses (i) through
(vii) which is secured by any Lien on any property or asset of such first
referred to Person, the amount of such Indebtedness being deemed to be the
lesser of the value of such property or asset or the amount of the Indebtedness
so secured. The amount of Indebtedness of any Person at any date shall be (i)
the outstanding principal amount of all unconditional obligations described
above, as such amount would be calculated in accordance with GAAP, (ii) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount and (iii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Independent Investment Banker" means the Reference Treasury Dealers
appointed by the Trustee after consultation with the Company.
"Initial Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Interest Coverage Ratio" means, on any date, the ratio of (i) the
Consolidated EBITDA for the then most recently completed fiscal quarter prior to
such date for which reports have been filed with the SEC or provided to the
Trustee (the "Quarter") to (ii) the aggregate Consolidated Interest Expense
during such Quarter. In making the foregoing calculation, (A) PRO FORMA effect
shall be given to any Indebtedness Incurred or repaid during the period (the
"Reference Period") commencing on the first day of the Quarter and ending on the
date of calculation (other than (i) Indebtedness Incurred or repaid under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement) in
effect on the last day of such Quarter unless any portion of such Indebtedness
is projected, in the reasonable judgment of the senior management of the
Company, to remain outstanding for a period in excess of 12 months from the date
of the Incurrence thereof and (ii) Permitted Indebtedness incurred on the date
of calculation), in each case as if such Indebtedness had been Incurred or
repaid on the first day of such Reference Period; (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 date of calculation (taking
into account any Interest Swap Agreement applicable to such Indebtedness if such
Interest Swap Agreement has a remaining term in excess of 12 months or, if
shorter, at least equal to the remaining term of such Indebtedness) had been the
applicable rate for the entire period; (C) PRO FORMA effect shall be given to
Asset Sales and Asset Acquisitions (including giving PRO FORMA effect to the
application of proceeds of any Asset Sales to any discharge or other relief from
Indebtedness to which Parent Guarantor and the Restricted Subsidiaries are not
liable following such Asset Sale and for cost savings resulting in connection
<PAGE>
11
with an Asset Acquisition as anticipated in good faith to be realized within the
next 12 months whether or not such cost savings could then be reflected in pro
forma financial statements under GAAP, Regulation S-X promulgated by the SEC or
any other regulation or policy of the SEC; PROVIDED, HOWEVER, that such cost
savings were identified and quantified in good faith in an Officer's Certificate
delivered to the Trustee contemporaneously with the relevant calculation of the
Interest Coverage Ratio) that occur during such Reference Period as if they had
occurred and such proceeds had been applied on the first day of such Reference
Period; and (D) PRO FORMA effect shall be given to asset sales and asset
acquisitions (including giving PRO FORMA effect to the application of proceeds
of any asset sale to any discharge or other relief from Indebtedness to which
Parent Guarantor and the Restricted Subsidiaries are not liable following such
asset sale and for cost savings resulting in connection with an asset
acquisition as anticipated in good faith to be realized within the next 12
months whether or not such cost savings could then be reflected in pro forma
financial statements under GAAP, Regulation S-X promulgated by the SEC or any
other regulation or policy of the SEC; PROVIDED, HOWEVER, that such cost savings
were identified and quantified in good faith in an Officer's Certificate
delivered to the Trustee contemporaneously with the relevant calculation of the
Interest Coverage Ratio) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into Parent Guarantor or any
Restricted Subsidiary during such Reference Period and that would have
constituted Asset Sales or Asset Acquisitions had such transactions occurred
when such Person was a Restricted Subsidiary as if such asset sales or asset
acquisitions were Asset Sales or Asset Acquisitions that occurred on the first
day of such Reference Period; PROVIDED that to the extent that clause (C) or (D)
of this sentence requires that PRO FORMA effect be given to an Asset Acquisition
or Asset Sales, such PRO FORMA calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the Person, or
division or line of business of the Person, that is acquired or disposed for
which financial information is available.
"Interest Swap Agreements" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers or suppliers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable, prepaid expenses or deposits on the balance sheet of Parent
Guarantor or its Restricted Subsidiaries) 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 of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by,
such Person and shall include (i) the designation of a Restricted Subsidiary as
an Unrestricted Subsidiary and (ii) the retention of the Capital Stock (or any
other Investment) by Parent Guarantor or any of its Restricted Subsidiaries, of
(or in) any Person that has ceased to be a Restricted Subsidiary. For purposes
of the definition
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12
of "Unrestricted Subsidiary" and Section 4.08, the amount of or a reduction
in an Investment shall be equal to the fair market value thereof at the time
such Investment is made or reduced.
"Investment Grade Status" exists as of a date and thereafter if at such
date either (i) the Debt Rating of Moody's is at least Baa3 (or the equivalent)
or higher or (ii) the Debt Rating of S&P is at least BBB- (or the equivalent) or
higher.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means, with respect to any asset, any lien, mortgage, deed of trust,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
"Lifeline Merger" means the transaction contemplated by the agreement
between the Company and Lifeline Systems, Inc. ("Lifeline"), pursuant to which
the Company shall acquire Lifeline for approximately $191 million in cash and
common stock of the Parent Guarantor.
"Maturity", when used with respect to any Notes, means the date on which
the principal of such Notes or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption, notice of option to elect
repayment or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"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 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 (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of Parent Guarantor and its Restricted Subsidiaries, taken as a
whole, (iii) payments made to repay debt 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 (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by Parent Guarantor 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
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13
issuance or sale of Capital Stock, the proceeds of 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 and proceeds from the conversion of other property received
when converted to cash or cash equivalents, net of attorney's fees,
accountants' 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.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Guarantee" means, with respect to each Guarantor, the unconditional
Guarantee of the Notes by such Guarantor, pursuant to Article 10.
"Notes" has the meaning assigned to it in the preamble to this Indenture.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating:
(i) the covenant pursuant to which the offer is being made 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 "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
purchase price, any Note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the
Offer to Purchase 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
<PAGE>
14
Agent at the address specified in the notice prior to the close of business
on the Business Day immediately preceding the 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 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 integral multiples
thereof.
The offer to purchase shall further describe the material facts and
circumstances related to the event with respect to which the particular Offer to
Purchase is being made, as determined in good faith by the Company.
On the Payment Date, the Company shall (i) accept for payment on a pro rata
basis Notes or portions thereof validly tendered and not withdrawn pursuant to
an Offer to Purchase and, in the case of an Offer to Purchase pursuant to
Section 4.09, having an aggregate principal amount not in excess of the Excess
Proceeds in respect of such Offer to Purchase (subject to the provisions of such
covenant related to Pari Passu Indebtedness), (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, HOWEVER, that each
Note purchased and each new Note issued shall be in a principal amount of $1,000
or integral multiples thereof. The Company will publicly announce the results
of an Offer to Purchase as soon as practicable after the Payment Date. The
Trustee shall act as the Paying Agent for an Offer to Purchase. 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 the Company is required to repurchase Notes
pursuant to an Offer to Purchase. To the extent that the provisions of any
securities laws or regulations conflict with the provisions for such Offer to
Purchase, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations with respect
to such Offer to Purchase by virtue thereof.
<PAGE>
15
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice President of such Person.
"Officers' Certificate" means a certificate signed by the Chief Executive
Officer, the President, the Chief Financial Officer, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment, money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Notes;
(iii) Notes with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in this Indenture; and
(iv) Mutilated, destroyed, lost or stolen Notes which have become
or are about to become due and payable which have been paid pursuant to
this Indenture or in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture, other than any such
Notes in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such Notes are held by a bona fide purchaser
in whose hands the Notes are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount (or principal amount at maturity) of Outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
under this Indenture, and for the purpose of making the calculations required by
TIA Section 313, Notes owned by the Company or any other obligor under the Notes
or any Affiliate of the Company or such other obligor shall be
<PAGE>
16
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making such calculation or in
relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes which the Trustee knows to be so owned shall be
so disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any
Affiliate of the Company or such other obligor.
"Parent Guarantor" means Protection One, Inc., or its successors, including
any company the common stock of which is exchanged for the common stock of
Protection One, Inc. by way of merger or other transaction.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of, premium or Additional
Interest, if any, or interest on any Notes on behalf of the Company.
"Permitted Indebtedness" means, without duplication, (i) Indebtedness
outstanding on the Issue Date or on any Reinstatement Date (including, without
limitation, the Convertible Notes, Discount Notes, Senior Notes and Capitalized
Lease Obligations); (ii) Indebtedness of the Parent Guarantor and any of its
Restricted Subsidiaries incurred under the Senior Credit Facility (including
letter of credit obligations), PROVIDED that the aggregate principal amount at
any time outstanding does not exceed $500.0 million, less any amount of such
Indebtedness permanently repaid as provided in Section 4.09; (iii) Indebtedness
evidenced by or arising under the Notes, the Note Guarantees and this Indenture
in respect of the Notes; (iv) Interest Swap Agreements, Commodity Agreements and
Currency Agreements; PROVIDED, HOWEVER, that such agreements are entered into
for bona fide hedging purposes and not for speculative purposes; (v) additional
Indebtedness of the Parent Guarantor or any of its Restricted Subsidiaries not
otherwise permitted under Section 4.06 in an aggregate principal amount that,
when aggregated with the aggregate principal amount of all other Indebtedness
then outstanding and incurred pursuant to this clause (v), does not at any one
time outstanding exceed the sum of (x) $75 million and (y) without duplication,
100% of the net proceeds received by the Parent Guarantor or any Restricted
Subsidiary from the issue or sale after the Issue Date of Qualified Capital
Stock (including upon the conversion or exchange of any Indebtedness, including
the Convertible Notes) or net proceeds contributed to the capital of the Parent
Guarantor or any Restricted Subsidiary (other than in respect of Disqualified
Capital Stock) as determined in accordance with clauses (iii)(b) and (iii)(c) of
Section 4.08(a) to the extent such net proceeds have not been applied pursuant
to such clause to make Restricted Payments or to effect other transactions
pursuant to Section 4.08(b) (it being understood that any Indebtedness incurred
under this clause (v) shall cease to be deemed incurred or outstanding for
purposes of this clause (v) from and after the first date on which the Parent
Guarantor could have incurred such Indebtedness under Section 4.06(a) without
<PAGE>
17
reliance upon this clause (v), and such Indebtedness shall thereupon be deemed
to have been so incurred); (vi) Refinancing Indebtedness (other than in respect
of Indebtedness incurred pursuant to clauses (ii) and (v) of this definition);
(vii) Indebtedness owed by the Parent Guarantor to any Restricted Subsidiary (so
long as it shall remain a Restricted Subsidiary of the Parent Guarantor) or by
any Restricted Subsidiary (so long as it remains a Restricted Subsidiary) to the
Parent Guarantor or any Restricted Subsidiary; (viii) guarantees by the Parent
Guarantor or Restricted Subsidiaries of any Indebtedness permitted to be
incurred pursuant to this Indenture; (ix) Indebtedness in respect of performance
bonds, reimbursement obligations with respect to letters of credit, bankers'
acceptances, completion guarantees and surety or appeal bonds provided by the
Parent Guarantor or any of its Restricted Subsidiaries in the ordinary course of
their business or Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims; (x) Indebtedness 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 Guarantor or any of its
Restricted Subsidiaries pursuant to such agreements, in each case incurred in
connection with the disposition of any business assets or Subsidiaries of the
Parent Guarantor (other than guarantees of Indebtedness or other obligations
incurred by any Person acquiring all or any portion of such business assets or
its Restricted Subsidiaries for the purpose of financing such acquisition) in a
principal amount not to exceed the gross proceeds, including non-cash proceeds,
actually received by the Parent Guarantor or any of its Restricted Subsidiaries
in connection with such disposition; PROVIDED, HOWEVER, that such Indebtedness
is not reflected on the balance sheet of the Parent Guarantor or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be deemed
to be reflected on such balance sheet for purposes of this clause); (xi)
Indebtedness (including but not limited to Capitalized Lease Obligations,
mortgage financings or purchase money obligations) incurred for the purpose of
financing all or any part of the price or cost of the bona fide acquisition,
construction or improvement of property or assets (whether through direct
purchase of assets or the Capital Stock of any Person owning such assets) or
incurred to refinance any such purchase price or cost of acquisition,
construction or improvement, PROVIDED, HOWEVER, that no Indebtedness may be
incurred under this clause (xi) if the amount of Indebtedness outstanding under
this clause (xi) exceeds 5% of the total consolidated assets of the Parent
Guarantor and its Subsidiaries as set forth on its consolidated balance sheet as
of the most recently completed fiscal quarter prior to the Incurrence of
Indebtedness pursuant to this clause (xi) for which financial statements have
been filed with the SEC or provided to the Trustee; (xii) additional
Indebtedness incurred for the purpose of financing all or any part of capital
expenditures in an amount not to exceed $25 million at any time outstanding; and
(xiii) Indebtedness of Persons that are acquired by the Parent Guarantor or any
of its Restricted Subsidiaries or merged into the Parent Guarantor or any of its
Restricted Subsidiaries in accordance with the terms of this Indenture;
PROVIDED, HOWEVER, that such Indebtedness is not incurred in contemplation of
such acquisition or merger; and PROVIDED FURTHER that after giving effect to
such acquisition or merger, the Parent Guarantor
<PAGE>
18
would be permitted to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.06(a).
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Place of Payment" means, when used with respect to the Notes the place or
places where the principal, premium, if any, and interest on such Notes are
payable as specified as contemplated by Article 2.
"Placement Agent" means Morgan Stanley & Co. Incorporated, Chase Securities
Inc., First Union Capital Markets, a division of Wheat First Securities, Inc.,
NationsBanc Montgomery Securities LLC and TD Securities (USA) Inc.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principal" means Western Resources, Inc.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Rating Agencies" mean S&P and Moody's.
"Rating Category" means (i) with respect to S&P, any of the following
categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's any of the following categories: Aaa,
Aa, A, Baa, Ba, B, Caa, Ca and C (or equivalent successor categories) and (iii)
the equivalent of any such category of S&P and Moody's used by another rating
agency. In determining whether the rating of the Notes has decreased by one or
more gradations, gradations within Rating Categories (+ and - for S&P: 1, 2 and
3 for Moody's; or the equivalent gradations for another rating agency) shall be
taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to
BB, as well as from BB- to B+, will constitute a decrease of one gradation).
"Rating Decline" means (i) a decrease of two or more gradations (including
gradations within Rating Categories as well as between Rating Categories) in the
rating of the Notes by either Rating Agency from the rating of the Notes by such
Rating Agency or (ii) a withdrawal of the rating of the Notes by either Rating
Agency, PROVIDED that such decrease or withdrawal occurs on, or within 90 days
after, the date of public notice of the occurrence of a Change of
<PAGE>
19
Control or of the intention by the Company to effect a Change of Control
(which period shall be extended so long as the rating of the Notes is under
publicly announced consideration for possible downgrade by either Rating
Agency).
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, First Union Capital Markets, a division of Wheat First Securities,
Inc., NationsBanc Montgomery Securities, LLC, and TD Securities (USA) Inc., and
their respective successors; PROVIDED, HOWEVER, that if any of the foregoing
shall cease to be a primary U.S. Government securities dealer in New York City
(a "Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average as determined by
the Trustee, of the bid and asked prices of the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
"Refinancing Indebtedness" means any refinancing by Parent Guarantor or its
Restricted Subsidiaries of Indebtedness of Parent Guarantor or any of its
Restricted Subsidiaries incurred in accordance with Section 4.06 that does not
(i) result in an increase in the aggregate principal amount of Indebtedness
(such principal amount to include, for purposes of this definition, any
premiums, fees, penalties or accrued interest paid with the proceeds of the
Refinancing Indebtedness) of such Person or (ii) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being refinanced; PROVIDED that
Indebtedness of Parent Guarantor or the Company (other than Guarantor Senior
Indebtedness or Senior Indebtedness, as the case may be) that is refinanced by
issuing Indebtedness of any Restricted Subsidiary (other than the Company) shall
not be deemed to be Refinancing Indebtedness.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of December 21, 1998, by and among the Company and the other parties
named on the signature pages thereof, as such agreement may be amended, modified
or supplemented from time to time.
"Reinstatement Date" has the meaning specified in Section 4.16.
"Related Party" with respect to the Principal means (A) any controlling
stockholder or 80% (or more) owned Subsidiary of the Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of the Principal and/or such other Persons referred to
in the immediately preceding clause (A).
<PAGE>
20
"Remaining Scheduled Payments" means, with respect to each Note to be
redeemed, the remaining scheduled payments of the principal thereof and
interest thereon that would be due after the related redemption date but for
such redemption; PROVIDED, HOWEVER, that, if such redemption date is not an
interest payment date with respect to such Note, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount
of interest accrued thereon to such redemption date.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Senior Indebtedness; PROVIDED, HOWEVER, that
if, and for so long as, any issue of Senior Indebtedness lacks such a
representative, then the Representative for such issue of Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding
principal amount of such issue of Senior Indebtedness.
"Responsible Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Payment" means (i) the declaration or payment of any
dividend or the making of any other distribution (other than dividends or
distributions payable in Qualified Capital Stock or in options, rights or
warrants to acquire Qualified Capital Stock or dividends or distributions by
a Restricted Subsidiary so long as in the case of any dividend or
distribution payable on or in respect of any class or series of Capital Stock
issued by a Restricted Subsidiary other than a Wholly Owned Subsidiary,
Parent Guarantor or a Restricted Subsidiary receives at least its pro rata
share of such dividend or distribution in accordance with its interest in
such Capital Stock) on shares of the Parent Guarantor's Capital Stock, (ii)
the purchase, redemption, retirement or other acquisition for value of any
Capital Stock of Parent Guarantor, or any warrants, rights or options to
acquire shares of Capital Stock of Parent Guarantor, other than through the
exchange of such Capital Stock or any warrants, rights or options to acquire
shares of any class of such Capital Stock for Qualified Capital Stock or
warrants, rights or options to acquire Qualified Capital Stock, (iii) the
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance or other acquisition or retirement for value of
Indebtedness of Parent Guarantor, the Company or any Subsidiary Guarantor
that is subordinated in right of payment to the Notes or Note Guarantees, and
(iv) Investments in Unrestricted Subsidiaries or in Affiliates of Parent
Guarantor that are not, directly or indirectly, controlled by Parent
Guarantor.
<PAGE>
21
"Restricted Subsidiary" means a direct or indirect Subsidiary of the
Parent Guarantor other than an Unrestricted Subsidiary and includes all of
the Subsidiaries of the Parent Guarantor existing as of the Issue Date,
including the Company, unless the context otherwise requires.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., or any successor to the rating agency business thereof.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of Parent Guarantor or a
Restricted Subsidiary secured by a Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means the Credit Agreement between Westar
Capital and the Company, dated April 1, 1998, as amended August 17, 1998, as
such agreement may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including by way of adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders, it
being agreed that the Revolving Credit Agreement to be entered into on or
about the date of this Indenture among the Company, as borrower, NationsBank,
N.A., as administrative agent, and the lenders party thereto from time to
time shall, upon its execution and delivery, constitute the Senior Credit
Facility for purposes of this definition.
"Senior Indebtedness" means, as to the Company or any Guarantor, as the
case may be, whether outstanding on the Issue Date or thereafter issued, all
Indebtedness of the Company or such Guarantor, as the case may be, including
interest (including interest accruing on or after the filing of, or which
would have accrued but for the filing of, any petition in bankruptcy or for
reorganization relating to the Company or such Guarantor, as the case may be,
or any Restricted Subsidiary of the Company or such Guarantor, as the case
may be, whether or not a claim for
<PAGE>
22
post-filing interest is allowed in such proceeding) and premium, if any,
thereon, and other monetary amounts (including fees, expenses, reimbursement
obligations under letters of credit and indemnities) owing in respect thereof
unless, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that the obligations in respect
of such Indebtedness ranks PARI PASSU with or subordinate to the Notes;
PROVIDED, HOWEVER, that Senior Indebtedness will not include (1) any
obligation of the Company or such Guarantor, as the case may be, to any
Restricted Subsidiary of the Company or such Guarantor, as the case may be,
(2) any liability for federal, state, foreign, local or other taxes owed or
owing by the Company or such Guarantor, as the case may be, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course
of business (including Guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness, Guarantee or obligation of the Company or
such Guarantor, as the case may be, that is expressly subordinate or junior
in right of payment to any other Indebtedness, Guarantee or obligation of the
Company or such Guarantor, as the case may be, including any Senior
Subordinated Indebtedness (as to which the Notes expressly shall rank PARI
PASSU in right of payment, unless such Senior Subordinated Indebtedness is
expressly made junior in right of payment to the Notes) or (5) obligations in
respect of any Capital Stock.
"Senior Notes" means the Company's 7 3/8% Senior Notes due 2005.
"Senior Subordinated Indebtedness" means the Notes, the Convertible
Notes, the Discount Notes, and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank PARI PASSU with the
Notes in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Company which is not
Senior Indebtedness.
"Shelf Registration" means the Shelf Registration as defined in the
Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity", when used with respect to any Notes or any
installment of principal thereof, means the date specified in such Notes as
the fixed date on which the principal of such Notes or such installment of
principal is due and payable.
"Subsidiary" with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, through one or more intermediaries,
by such Person or (ii) any other Person of which at least a majority of the
voting interest under ordinary circumstances is at the time, directly or
indirectly, through one or more intermediaries, owned by such Person.
Notwithstanding anything herein to
<PAGE>
23
the contrary, an Unrestricted Subsidiary shall not be deemed to be a
Restricted Subsidiary for purposes of this Indenture.
"Subsidiary Guarantors" means each direct and indirect domestic
Restricted Subsidiary of the Parent Guarantor that is required to execute a
Guarantee pursuant to this Indenture.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or
the Person to which such Disposition is made.
"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/or 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 one year 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 of America, and which bank or
trust company has capital, surplus and undivided profits aggregating in
excess of $100 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 one year
for underlying securities of the types described in clause (i) above
entered into with a bank or trust company meeting the qualifications
described in clause (ii) above;
(iv) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of
the 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
any investment therein is made of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P; 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 S&P or Moody's.
<PAGE>
24
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any 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.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as
in force at the date of this Indenture, except that any supplemental
indenture executed pursuant to this Indenture shall conform to the
requirements of the Trust Indenture Act as in effect on the date of execution
thereof.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary of Parent Guarantor
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below; and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Restricted Subsidiary (including any newly acquired or newly
formed Subsidiary of Parent Guarantor), other than the Company, to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, Parent Guarantor or any Restricted
Subsidiary; PROVIDED that (A) any Guarantee by Parent Guarantor or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so
designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by Parent Guarantor or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to
be so designated has total assets of $1,000 or less or (II) if such
Subsidiary has assets greater than $1,000, such designation would be
permitted under Section 4.08 and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso
would be permitted under Section 4.06 and Section 4.08. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that (i) no Default or Event of Default shall have
occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such
time, have been permitted to be Incurred (and shall be deemed to have been
Incurred) for all purposes of this Indenture. Any such designation by the
Board of Directors 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.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or
<PAGE>
25
instrumentality thereof) for the payment of which the full faith and credit
of the United States of America is pledged and which are not callable or
redeemable at the issuer's option.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Voting Stock" means stock of the class or classes having general voting
power under ordinary circumstances to elect at least a majority of the board
of directors, managers, trustees or individuals performing similar functions
of a Person (irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the
then outstanding aggregate principal amount of such Indebtedness into (b) the
total of the product obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payment of principal, including payment at final maturity, in respect
thereof, by (ii) the number of years (calculated to the nearest one-twelfth)
which will elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of such
Subsidiary (other than any director's qualifying shares or shares owned by
foreign nationals to the extent mandated by applicable law) by such Person or
one or more Wholly Owned Subsidiaries of such Person.
Section 1.02. OTHER DEFINITIONS.
<TABLE>
<S> <C>
"Acceleration Notice". . . . . . . . . . . . .
"Agent Members" . . . . . . . . . . . . . . . . .
"Authenticating Agent" . . . . . . . . . . . . .
"Authentication Order" . . . . . . . . . . . . .
"Blockage Notice" . . . . . . . . . . . . . . . .
"Change of Control Offer" . . . . . . . . . . . .
"Change of Control Payment" . . . . . . . . . . .
<PAGE>
26
"Change of Control Payment Date" . . . . . . . .
"Covenant Defeasance" . . . . . . . . . . . . . .
"Defeasance" . . . . . . . . . . . . . . . . . .
"Definitive Notes" . . . . . . . . . . . . . . .
"Event of Default" . . . . . . . . . . . . . . .
"Fall-Away Event" . . . . . . . . . . . . . . . .
"Funding Guarantor" . . . . . . . . . . . . . . .
"Global Notes" . . . . . . . . . . . . . . . . .
"Guarantee Blockage Notice" . . . . . . . . . . .
"Guarantee Payment Blockage Period" . . . . . . .
"Incur" . . . . . . . . . . . . . . . . . . . . .
"IRS" . . . . . . . . . . . . . . . . . . . . . .
"Pari Passu Indebtedness" . . . . . . . . . . . .
"pay the Notes" . . . . . . . . . . . . . . . . .
"Paying Agent" . . . . . . . . . . . . . . . . .
"Payment Blockage Period" . . . . . . . . . . . .
"Registrar" . . . . . . . . . . . . . . . . . . .
"Regulation S Definitive Notes" . . . . . . . . .
"Regulation S Global Notes" . . . . . . . . . . .
<PAGE>
27
"Restricted Definitive Notes" . . . . . . . . . .
"Restricted Global Notes" . . . . . . . . . . . .
"Security Register" . . . . . . . . . . . . . . .
</TABLE>
Section 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes and the Note Guarantees;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes and the Note Guarantees means the Company and the
Guarantors, respectively, and any successor obligor upon the Notes and the
Note Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
Section 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include
the singular;
<PAGE>
28
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or rules
adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
Section 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form annexed hereto as Exhibit A with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange agreements to which the Company
is subject or usage. The Company shall approve the form of the Notes and any
notation, legend or endorsement on the Notes. Each Note shall be dated the
date of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part
of this Indenture. To the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered
form, substantially in the form set forth in Exhibit A (the "Restricted
Global Notes"), registered in the name of the nominee of the Depositary,
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Restricted Global Notes may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary, or its nominee, in accordance with
the instructions given by the Holder thereof, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more global
Notes in registered form substantially in the form set forth in Exhibit A
(the "Regulation S Global Notes"), registered in the name of the nominee of
the Depositary, deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Regulation S Global Notes
may from time to time be increased or decreased by
<PAGE>
29
adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, as hereinafter provided.
Notes issued pursuant to Section 2.07 in exchange for interests in the
Restricted Global Notes and the Regulation S Global Notes shall be in the
form of permanent certificated Notes in registered form substantially in the
form set forth in Exhibit A hereto (the "Restricted Definitive Notes" and the
"Regulation S Definitive Notes", respectively).
The Regulation S Definitive Notes and Restricted Definitive Notes are
sometimes collectively herein referred to as the "Definitive Notes". The
Restricted Global Notes and the Regulation S Global Notes are sometimes
referred to herein as the "Global Notes".
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any
other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Officers executing such Notes,
as evidenced by their execution of such Notes.
Section 2.02. RESTRICTIVE LEGENDS.
Unless and until a Note is exchanged for an Exchange Note or sold in
connection with an effective Registration Statement pursuant to the
Registration Rights Agreement, (i) the Restricted Global Notes and Restricted
Definitive Notes shall bear the legend set forth below on the face thereof
and (ii) the Regulation S Definitive Notes and Regulation S Global Notes
shall bear the legend set forth below on the face thereof until at least the
41st day after the Closing Date and receipt by the Company and the Trustee of
a certificate substantially in the form of Exhibit B hereto.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE
<PAGE>
30
DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT,
(D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED
TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE
TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, TO THE
<PAGE>
31
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
Section 2.03. EXECUTION, AUTHENTICATION AND DENOMINATIONS.
Subject to Article 4 and applicable law, the aggregate principal amount
of Notes which may be authenticated and delivered under this Indenture is
unlimited. The Notes shall be executed by two Officers of the Company. The
signature of these Officers on the Notes may be by facsimile or manual
signature in the name and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee or authenticating agent authenticates the Note, the
Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this Indenture,
the Trustee or an authenticating agent shall, upon receipt of a Company
Order, authenticate for original issue Notes in the aggregate principal
amount specified in such Company Order; PROVIDED that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Company in connection with such authentication of Notes. Such Company Order
shall specify the amount of Notes to be authenticated and the date on which
the original issue of Notes is to be authenticated and, in case of an
issuance of Notes pursuant to Section 2.15, shall certify that such issuance
is in compliance with Article 4.
<PAGE>
32
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such authenticating agent. An authenticating
agent has the same rights as an Agent to deal with the Company or an
Affiliate of the Company.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 in principal amount and any integral multiple
thereof.
Section 2.04. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange (the "Registrar"), an
office or agency where Notes may be presented for payment (the "Paying
Agent") and an office or agency where notices and demands to or upon the
Company in respect of the Notes and this Indenture may be served, which shall
be in the Borough of Manhattan, The City of New York. The Company shall
cause the Registrar to keep a register of the Notes and of their transfer and
exchange (the "Security Register"). The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. The Company may have one or more co-Registrars and
one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
give prompt written notice to the Trustee of the name and address of any such
Agent and any change in the address of such Agent. If the Company fails to
maintain a Registrar, Paying Agent and/or agent for service of notices and
demands, the Trustee shall act as such Registrar, Paying Agent and/or agent
for service of notices and demands. The Company may remove any Agent upon
written notice to such Agent and the Trustee; PROVIDED that no such removal
shall become effective until (i) the acceptance of an appointment by a
successor Agent to such Agent as evidenced by an appropriate agency agreement
entered into by the Company and such successor Agent and delivered to the
Trustee or (ii) notification to the Trustee that the Trustee shall serve as
such Agent until the appointment of a successor Agent in accordance with
clause (i) of this proviso. The Company, any Subsidiary of the Company, or
any Affiliate of any of them may act as Paying Agent, Registrar or
co-Registrar, and/or agent for service of notice and demands.
The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. The Trustee
shall preserve in as current a form as is reasonably practicable the most recent
list available to it of the names and addresses of Holders and shall otherwise
comply with TIA Section 312(a). If the Trustee is not the Registrar, the
Company shall furnish to the Trustee as of each Regular Record Date and at such
other times as
<PAGE>
33
the Trustee may reasonably request the names and addresses of Holders as they
appear in the Security Register, including the aggregate principal amount of
Notes held by each Holder.
Section 2.05. PAYING AGENT TO HOLD MONEY IN TRUST.
Not later than 1:00 p.m. (New York City time) on each due date of the
principal, premium, if any, and interest on any Notes, the Company shall
deposit with the Paying Agent money in immediately available funds sufficient
to pay such principal, premium, if any, and interest so becoming due. The
Company shall require each Paying Agent other than the Trustee to agree in
writing that such Paying Agent shall hold in trust for the benefit of the
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, and interest on the Notes (whether such money
has been paid to it by the Company or any other obligor on the Notes), and
such Paying Agent shall promptly notify the Trustee of any default by the
Company (or any other obligor on the Notes) in making any such payment. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee and account for any funds disbursed, and the Trustee may at any
time during the continuance of any payment default, upon written request to a
Paying Agent, require such Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed. Upon doing so, the Paying
Agent shall have no further liability for the money so paid over to the
Trustee. If the Company or any Subsidiary of the Company or any Affiliate of
any of them acts as Paying Agent, it will, on or before each due date of any
principal of, premium, if any, or interest on the Notes, segregate and hold
in a separate trust fund for the benefit of the Holders a sum of money
sufficient to pay such principal, premium, if any, or interest so becoming
due until such sum of money shall be paid to such Holders or otherwise
disposed of as provided in this Indenture, and will promptly notify the
Trustee of its action or failure to act.
Section 2.06. TRANSFER AND EXCHANGE.
The Notes are issuable only in registered form. A Holder may transfer a
Note only by written application to the Registrar stating the name of the
proposed transferee and otherwise complying with the terms of this Indenture.
No such transfer shall be effected until, and such transferee shall succeed to
the rights of a Holder only upon, final acceptance and registration of the
transfer by the Registrar in the Security Register. Prior to the registration
of any transfer by a Holder as provided herein, the Company, the Trustee, and
any agent of the Company shall treat the person in whose name the Note is
registered as the owner thereof for all purposes whether or not the Note shall
be overdue, and neither the Company, the Trustee, nor any such agent shall be
affected by notice to the contrary. Furthermore, any Holder of a Global Note
shall, by acceptance of such Global Note, agree that transfers of beneficial
interests in such Global Note may be effected only through a book entry system
maintained by the Holder of such Global Note (or its agent) and that ownership
of a beneficial interest in the Note shall be required to be reflected in a book
entry. When Notes are presented to the Registrar or a co-Registrar with a
request to register the transfer or to exchange them for an equal principal
amount of Notes of
<PAGE>
34
other authorized denominations (including an exchange of Notes for Exchange
Notes), the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met (including that
such Notes are duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Trustee and Registrar duly executed by
the Holder thereof or by an attorney who is authorized in writing to act on
behalf of the Holder); PROVIDED that no exchanges of Notes for Exchange Notes
shall occur until a Registration Statement shall have been declared effective
by the SEC and that any Notes that are exchanged for Exchange Notes shall be
cancelled by the Trustee. To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate Notes
at the Registrar's request. No service charge shall be made for any
registration of transfer or exchange or redemption of the Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any
such transfer taxes or other similar governmental charge payable upon
exchanges pursuant to Section 2.11, 3.05 or 9.06).
The Registrar shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Notes
selected for redemption under Section 3.02 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
Section 2.07. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES.
(a) The Restricted Global Notes and Regulation S Global Notes initially
shall (i) be registered in the name of the Depositary for such Global Notes
or the nominee of such Depositary, (ii) be delivered to the Trustee as
custodian for such Depositary and (iii) bear legends as set forth in Section
2.02.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under
such Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee, from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or impair, as
between the Depositary and its Agent Members, the operation of customary
practices governing the exercise of the rights of a holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in Global Notes may be
transferred in accordance with the rules and
<PAGE>
35
procedures of the Depositary and the provisions of Section 2.08. In
addition, Restricted Definitive Notes and Regulation S Definitive Notes shall
be transferred to all beneficial owners in exchange for their beneficial
interests in the Restricted Global Notes or the Regulation S Global Notes, as
the case may be, if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for the Restricted Global Notes
or the Regulation S Global Notes, as the case may be, and a successor
depositary is not appointed by the Company within 90 days of such notice,
(ii) an Event of Default has occurred and is continuing and the Registrar has
received a request from the Depositary or (iii) in accordance with the rules
and procedures of the Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in
another Global Note will, upon transfer, cease to be an interest in such
Global Note and become an interest in such other Global Note and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Note for as long as it remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in a Global Note to beneficial owners pursuant to paragraph (b) of
this Section 2.07, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such Global Note in an amount
equal to the principal amount of the beneficial interest in such Global Note
to be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Restricted Definitive Notes or
Regulation S Definitive Notes, as the case may be, of like tenor and amount.
(e) In connection with the transfer of the Restricted Global Notes or
the Regulation S Global Notes, in whole, to beneficial owners pursuant to
paragraph (b) of this Section 2.07, the Restricted Global Notes or Regulation
S Global Notes, as the case may be, shall be deemed to be surrendered to the
Trustee for cancellation, and the Company shall execute, and the Trustee
shall authenticate and deliver, to each beneficial owner identified by the
Depositary in exchange for its beneficial interest in the Restricted Global
Notes or Regulation S Global Notes, as the case may be, an equal aggregate
principal amount of Restricted Definitive Notes or Regulation S Definitive
Notes, as the case may be, of authorized denominations.
(f) Any Restricted Definitive Note delivered in exchange for an
interest in the Restricted Global Notes pursuant to paragraph (b), (d) or (e)
of this Section 2.07 shall, except as otherwise provided by paragraph (e) of
Section 2.08, bear the legend regarding transfer restrictions applicable to
the Restricted Definitive Note set forth in Section 2.02.
(g) Any Regulation S Definitive Note delivered in exchange for an
interest in the Regulation S Global Notes pursuant to paragraph (b), (d) or
(e) of this Section 2.07 shall, except as otherwise provided by paragraph (e)
of Section 2.08, bear the legend regarding transfer restrictions applicable
to the Regulation S Definitive Note set forth in Section 2.02.
<PAGE>
36
(h) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
<PAGE>
37
Section 2.08. SPECIAL TRANSFER PROVISIONS.
Unless and until a Note is exchanged for an Exchange Note or sold in
connection with an effective Registration Statement pursuant to the Registration
Rights Agreement, the following provisions shall apply:
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether
or not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the time period referred to in Rule 144(k) under the
Securities Act or (y) the proposed transferee has delivered to the
Registrar (A) a certificate substantially in the form of Exhibit C hereto
and (B) if the aggregate principal amount of the Notes being transferred is
less than $100,000, an opinion of counsel acceptable to the Company that
such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Restricted Global Notes, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) above and
(y) instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the Restricted
Global Notes in an amount equal to the principal amount of the beneficial
interest in the Restricted Global Notes to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
Restricted Definitive Notes of like tenor and amount.
(b) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note to a QIB
(excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) either
Regulation S Definitive Notes prior to the removal of the Private Placement
Legend or Restricted Definitive Notes, the Registrar shall register the
transfer if such transfer is being made by a proposed transferor who has
checked the box provided for on the form of Note stating, or has otherwise
advised the Company and the Registrar in writing, that the sale has been
made in compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to which
it exercises sole investment discretion and that it and any such account is
a QIB within the meaning of Rule 144A and is aware that the sale to it is
being made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to Rule
144A or has
<PAGE>
38
determined not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to claim
the exemption from registration provided by Rule 144A or (y) an interest
in the Restricted Global Notes, the transfer of such interest may be
effected only through the book entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note to
be transferred consists of either Regulation S Definitive Notes prior to
removal of the Private Placement Legend or Restricted Definitive Notes,
upon receipt by the Registrar of the documents referred to in paragraph (i)
above and instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of Restricted
Global Notes in an amount equal to the principal amount of the Regulation S
Definitive Notes or Restricted Definitive Notes to be transferred, and the
Trustee shall cancel the Regulation S Definitive Notes or Restricted
Definitive Notes so transferred.
(c) TRANSFERS OF INTERESTS IN THE REGULATION S GLOBAL NOTES OR REGULATION
S DEFINITIVE NOTES. The following provisions shall apply with respect to any
transfer of interests in Regulation S Global Notes or Regulation S Definitive
Notes:
(i) prior to the removal of the Private Placement Legend from the
Regulation S Global Notes or Regulation S Definitive Notes pursuant to
Section 2.02, the Registrar shall refuse to register such transfer unless
such transfer complies with Section 2.08(b) or Section 2.08(d), as the case
may be, and
(ii) after such removal, the Registrar shall register the transfer
of any such Note without requiring any additional certification.
(d) TRANSFERS TO NON-U.S. PERSONS AT ANY TIME. The following provisions
shall apply with respect to any transfer of a Note to a Non-U.S. Person:
(i) The Registrar shall register any proposed transfer to any
Non-U.S. Person if the Note to be transferred is a Restricted Definitive
Note or an interest in Restricted Global Notes, upon receipt of a
certificate substantially in the form of Exhibit D hereto from the proposed
transferor.
(ii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the Restricted Global Notes, upon receipt by the
Registrar of (x) the document required by paragraph (i) and (y)
instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the Restricted Global Notes in an
amount equal to the principal amount of the beneficial interest in the
Restricted Global Notes to be
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transferred, and (b) if the proposed transferee is an Agent Member, upon
receipt by the Registrar of instructions given in accordance with the
Depositary's and the Registrar's procedures, the Registrar shall reflect on
its books and records the date and an increase in the principal amount of
the Regulation S Global Notes in an amount equal to the principal amount of
the Restricted Definitive Notes or the Restricted Global Notes, as the case
may be, to be transferred, and the Trustee shall cancel the Definitive
Note, if any, so transferred or decrease the amount of the Restricted
Global Notes.
(e) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or replacement
of Notes not bearing the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of Notes bearing the Private Placement Legend, the
Registrar shall deliver only Notes that bear the Private Placement Legend unless
(i) the Private Placement Legend is no longer required by Section 2.02, (ii) the
circumstances contemplated by paragraph (a)(i)(x) of this Section 2.08 exist or
(iii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(f) GENERAL. By its acceptance of any Note bearing the Private Placement
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture. The
Registrar shall not register a transfer of any Note unless such transfer
complies with the restrictions on transfer of such Note set forth in this
Indenture. In connection with any transfer of Notes, each Holder agrees by its
acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; PROVIDED that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.07 or this Section 2.08. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
Section 2.09. REPLACEMENT NOTES.
If a mutilated Note is surrendered to the Trustee or if the Holder claims
that the Note has been lost, destroyed or wrongfully taken, then, in the absence
of notice to the Company or the Trustee that such Note has been acquired by a
bona fide purchaser, the Company shall issue and the Trustee shall authenticate
a replacement Note of like tenor and principal amount and bearing
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a number not contemporaneously outstanding; PROVIDED that the requirements of
this Section 2.09 are met. If required by the Trustee or the Company, an
indemnity bond must be furnished that is sufficient in the judgment of both
the Trustee and the Company to protect the Company, the Trustee or any Agent
from any loss that any of them may suffer if a Note is replaced. The Company
may charge such Holder for its expenses and the expenses of the Trustee in
replacing a Note. In case any such mutilated, lost, destroyed or wrongfully
taken Note has become or is about to become due and payable, the Company in
its discretion may pay such Note instead of issuing a new Note in replacement
thereof.
Every replacement Note is an additional obligation of the Company and shall
be entitled to the benefits of this Indenture.
Section 2.10. OUTSTANDING NOTES.
Notes outstanding at any time are all Notes that have been authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation and those described in this Section 2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be outstanding
unless and until the Trustee and the Company receive proof satisfactory to them
that the replaced Note is held by a BONA FIDE purchaser.
If the Paying Agent (other than the Company or an Affiliate of the Company)
holds on the maturity date money sufficient to pay Notes payable on that date,
then on and after that date such Notes cease to be outstanding and interest on
them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one of its
Affiliates holds such Note, PROVIDED, HOWEVER, that in determining whether the
Holders of the requisite principal amount of the outstanding Notes have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee has actual
knowledge to be so owned shall be so disregarded. Notes so owned which have
been pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or of such other obligor.
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Section 2.11. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare and
execute and the Trustee shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form of definitive Notes but may have insertions,
substitutions, omissions and other variations determined to be appropriate by
the Officers executing the temporary Notes, as evidenced by their execution of
such temporary Notes. If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 4.02, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall be
entitled to the same benefits under this Indenture as definitive Notes.
Section 2.12. CANCELLATION.
The Company at any time may deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the Company may
have acquired in any manner whatsoever, and may deliver to the Trustee for
cancellation any Notes previously authenticated hereunder which the Company has
not issued and sold. The Registrar and the Paying Agent shall forward to the
Trustee any Notes surrendered to them for transfer, exchange or payment. The
Trustee shall cancel all Notes surrendered for transfer, exchange, payment or
cancellation and shall destroy them in accordance with its normal procedure.
Section 2.13. CUSIP NUMBERS.
The Company in issuing the Notes may use "CUSIP", "CINS" or "ISIN"
numbers (if then generally in use), and the Company and the Trustee shall use
CUSIP, CINS or ISIN numbers, as the case may be, in notices of redemption or
exchange as a convenience to Holders; PROVIDED that any such notice shall state
that no representation is made as to the correctness of such numbers either as
printed on the Notes or as contained in any notice of redemption or exchange and
that reliance may be placed only on the other identification numbers printed on
the Notes. The Company shall promptly notify the Trustee of any change in
"CUSIP", "CINS" or "ISIN" numbers for the Notes.
Section 2.14. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall
pay, or shall deposit with the Paying Agent money in immediately available funds
sufficient to pay, the defaulted interest, plus (to the extent lawful) any
interest payable on the defaulted interest, to the
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Persons who are Holders on a subsequent special record date. A special
record date, as used in this Section 2.14 with respect to the payment of any
defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is
a Business Day. At least 15 days before the subsequent special record date,
the Company shall mail to each Holder and to the Trustee a notice that states
the subsequent special record date, the payment date and the amount of
defaulted interest to be paid.
ARTICLE 3
REDEMPTION
Section 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.06 hereof, such election to be set forth in a Board
Resolution, it shall furnish to the Trustee, at least 30 days but not more than
60 days before a redemption date, an Officers' Certificate setting forth (i) the
clause of this Indenture pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the
redemption price.
Section 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, selection of
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, in the absence of such requirements or if the Notes are not
so listed, on a pro rata basis, by lot or by such other method as the Trustee
shall deem fair and appropriate; PROVIDED, HOWEVER, that no such Notes of $1,000
principal amount or less shall be redeemed in part. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Notes not previously called
for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions
of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
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Section 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address. Once notice of redemption is mailed, and further subject to the
satisfaction of any conditions of a Conditional Redemption, Notes called for
redemption become due and payable on the redemption date and at the redemption
price. Upon surrender of any Notes to the Paying Agent, such Notes shall be
paid at the redemption price, plus accrued and unpaid interest, if any, to the
redemption date.
Notice of redemption shall be deemed to be given when mailed, whether or
not the Holder receives the notice. In any event, failure to give such notice,
or any defect therein, shall not affect the validity of the proceedings for the
redemption of Notes held by Holders to whom such notice was properly given.
The notice shall identify the Notes (including CUSIP numbers, if any) to be
redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
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At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; PROVIDED, HOWEVER, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.04. DEPOSIT OF REDEMPTION PRICE.
Prior to or by 1:00 p.m. (New York City time) the redemption date and
subject to the satisfaction of any conditions of a Conditional Redemption, the
Company shall deposit with the Trustee or with the Paying Agent money sufficient
to pay the redemption price of and accrued interest on all Notes to be redeemed
on that date. The Trustee or the Paying Agent shall promptly return to the
Company any money deposited with the Trustee or the Paying Agent by the Company
in excess of the amounts necessary to pay the redemption price of, and accrued
interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph
(other than by reason of a failure of one of the conditions of a Conditional
Redemption), interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid,
bear interest from the redemption date at the rate of interest set forth in the
Note.
Section 3.05. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and, upon the Company's written request, the Trustee shall authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.06. OPTIONAL REDEMPTION.
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(a) The Company has the option to redeem the Notes, in whole or in part,
at any time at the redemption price equal to the greater of (i) 100% of the
principal amount of the Notes to be redeemed or (ii) as determined by an
Independent Investment Banker, the sum of the present values of the Remaining
Scheduled Payments discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate, plus, in each case, accrued and unpaid interest (including
Additional Interest), if any, on the Notes to be redeemed to the date of
redemption.
(b) Any redemption pursuant to this Section 3.06 shall be made pursuant to
the provisions of Sections 3.01 through 3.06 hereof.
Section 3.07. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption payments
with respect to the Notes.
ARTICLE 4
COVENANTS
Section 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest, including Additional Interest, on the Notes on the dates and
in the manner provided in the Notes. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company or a Subsidiary thereof, holds as of 1:00 p.m. (New York City time) on
the due date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
the then applicable interest rate on the Notes to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest, including Additional
Interest, (without regard to any applicable grace period) at the same rate to
the extent lawful.
Section 4.02. MAINTENANCE OF OFFICE OR AGENCY.
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The Company shall maintain in the Borough of Manhattan, The City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; PROVIDED, HOWEVER,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
Section 4.03. COMPLIANCE CERTIFICATE.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year, beginning December 31, 1998, a brief certificate from the
principal executive officer, principal financial officer or principal accounting
officer as to his or her knowledge of the Company's compliance with all
conditions and covenants under this Indenture. For purposes of this Section
4.03, such compliance shall be determined without regard to any period of grace
or requirement of notice under this Indenture.
Section 4.04. TAXES.
The Company and the Guarantors shall pay or discharge or cause to be paid
or discharged, before the same shall become delinquent, all material taxes,
assessments and governmental charges levied or imposed upon the Company, the
Guarantors or any of their respective Significant Subsidiaries or upon the
income, profits or property of the Company, the Guarantors or any of their
respective Significant Subsidiaries; PROVIDED, HOWEVER, that the Company or the
Guarantors shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
Section 4.05. STAY, EXTENSION AND USURY LAWS.
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The Company and each of the Guarantors covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
each of the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
Section 4.06. LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS.
(a) The Parent Guarantor will not, and will not permit its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "Incur") any Indebtedness, other than Permitted
Indebtedness; PROVIDED, HOWEVER, that the Parent Guarantor and its Restricted
Subsidiaries may Incur Indebtedness if the Interest Coverage Ratio at the time
of Incurrence of such Indebtedness, after giving pro forma effect to such
Incurrence as of such date and to the use of proceeds therefrom, is greater than
or equal to 2.25 to 1.0.
(b) Notwithstanding any other provision of this Section 4.06, the maximum
amount of Indebtedness that the Parent Guarantor or a Restricted Subsidiary may
Incur pursuant to this Section 4.06 shall not be deemed to be exceeded, with
respect to any outstanding Indebtedness, due solely to the result of
fluctuations in the exchange rates of currencies.
(c) For purposes of determining compliance with this Section 4.06, in the
event that an item of Permitted Indebtedness meets the criteria of more than one
of the categories of Permitted Indebtedness or is entitled to be incurred
pursuant to clause (a) of this Section 4.06, the Company shall, in its sole
discretion, classify and, from time to time may reclassify, such item of
Indebtedness and such item of Indebtedness will be treated as having been
incurred pursuant to only one of the clauses of the definition of Permitted
Indebtedness or pursuant to the first paragraph hereof except as otherwise set
forth in clause (v) of the definition of Permitted Indebtedness. Accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
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Section 4.07. LIMITATION ON SENIOR SUBORDINATED DEBT.
Neither the Parent Guarantor, the Company nor any Restricted Subsidiary
that is a Guarantor shall Incur any Indebtedness that is subordinate in right of
payment to any Senior Indebtedness (or Guarantor Senior Indebtedness, as
applicable) unless such Indebtedness is pari passu with, or subordinated in
right of payment to, the Notes (or the Notes Guarantees, as applicable) to at
least the same extent as the Notes are subordinated to Senior Indebtedness (or
the Notes Guarantees are subordinated to Guarantor Senior Indebtedness, as
applicable; PROVIDED, HOWEVER, that the foregoing limitation shall not apply to
distinctions between categories of Senior Indebtedness or Guarantor Senior
Indebtedness that exists by reason of any Liens or Guarantees arising or created
in respect of some but not all such Senior Indebtedness or Guarantor Senior
Indebtedness.
Section 4.08. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Parent Guarantor will not, and will not cause or permit its
Restricted Subsidiaries, to, directly or indirectly, make any Restricted Payment
if at the time of such Restricted Payment and immediately after giving effect
thereto:
(i) a Default or Event of Default shall have occurred and be
continuing;
(ii) the Parent Guarantor is not able to incur $1.00 of additional
Indebtedness under Section 4.06(a); or
(iii) the aggregate amount of Restricted Payments made subsequent to
the Issue Date (the amount expended for such purposes, if other than in
cash, being the fair market value of such property as determined by the
board of directors of Parent Guarantor in good faith) exceeds the sum of
(A) (x) 100% of Consolidated EBITDA accrued subsequent to the Issue Date to
the most recent date for which financial information has been filed with
the SEC or provided to the Trustee (taken as one accounting period), less
(y) 1.75 times Consolidated Interest Expense for the same period; plus (B)
100% of the aggregate net proceeds, including the fair market value of
property other than cash as determined by the board of directors of the
Parent Guarantor in good faith, received subsequent to the Issue Date by
the Parent Guarantor or any Restricted Subsidiary from any Person (other
than a Restricted Subsidiary of Parent Guarantor) from the issuance and
sale subsequent to the Issue Date of Qualified Capital Stock of Parent
Guarantor or any Restricted Subsidiary (excluding any net proceeds from
issuances and sales financed directly or indirectly using funds borrowed
from Parent Guarantor or any Restricted Subsidiary, until and to the extent
such borrowing is repaid, but including the proceeds from the issuance and
sale (whether before or after the Issue Date) of any securities convertible
into or exchangeable for Qualified Capital Stock of Parent Guarantor or any
Restricted Subsidiary to the extent such securities are so converted or
exchanged after the Issue Date and including any additional proceeds
received by Parent
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Guarantor or such Restricted Subsidiary upon such conversion or exchange);
plus (C) without duplication of any amount included in clause (iii)(B)
above, 100% of the aggregate net proceeds, including the fair market value
of property other than cash (valued as provided in clause (iii)(B) above),
received by Parent Guarantor as a capital contribution subsequent to the
Issue Date; plus (D) $25 million; plus (E) an amount equal to the net
reduction in Investments in any Unrestricted Subsidiary or in an Affiliate
of Parent Guarantor that is not controlled, directly or indirectly, by
Parent Guarantor resulting from payments of interest on debt, dividends,
repayments of loans or advances, or other transfers of assets, in each case
to Parent Guarantor or any Restricted Subsidiary or from the net proceeds
(if other than cash, valued as provided in clause (iii)(B) above) from the
sale of any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Consolidated
EBITDA), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments") not to exceed, in each case, the amount of Investments
previously made by Parent Guarantor or any Restricted Subsidiary in such
Person.
(b) Notwithstanding clause (a) of this Section 4.08, this Section 4.08
shall not prohibit:
(i) the payment of any dividend or the making of any distribution
within 60 days after the date of its declaration if such dividend or
distribution would have been permitted on the date of declaration;
(ii) the purchase, redemption or other acquisition or retirement of
any Capital Stock of Parent Guarantor or any Restricted Subsidiary or any
warrants, options or other rights to acquire shares of any class of such
Capital Stock either (A) solely in exchange for shares of Qualified Capital
Stock of Parent Guarantor or any Restricted Subsidiary or other warrants,
options or rights to acquire Qualified Capital Stock of Parent Guarantor or
any Restricted Subsidiary or (B) through the application of the net
proceeds of a substantially concurrent sale for cash (other than to a
Restricted Subsidiary) of shares of Qualified Capital Stock of Parent
Guarantor or any Restricted Subsidiary or warrants, options or other rights
to acquire Qualified Capital Stock of Parent Guarantor or any Restricted
Subsidiary or (C) in the case of Disqualified Capital Stock, solely in
exchange for, or through the application of the net proceeds of a
substantially concurrent sale for cash (other than to a Restricted
Subsidiary) of, Disqualified Capital Stock;
(iii) the making of any principal payment or the redemption,
repurchase, defeasance or other acquisition or retirement for value of
Indebtedness of the Parent Guarantor, the Company or any Subsidiary
Guarantor which is subordinated in right of payment to the Note Guarantee
or the Notes, as the case may be, in exchange for, or out of the proceeds
of, a substantially concurrent sale for cash (other than to a Restricted
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Subsidiary) of (A) shares of Qualified Capital Stock of Parent Guarantor or
any Restricted Subsidiary (or options, warrants or other rights to acquire
such Capital Stock) or (B) Refinancing Indebtedness;
(iv) payments or distributions to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets;
(v) repurchases of warrants, options or rights to acquire Capital
Stock deemed to occur upon exercise of warrants, options or rights to
acquire Capital Stock if such warrants, options or rights represent a
portion of the exercise price of such warrants, options or rights;
(vi) dividends on Qualified Capital Stock in an annual amount not
to exceed 6.0% of the net cash proceeds received from shares of Qualified
Capital Stock sold (other than to a Restricted Subsidiary) for the account
of the Parent Guarantor or a Restricted Subsidiary; and
(vii) Investments, not to exceed more than $25 million at any time
outstanding, in Unrestricted Subsidiaries or Affiliates of Parent Guarantor
not controlled, directly or indirectly, by Parent Guarantor;
PROVIDED, HOWEVER, that in the case of clauses other than clauses (i), (ii) and
(vii) of this Section 4.08(b), no Event of Default shall have occurred or be
continuing at the time of such payment or as a result thereof. In determining
the aggregate amount of Restricted Payments made subsequent to the Issue Date,
amounts expended pursuant to clauses (i), (ii)(A), (ii)(B), (iii)(A), (iv) and
(vi) of this Section 4.08(b) shall be included in such calculation.
(c) To the extent the issuance of Capital Stock and the receipt of capital
contributions are applied to permit the issuance of Indebtedness pursuant to
clause (v) of the definition of Permitted Indebtedness, the issuance of such
Capital Stock and the receipt of such capital contributions shall not be applied
to permit payments under this Section 4.08.
Section 4.09. LIMITATION ON ASSET SALES.
(a) The Parent Guarantor shall not, and will not permit any Restricted
Subsidiary to, consummate any Asset Sale, unless:
(i) the consideration received by the Parent Guarantor or such
Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of as determined by the board of directors of the
Parent Guarantor or the Restricted Subsidiary, as the case may be; and
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(ii) at least 75% of the consideration received consists of cash or
Temporary Cash Investments or the assumption of Indebtedness of the Parent
Guarantor or any Restricted Subsidiary, other than Indebtedness to the
Company or any Restricted Subsidiary (PROVIDED, HOWEVER, that the Parent
Guarantor or such Restricted Subsidiary is irrevocably and unconditionally
released from all liability under such indebtedness, or notes or other
obligations that are promptly, but in no event more than 90 days after
receipt, converted by the Parent Guarantor or such Restricted Subsidiary
into cash or Temporary Cash Investments).
(b) In the event and to the extent that the Net Cash Proceeds received by
the Parent Guarantor or any of its Restricted Subsidiaries from one or more
Asset Sales occurring after the Closing Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets, determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Parent Guarantor has been filed with the SEC
or provided to the Trustee, then the Parent Guarantor shall or shall cause the
relevant Restricted Subsidiary to:
(i) within twelve months after the date Net Cash Proceeds so
received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply
an amount equal to the amount of such Net Cash Proceeds in excess of 10% of
Adjusted Consolidated Net Tangible Assets to permanently repay Senior
Indebtedness or Guarantor Senior Indebtedness or any Indebtedness of any
Restricted Subsidiary, other than a Subsidiary Guarantor, in each owing to
a Person other than the Parent Guarantor or any of its Restricted
Subsidiaries; or (B) invest, including by way of capital expenditure or
acquisition of Capital Stock or assets, an equal amount, or the amount not
so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within twelve months after the date of such
agreement), in property or assets (other than current assets) of a nature
or type or that are used in a business (or in a Person having property and
assets of a nature or type, or engaged in a business) related, ancillary,
or complementary to the business of Parent Guarantor and its Restricted
Subsidiaries existing on the date of such investment; and
(ii) apply, no later than the end of later of (x) the 12-month
period referred to in clause (i) above or (y) the additional period
referred to in paragraph (B) of clause (i), such Net Cash Proceeds (to the
extent not applied pursuant to clause (i)) as provided in clause (c) of
this Section 4.09.
(c) If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 4.09 totals at least $10 million, the Company must commence an Offer to
Purchase, no later than the fifteenth Business Day of such month, and consummate
such Offer to Purchase with the Holders, and if required by the terms of any
Indebtedness that is pari passu with the Notes ("Pari Passu
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Indebtedness"), from the holders of such Pari Passu Indebtedness on a pro
rata basis, an aggregate principal amount of Notes, and Pari Passu
Indebtedness, if any, equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount thereof, plus, in each
case, accrued and unpaid interest, if any, to the payment date. If the
aggregate principal amount of Notes and any such Pari Passu Indebtedness
validly tendered by holders thereof exceeds the amount of Excess Proceeds,
the Notes and Pari Passu Indebtedness shall be purchased on a pro rata basis.
Upon the completion of any such Offers to Purchase, the amount of Excess
Proceeds shall be reset at zero.
Section 4.10. GUARANTEES.
The Parent Guarantor shall cause any new domestic Restricted Subsidiary
subsequent to the Closing Date to become a Guarantor and execute a Note
Guarantee if and so long as the new domestic Restricted Subsidiary provides a
Guarantee in respect of Senior Indebtedness of the Company. Notwithstanding the
foregoing, to the extent that such domestic Restricted Subsidiary ceases to
provide such Guarantee in respect of Senior Indebtedness of the Company, such
Guarantor shall be released from its Note Guarantee.
Section 4.11. REPORTS.
So long as any of the Notes are outstanding, the Company or the Parent
Guarantor will provide to the Trustee and the Holders of Notes and file with the
SEC, to the extent such submissions are accepted for filing by the SEC, copies
of the annual reports and other such information, documents and other reports
that the Company and the Parent Guarantor would have been required to file with
the SEC pursuant to Sections 13 or 15(d) of the Exchange Act, regardless of
whether either of them is then obligated to file such reports. The Company
shall supply the Trustee and each Holder or shall supply to the Trustee for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information within 15 days after the date it would have been
required to file such reports or other information with the SEC had it been
subject to such Sections. The Company also shall comply with the other
provisions of TIA Section 314(a).
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Section 4.12. CORPORATE EXISTENCE.
Subject to Article 5 hereof, each of the Company and Parent Guarantor
shall do or cause to be done all things necessary to preserve and keep in
full force and effect (i) its corporate existence, and the corporate,
partnership or other existence of each of its Subsidiaries, in accordance
with the respective organizational documents (as the same may be amended from
time to time) of the Company, Parent Guarantor or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the
Company, Parent Guarantor and their respective Subsidiaries; PROVIDED,
HOWEVER, that the Company and Parent Guarantor shall not be required to
preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of their respective Subsidiaries (other than the
Company), if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company
and Parent Guarantor and their respective Subsidiaries, taken as a whole, and
that the loss thereof is not adverse in any material respect to the Holders
of the Notes. The foregoing does not prohibit any mergers or consolidations
between Subsidiaries or between the Company and Parent Guarantor and one or
more of their respective Subsidiaries so long as any such merger or
consolidation involving the Company or Parent Guarantor complies with Article
5.
Section 4.13. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control Triggering Event, each
Holder of Notes will have the right to require the Company to repurchase all
or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Additional Interest
thereon, if any, to the date of purchase (the "Change of Control Payment").
Within ten days following any Change of Control Triggering Event, the Company
shall mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control Triggering Event and offering to
repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by this Indenture and described in such notice. The Company will
comply with the requirements of 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 connection with the repurchase of the Notes as
a result of a Change of Control Triggering Event. To the extent that the
provisions of any securities laws or regulations conflict with the provisions
for the Change of Control Offer, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations with respect to the Change of Control Offer by virtue thereof.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of
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Control Offer, (2) deposit with the Paying Agent an amount equal to the
Change of Control Payment in respect of all Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each
Holder a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; PROVIDED, HOWEVER, that each such new Note will 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.
(c) Prior to the giving of the notice referred to in Section 4.13(a),
but in any event within 30 days following the date on which the Parent
Guarantor becomes aware that a Change of Control Triggering Event has
occurred, if the purchase of the Notes under Section 4.13(a) would violate or
constitute a default under any other Indebtedness of the Parent Guarantor or
its Restricted Subsidiaries, the Parent Guarantor shall, or shall cause its
Restricted Subsidiaries, to the extent needed to permit such purchase of
Notes under Section 4.13(a), either (i) repay all such Indebtedness and
terminate all commitments outstanding thereunder or (ii) obtain the requisite
consents, if any, under such Indebtedness to permit the purchase of the Notes
under Section 4.13(a). The Parent Guarantor will first comply with the
covenant in this Section 4.13(c) before it will be required to cause the
Company to make the Change of Control Offer or purchase the Notes pursuant to
the Section 4.13(a); PROVIDED that the Parent Guarantor's failure to comply
with the covenant described in this Section 4.13(c) shall constitute an Event
of Default described under clause (c) under Section 6.01 and not under clause
(b) under Section 6.01.
(d) Notwithstanding anything to the contrary in this Section 4.13, the
Company shall not be required to make a Change of Control Offer upon a Change
of Control Triggering Event if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Section 4.13 and all other provisions of this
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
(e) The Company shall not be required to make an Offer to Purchase
pursuant to this Section 4.13 if, in contemplation of any Change of Control,
it has made an offer to purchase any and all Notes validly tendered at a cash
price equal to or higher than the Change of Control offer price and has
purchased all Notes properly tendered in accordance with the terms of such
offer to purchase.
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55
Section 4.14. MONEY FOR PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with
respect to any Notes, it will, on or before each due date of the principal,
premium, or interest, including Additional Interest, if any, on any of the
Notes, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum (except as otherwise specified in this Indenture) sufficient to
pay the principal, premium, or interest, including Additional Interest, so
becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the Notes,
it will, prior to or on each due date of the principal, premium, if any, or
interest, including Additional Interest, on any Notes, deposit with a Paying
Agent a sum sufficient to pay the principal, premium, or interest, including
Additional Interest, so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium, or interest,
including Additional Interest, and (unless such Paying Agent is the Trustee)
the Company will promptly notify the Trustee of its action or failure so to
act.
The Company will cause each Paying Agent (other than the Trustee) for
the Notes to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section 4.14, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal,
premium, and interest, including Additional Interest, on Notes in trust for
the benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal,
premium, if any, or interest, including Additional Interest, on the Notes;
and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to
the Trustee, such Paying Agent shall be released from all further liability
with respect to such sums.
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Except as otherwise provided in this Indenture, any money deposited with
the Trustee or any Paying Agent, or then held by the Company, in trust for
the payment of the principal, premium, or interest, including Additional
Interest, on any Note and remaining unclaimed for two years after such
principal, premium, or interest has become due and payable shall be paid to
the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in an Authorized Newspaper, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 4.15. OFFICER CERTIFICATE AS TO EVENTS OF DEFAULT.
The Company shall deliver to the Trustee, within 120 days after the end of
its fiscal year, a certificate indicating whether the signing officers know of
any Default or Event of Default that occurred during the previous year and
whether the Company has complied with its obligations under this Indenture. In
addition, the Company will be required to notify the Trustee of the occurrence
and continuation of any Default or Event of Default promptly after the Company
becomes aware of the same.
Section 4.16. FALL-AWAY EVENT.
Parent Guarantor's and its Restricted Subsidiaries' obligations to comply
with Sections 4.06, 4.08, 4.09, 4.10 and 4.13 will be terminated in the event
that at any time (i) the Notes attain Investment Grade Status and (ii) no
Default has occurred and is continuing under this Indenture (a "Fall-Away
Event"); PROVIDED, HOWEVER, that such covenants shall be reinstated as to future
events if the Notes cease to have Investment Grade Status from either of the
Rating Agencies (the date of reinstatement being the "Reinstatement Date"). For
avoidance of doubt, any actions taken by the Parent Guarantor and its Restricted
Subsidiaries during the period following a Fall-Away Event and prior to the
Reinstatement Date that fail to comply with Sections 4.06, 4.08, 4.09, 4.10 and
4.13 will not be deemed to constitute an Event of Default for any purposes under
this Indenture.
ARTICLE 5
SUCCESSORS
Section 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
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Neither the Company nor the Parent Guarantor shall consolidate with
or merge into any other Person or sell, convey, transfer or lease its
properties and assets substantially as an entirety to any Person, unless:
(a) the Person formed by such consolidation or into which the
Company or the Parent Guarantor, as applicable, is merged or the Person
which acquires by sale, conveyance or transfer, or which leases, the
properties and assets of the Company or the Parent Guarantor, substantially
as an entirety (i) shall be a corporation, partnership, limited liability
company or trust organized and validly existing under the laws of the
United States of America, any state thereof or the District of Columbia and
(ii) shall expressly assume, by an Indenture supplemental thereto, executed
and delivered to the Trustee, in form reasonably satisfactory to the
Trustee, the obligations of the Company and/or the Parent Guarantor, as
applicable, for the due and punctual payment of the principal of, premium,
if any, and interest, including Additional Interest, if any, on all the
Notes and the performance and observance of every covenant of this
Indenture on the part of the Company or on the part of the Parent Guarantor
to be performed or observed;
(b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and
(c) the Company or the Parent Guarantor, as applicable, or such
Person shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and such supplemental Indenture comply with
Article 5 of this Indenture and that all conditions precedent provided for
relating to such transaction have been satisfied;
PROVIDED, HOWEVER, that this Section 5.01 shall apply only to a merger or
consolidation in which the Company or a Guarantor, as applicable, is not the
surviving corporation and to sales, conveyance, leases and transfers by the
Company and the Parent Guarantor as transferor or lessor.
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Section 5.02. SUCCESSOR PERSON SUBSTITUTED.
Upon consolidation by the Company or the Parent Guarantor, as
applicable, with any other Person or merger by the Company or the Parent
Guarantor as applicable, into any other Person or any sale, conveyance,
transfer or lease of the properties and assets of the Company or the Parent
Guarantor, as applicable, substantially as an entirety to any Person in
accordance with this Section 5.01, the successor Person formed by such
consolidation or into which the Company or Parent Guarantor, as applicable,
is merged or to which such conveyance, transfer or lease is made, shall
succeed to and be substituted for, and may exercise every right and power of,
the Company and the Parent Guarantor under this Indenture and the Parent
Guarantor under its Guarantee, as applicable, with the same effect as if such
successor Person had been named as the Company or the Parent Guarantor
therein, respectively, and in the event of any such conveyance or transfer,
the Company and the Parent Guarantor, as applicable, except in the case of a
lease, shall be discharged of all obligations and covenants under this
Indenture, the Notes and the Guarantee of the Parent Guarantor.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. EVENTS OF DEFAULT.
Any of the following events shall constitute an "Event of Default"
hereunder:
(a) the failure to pay interest on the Notes when the same becomes due
and payable and the Default continues for a period of 30 days, whether or not
such payment is prohibited by the provisions of Article 14;
(b) the failure to pay principal of or premium, if any, on any Notes
when such principal or premium, if any, becomes due and payable, at maturity,
upon redemption or otherwise, whether or not such payment is prohibited by
the provisions of Article 14, and such default continues for five or more
days;
(c) a default in the observance or performance of any other covenant or
agreement contained in the Notes or this Indenture, which default continues
for a period of 60 days after the Company receives written notice thereof
specifying the default from the Trustee or holders of at least 25% in
aggregate principal amount of outstanding Notes and demanding that such
default be remedied;
(d) there occurs with respect to any issue or issues of Indebtedness of
the Parent Guarantor or any Significant Subsidiary having an outstanding
principal amount of $20 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now
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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 60 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 60 days of such payment default;
(e) any of the Note Guarantees ceases to be in full force and effect or
any of the Note Guarantees is declared to be null and void and unenforceable
or any of the Note Guarantees is found to be invalid or any of the Guarantors
denies its liability under its Note Guarantee, other than by reason of
release of a Guarantor in accordance with the terms of this Indenture;
(f) one or more judgments in an aggregate amount in excess of $20
million, which are not covered by insurance as to which the insurer has not
disclaimed coverage, being rendered against Parent Guarantor or any of its
Significant Subsidiaries and such judgment or judgments remain undischarged
or unstayed for a period of 60 days after such judgment or judgments become
final and nonappealable; and
(g) (i) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Parent Guarantor or any of its
Significant Subsidiaries in an involuntary case under any applicable
bankruptcy, insolvency or other similar law for relief of debtors now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Parent Guarantor
or any of its Significant Subsidiaries or for all or substantially all of the
property and assets of the Parent Guarantor or any of its Significant
Subsidiaries or (C) the winding up or liquidation of the affairs of the
Parent Guarantor or any of its Significant Subsidiaries and, in each case,
such decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or (ii) the Parent Guarantor or any of its Significant
Subsidiaries (A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law for relief of debtors 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 Parent Guarantor or any of its
Significant Subsidiaries or for all or substantially all of the property and
assets of the Parent Guarantor or any of its Significant Subsidiaries or (C)
effects any general assignment for the benefit of creditors.
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Section 6.02. ACCELERATION.
Upon the happening of any Event of Default (other than an Event of
Default specified in clause (g) of Section 6.01 relating to Parent Guarantor
or the Company), the Trustee may, and the Trustee upon the request of holders
of 25% in principal amount of the outstanding Notes shall, or the holders of
at least 25% in principal amount of outstanding Notes may, declare the
principal of all the Notes, together with all accrued and unpaid interest and
premium, if any, to be due and payable by notice in writing to the Company
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts
outstanding under the Senior Credit Facility, will become due and payable
upon the first to occur of an acceleration under the Senior Credit Facility
or five Business Days after receipt by the Company and the agent under the
Senior Credit facility of such Acceleration Notice (unless all Events of
Default specified in such Acceleration Notice have been cured or waived). If
an Event of Default specified in clause (g) of Section 6.01 relating to
Parent Guarantor or the Company occurs and is continuing, then such amount
will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of the
Notes.
At any time after a declaration of acceleration with respect to the
Notes as described in the preceding paragraph, the holders of a majority in
principal amount of the Notes then outstanding (by notice to the Trustee) may
rescind and cancel such declaration and its consequences if (i) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction, (ii) all existing Defaults and Events of Default have
been cured or waived except nonpayment of principal of or interest on the
Notes that has become due solely by such declaration of acceleration, (iii)
to the extent the payment of such interest is lawful, interest (at the same
rate specified in the Notes) on overdue installments of interest and overdue
payments of principal which has become due otherwise than by such declaration
of acceleration has been paid, (iv) the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its reasonable
expenses, disbursements and advances and (v) in the event of the cure or
waiver of a Default or Event of Default of the type described in clause (g)
of Section 6.01, the Trustee has received an Officers' Certificate and
Opinion of Counsel that such Default or Event of Default has been cured or
waived; PROVIDED, HOWEVER, that notwithstanding the foregoing in the event of
any Event of Default specified in clause (d) of Section 6.01, such Event of
Default and all consequences thereof shall be automatically annulled, waived
and rescinded in accordance with Section 6.13.
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Section 6.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if an Event of Default in payment of
principal, premium or interest specified in clause (a) or (b) of Section 6.01
occurs and is continuing, then the Company will, upon demand of the Trustee,
pay to the Trustee for the benefit of the Holders of such Notes, the whole
amount then due and payable on such Notes for principal, premium, if any, and
interest, and interest on any overdue principal and premium, if any, and to
the extent that payment of such interest is lawful on any overdue interest,
at the rate or rates prescribed therefor in the Notes and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the
same against the Company or any other obligor upon such Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Notes, wherever
situated.
If an Event of Default with respect to the Notes occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Notes by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant
or agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
Section 6.04. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, the Parent Guarantor or any
other obligor upon the Notes or the property of the Company, the Parent
Guarantor or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the
payment of overdue principal, premium, if any, or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
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(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.06.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
Section 6.06 APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article 6 shall be
applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
First: To the payment of all amounts due the Trustee under Section
7.06;
Second: To the holders of Senior Indebtedness, and as to the extent
required by Article 14;
Third: To the payment of the amounts then due and unpaid for
principal, premium, if any, and interest on the Notes in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal, premium, if any, and interest,
respectively; and
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Fourth: The balance, if any, to the Person or Persons entitled
thereto including, without limitation, the Company.
Section 6.07. LIMITATION ON SUITS.
A Holder may not institute any proceeding, judicial or otherwise, with
respect to this Indenture or the Notes, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(i) the Holder has previously given the Trustee written notice of
a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes shall have made a written request to the Trustee to
pursue such remedy;
(iii) such Holder or Holders offer the Trustee indemnity reasonably
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.
For purposes of Section 6.12 of this Indenture and this Section 6.07,
the Trustee shall comply with TIA Section 316(a) in making any determination
of whether the Holders of the required aggregate principal amount of
outstanding Notes have concurred in any request or direction of the Trustee
to pursue any remedy available to the Trustee or the Holders with respect to
this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
Section 6.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein and in such Note, of the principal, premium, if
any, and interest on, such Note on the Stated Maturity (or, in the case of
redemption, on the redemption date in accordance with Article 3) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
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Section 6.09. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders of
Notes shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.
Section 6.10. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Notes in Section 2.06, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders of
Notes is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of
any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default
or an acquiescence therein. Every right and remedy given by this Article 6
or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
Section 6.12. CONTROL BY HOLDERS.
The Holders of at least a majority in aggregate principal amount of the
Notes shall have the right to 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, PROVIDED that in each case
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
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(c) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders of Notes not
consenting.
Section 6.13. WAIVER OF PAST DEFAULTS.
Subject to Sections 6.02 and 9.02, the Holders of at least a majority in
principal amount of the outstanding Notes, by notice to the Trustee, may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of, premium, if any, or interest on any
Note specified in clause (a) or (b) of Section 6.01. In the event of any
Event of Default specified in clause (d) of Section 6.01, such Event of
Default and all consequences thereof (including without limitation any
acceleration or resulting payment default) shall be annulled, waived and
rescinded, automatically and without any action by the Trustee or the holders
of the Notes, if within 60 days after such Event of Default arose (x) the
Indebtedness that is the basis for such Event of Default has been discharged,
or (y) the holders of such Indebtedness have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise to such Event
of Default, or (z) if the default that is the basis for such Event of Default
has been cured.
ARTICLE 7
TRUSTEE
Section 7.01. NOTICE OF DEFAULTS.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other facts stated
therein).
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of
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care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that
(i) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Notes, determined as provided herein relating to the time,
method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Notes.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
Within 45 days after the occurrence of any Default hereunder with
respect to the Notes, the Trustee shall transmit in the manner and to the
extent provided in TIA Section 313(c), notice of such Default hereunder known
to the Trustee, unless such Default shall have been cured or waived;
PROVIDED, HOWEVER, that, except in the case of a Default in the payment of
the principal, premium, if any, or interest on any of such Notes, the Trustee
shall be protected in withholding such notice if and so long as the Trustee
in good faith determines that the withholding of such notice is in the
interest of the Holders of Notes and any related coupons.
Section 7.02. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document reasonably believed
by it to be genuine and to have been signed or presented by the proper party
or parties;
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(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Notes pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture;
(i) the Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such
a Default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Notes and this Indenture; and
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(j) the rights, privileges, protections, immunities and benefits given
to the Trustee, including, without limitation, its right to be indemnified,
are extended to, and shall be enforceable by, the Trustee in each of its
capacities hereunder, and to each agent, custodian and other Person employed
to act hereunder.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it.
Section 7.03. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
The recitals contained herein and in the Notes, except for the Trustee's
certificates of authentication, shall be taken as the statements of the
Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations
as to the validity or sufficiency of this Indenture or of the Notes, except
that the Trustee represents that it is duly authorized to execute and deliver
this Indenture, authenticate the Notes and perform its obligations hereunder
and that the statements made by it in a Statement of Eligibility and
Qualification on Form T-1 supplied to the Company are true and accurate,
subject to the qualifications set forth therein. Neither the Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of Notes or the proceeds thereof.
Section 7.04. MAY HOLD NOTES.
The Trustee, any Authenticating Agent, any Paying Agent, any Registrar
or any other agent of the Company or of the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Notes and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Authenticating Agent, Paying
Agent, Registrar or such other agent.
Section 7.05. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
Section 7.06. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
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(a) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify the Trustee and any predecessor Trustee for, and to
hold it harmless against, any loss, liability or expense, including taxes
(other than taxes based upon, measured by, or determined by the income of the
Trustee), incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of the trust or
trusts hereunder, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance
of any of its powers or duties hereunder.
The obligations of the Company under this Section 7.06 to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal, premium, if any, or
interest on particular Notes.
Section 7.07. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY; CONFLICTING
INTEREST.
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee under TIA Section 310(a)(1). Each successor trustee shall
have a combined capital and surplus of at least $50,000,000. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section
7.07, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published.
If at any time the Trustee acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue, or resign. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section 7.07, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article 7.
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Section 7.08. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) Resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article 7 shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 7.09.
(b) The Trustee may resign at any time with respect to the Notes by
giving written notice thereof to the Company. If the instrument of
acceptance by a successor Trustee required by Section 7.09 shall not have
been delivered to the Trustee within 30 days after the giving of such notice
of resignation removal, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee with
respect to the Notes.
(c) If at any time:
(i) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(ii) the Trustee shall cease to be eligible under Section 7.07(a)
and shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Note for at least six
months, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (1) the Company, by a Board Resolution, may remove
the Trustee with respect to all Notes, or (2) subject to TIA Section 315(e),
any Holder who has been a bona fide Holder of a Note for at least six months
may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee with respect
to the Notes and the appointment of a successor Trustee or Trustees.
The Company also may remove the Trustee with or without cause if the
Company so notifies the Trustee three months in advance and if no Default
occurs during the three-month period.
If the instrument of acceptance by a successor Trustee required by
Section 7.09 shall not have been delivered to the Trustee within 30 days
after receipt of a notice of removal, the removed Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Notes.
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(d) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
with respect to the Notes, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee or Trustees with respect to the Notes. If no
successor Trustee with respect to the Notes shall have been so appointed by
the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Note for at least
six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Notes.
(e) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Notes and each appointment of a successor
Trustee with respect to the Notes to the Holders of Notes in the manner
provided for in Section 14.02. Each notice shall include the name of the
successor Trustee with respect to the Notes and the address of its Corporate
Trust Office.
Section 7.09. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee with
respect to the Notes, the Company, the retiring Trustee and each successor
Trustee with respect to the Notes shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such
appointment and which (1) shall contain such provisions as shall be necessary
or desirable to transfer and confirm to, and to vest in, each successor
Trustee all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Notes to which the appointment of such successor Trustee
relates; and upon the execution and delivery of such supplemental indenture
to resignation or removal of the retiring Trustee shall become effective to
the extent provided therein and each such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee with respect to the Notes;
but, on request of the Company or any successor Trustee, such retiring
Trustee shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder with respect to
the Notes.
(b) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred
to in paragraph (a) of this Section 7.09.
(c) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article 7.
Section 7.10. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
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Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any further act
on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Notes so authenticated
with the same effect as if such successor Trustee had itself authenticated
such Notes; and in case at that time any of the Notes shall not have been
authenticated, any successor Trustee may authenticate such Notes either in
the name of any predecessor hereunder or in the name of the successor
Trustee; and in all such cases such certificates shall have the full force
which it is anywhere in the Notes or in this Indenture provided that the
certificate of the Trustee shall have; PROVIDED, HOWEVER, that the right to
adopt the certificate of authentication of any predecessor Trustee or to
authenticate Notes in the name of any predecessor Trustee shall apply only to
its successor or successors by merger, conversion or consolidation.
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Section 7.11. APPOINTMENT OF AUTHENTICATING AGENT.
At any time when any of the Notes remain Outstanding, the Trustee may
appoint an Authenticating Agent or Agents with respect to the Notes which
shall be authorized to act on behalf of the Trustee to authenticate the Notes
and the Trustee shall give written notice of such appointment to all Holders
of Notes with respect to which such Authenticating Agent will serve. Notes
so authenticated shall be entitled to the benefits of this Indenture and
shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Any such appointment shall be evidenced by an instrument
in writing signed by a Responsible Officer of the Trustee, and a copy of such
instrument shall be promptly furnished to the Company. Wherever reference is
made in this Indenture to the authentication and delivery of Notes by the
Trustee or the Trustee's certificate of authentication, such reference shall
be deemed to include authentication and delivery on behalf of the Trustee by
an Authenticating Agent and a certificate of authentication executed on
behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent
shall be acceptable to the Company and shall at all times be a corporation
organized and doing business under the laws of the United States of America,
any state thereof or the District of Columbia, authorized under such laws to
act as Authenticating Agent, having a combined capital and surplus of not
less than $50,000,000 and subject to supervision or examination by federal or
state authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section 7.11, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section 7.11, it shall resign
immediately in the manner and with the effect specified in this Section 7.11.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to the corporate agency
or corporate trust business of an Authenticating Agent, shall continue to be
an Authenticating Agent, PROVIDED such corporation shall be otherwise
eligible under this Section 7.11, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 7.11, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
written notice of such appointment to all Holders of Notes with respect to
which such Authenticating Agent will serve. Any successor Authenticating
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Agent upon acceptance of its appointment hereunder shall become vested with
all the rights, powers and duties of its predecessor hereunder, with like
effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions
of this Section 7.11.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 7.11, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 7.06.
If an appointment is made pursuant to this Section 7.11, the Notes may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Notes referred to
in the within-mentioned Indenture.
Dated:
The Bank of New York
By
------------------------------------
as Authenticating Agent
By
------------------------------------
as Authenticating Agent
ARTICLE 8
DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
Section 8.02. DEFEASANCE AND DISCHARGE.
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Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be deemed to have been discharged from its obligations with respect
to all Outstanding Notes on the date the conditions set forth below are
satisfied (hereinafter, "Defeasance"). For this purpose, Defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Outstanding Notes, which shall thereafter be
deemed to be Outstanding only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to
have satisfied all its other obligations under such Notes, the Note
Guarantees and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following provisions which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
such Outstanding Notes to receive, solely from the trust fund described in
Section 8.04 hereof, and as more fully set forth in such Section, payments in
respect of the principal of (and premium, if any, on) and interest and
Additional Interest, if any, on such Notes when such payments are due, (b)
the Company's obligations with respect to such Notes under Article 2 and
Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of
the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article 8.
Section 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be released from their respective obligations under the covenants
contained in Sections 4.06 through 4.10 and Section 4.13 hereof with respect
to the outstanding Notes on and after the date the conditions set forth in
Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the
Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it
being understood that such Notes shall not be deemed outstanding for
accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Notes, the Company and the Guarantors may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or
an Event of Default under Section 6.01 hereof, but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.01 hereof
of the option applicable to this Section 8.03, subject to the satisfaction of
the conditions set forth in Section 8.04 hereof, Sections 6.01(c) and (f)
hereof shall not constitute Events of Default.
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Section 8.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either defeasance or covenant defeasance:
(a) the Company shall irrevocably deposit or cause to be deposited with
the Trustee, in trust, for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of such Notes, (A) money in an amount (in such currency in which
such Notes are then specified as payable at Stated Maturity), or (B) U.S.
Government Obligations applicable to such Notes which through the scheduled
payment of principal, premium, if any, and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment of principal (including any premium) and interest, if
any, under such Notes, money in an amount or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants to pay and discharge (i) the principal of and premium, if
any, on and interest on the outstanding Notes on the Stated Maturity or any
Redemption Date selected by the Company, if applicable of such principal and
premium, if any or installment or interest, as well as the Trustee's fees and
expenses;
(b) such defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a default under, this Indenture or any other
material agreement or instrument to which the Company is a party or by which
it is bound;
(c) the Company has delivered to the Trustee (1) 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 Section 8.04 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 option had not been exercised, which Opinion of Counsel shall be based
upon (and accompanied by a copy of) a ruling of the Internal Revenue Service
directed to the Company to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a ruling is
no longer required or (y) a ruling directed to the Company received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (2) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and that
after the passage of 123 days following the deposit (except, with respect to any
trust funds for the account of any Holder who may be deemed to be an "insider"
for purposes of the United States Bankruptcy Code, after one year following the
deposit), the trust funds 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 in a case commenced by or against the Company under either such
statute, PROVIDED, that in delivering any such Opinion of Counsel, such counsel
shall be entitled to rely
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upon the statements of experts as to the solvency of the Company, and either
(I) the trust funds will no longer remain the property of the Company (and
therefore will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally) or (II) if a court were to rule under any such law in any case or
proceeding that the trust funds remained property of the Company, (A)
assuming such trust funds remained in the possession of the Trustee prior to
such court ruling to the extent not paid to the Holders, the Trustee will
hold, for the benefit of the Holders, a valid and perfected security interest
in such trust funds that is not avoidable in bankruptcy or otherwise except
for the effect of Section 552(b) of the United States Bankruptcy Code on
interest on the trust funds accruing after the commencement of a case under
such statute and (B) the Holders will be entitled to receive adequate
protection of their interests in such trust funds if such trust funds are
used in such case or proceeding;
(d) an Officers' Certificate and an Opinion of Counsel to the effect
that the Company has complied with all condition precedent to the defeasance;
and
(e) such defeasance or covenant defeasance shall be effected in
compliance with any additional or substitute terms, conditions or limitations
in connection therewith pursuant to this Indenture.
Section 8.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Notes and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as Paying
Agent) as the Trustee may determine, to the Holders of such Notes of all sums
due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to
the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 8.04 hereof or the principal,
premium, if any, and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of
the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or U.S. Government Obligations held by it as provided in
Section 8.04 hereof which, in the opinion of a
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nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee (which may be the
opinion delivered under Section 8.04(a) hereof), are in excess of the amount
thereof that would then be required to be deposited to effect an equivalent
Defeasance or Covenant Defeasance.
Section 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if
any, or interest or Additional Interest, if any, on any Note and remaining
unclaimed for two years after such principal, and premium, if any, or
interest or Additional Interest, if any, has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in
the New York Times and The Wall Street Journal (national edition), notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such notification or
publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
Section 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's and the Guarantors'
obligations under this Indenture, the Notes and the Note Guarantees shall be
revived and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any
payment of principal of, premium, if any, or interest or Additional Interest,
if any, on any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
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ARTICLE 9
AMENDMENTS AND SUPPLEMENTS TO THE INDENTURE
Section 9.01. WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by or
pursuant to a Board Resolution, the Parent Guarantor, when authorized by or
pursuant to a resolution of its board of directors, and the Trustee, at any
time and from time to time, may amend or supplement this Indenture, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to cure ambiguities, defects or inconsistencies, or to make any
other provisions with respect to questions or matters arising under this
Indenture;
(b) to effect or maintain the qualification of this Indenture under the
Trust Indenture Act;
(c) to secure the Notes;
(d) to add any additional Note Guarantees;
(e) to evidence the succession of another Person to the Company or any
Guarantor and the assumption by any such successor of the obligations of the
Company or Guarantor, as applicable, contained herein and in the Notes;
(f) to add any additional Events of Default;
(g) to add to the covenants of the Company or any Guarantee for the
benefit of the Holders of the Notes; or
(h) to make any other change to the provisions of this Indenture that,
in the good faith opinion of the Board of Directors of the Parent Guarantor,
does not materially and adversely affect the rights of Holders of the Notes
hereunder.
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Section 9.02. WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in principal
amount of all Outstanding Notes by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by or pursuant to a
Board Resolution, and the Trustee may supplement or amend this Indenture for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture which affect such Notes
or of modifying in any manner the rights of the Holders of Notes under this
Indenture; PROVIDED, HOWEVER, that, without the consent of each holder of the
Notes affected thereby, no amendment or supplement may, directly or
indirectly, (i) reduce the amount of Notes whose holders must consent to an
amendment; (ii) reduce the rate of or change the time for payment of
interest, including defaulted interest, on any Notes; (iii) reduce the
principal of or change the fixed maturity of any Notes, or change the date on
which any Notes may be subject to redemption or repurchase, or reduce the
redemption or repurchase price therefor; (iv) make any Notes payable in money
other than that stated in the Notes and this Indenture; (v) make any change
in provisions of this Indenture protecting the right of each holder of a Note
to receive payment of principal of, premium on and interest on such Note on
or after the due date thereof or to bring suit to enforce such payment or
permitting holders of a majority in principal amount of the Notes to waive a
Default or Event of Default; or (vi) after the Company's obligation to
purchase the Notes arises under this Indenture, amend, modify or change the
obligation of the Company to make or consummate an Offer to Purchase or waive
any default in the performance thereof or modify any of the provisions or
definitions with respect to any such offer.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Persons entitled to consent to any amendment
or supplement hereto. If a record date is fixed, the Holders on such record
date, or their duly designated proxies, and only such Persons, shall be
entitled to consent to such supplemental indenture, whether or not such
Holders remain Holders after such record date; PROVIDED that, unless such
consent shall have become effective by virtue of the requisite percentage
having been obtained prior to the date which is 90 days after such record
date, any such consent previously given shall automatically and without
further action by any Holder be canceled and of no further effect.
It shall not be necessary for any Act of Holders under this Section 9.02
to approve the particular form of any proposed amendment or supplement, but
it shall be sufficient if such Act shall approve the substance thereof.
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Section 9.03. EXECUTION OF AMENDMENTS AND SUPPLEMENTS.
In executing, or accepting the additional trusts created by, any
amendment or supplement permitted by this Article 9 or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of such amendment or supplement is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such amendment or supplement which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 9.04. EFFECT OF AMENDMENTS AND SUPPLEMENTS.
Upon the execution of any amendment or supplement to this indenture
under this Article 9, this Indenture shall be modified in accordance
therewith, and such amendment or supplement to this indenture shall form a
part of this Indenture for all purposes; and every Holder of Notes
theretofore or thereafter authenticated and delivered hereunder shall be
bound thereby.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every amendment or supplement executed pursuant to this Article 9 shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. REFERENCE IN NOTES TO AMENDMENTS AND SUPPLEMENTS.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article 9 may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
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ARTICLE 10
NOTE GUARANTEES
Section 10.01. NOTE GUARANTEE.
Subject to the provisions of this Article 10, each Guarantor hereby,
jointly and severally, fully, unconditionally and irrevocably Guarantees to
each Holder of Notes hereunder and to the Trustee on behalf of the Holders:
(i) the due and punctual payment of the principal of, premium, if any, and
interest and Additional Interest, if any, on each Note, when and as the same
shall become due and payable, whether at maturity, by acceleration,
redemption or otherwise, the due and punctual payment of interest and
Additional Interest, if any, on the overdue principal and premium, if any, of
and interest and Additional Interest, if any, on the Notes, to the extent
lawful, and the due and punctual performance of all other obligations of the
Company to the Holders or the Trustee, all in accordance with the terms of
such Note and this Indenture and (ii) in the case of any extension of time of
payment or renewal of any Notes or any of such other obligations, that the
same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, at maturity, by acceleration or
otherwise, subject, however, in the case of clauses (i) and (ii) above, to
the limitations set forth in the next succeeding paragraph.
Each Note Guarantee shall be Guaranteed on a senior subordinated basis
in accordance with Article 15 hereof.
Each Guarantor and by its acceptance hereof each Holder hereby confirms
that it is the intention of all such parties that the Guarantee by such
Guarantor pursuant to its Note Guarantee not constitute a fraudulent transfer
or conveyance for purposes of the United States Bankruptcy Code, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
Federal or state law. To effectuate the foregoing intention, the Holders and
such Guarantor hereby irrevocably agree that the obligations of such
Guarantor under its Note Guarantee shall be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of
such Guarantor and after giving effect to any collections from or payments
made by or on behalf of any other Guarantor in respect of the obligations of
such other Guarantor under its Note Guarantee or pursuant to the following
paragraph, result in the obligations of such Guarantor under its Note
Guarantee not constituting such fraudulent transfer or conveyance.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under its Note
Guarantee, such Funding Guarantor shall be entitled to a contribution from
all other Guarantors in a pro rata amount based on the Adjusted Net Assets of
each Guarantor (including the Funding Guarantor) for all payments, damages
and expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Notes or any other Guarantor's obligations
with respect to its Note Guarantee.
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"Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities
under the Note Guarantee, of such Guarantor at such date and (y) the present
fair salable value of the assets of such Guarantor at such date exceeds the
amount that will be required to pay the probable liability of such Guarantor
on its debts (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date and after giving effect to any
collection from any Subsidiary of such Guarantor in respect of the
obligations of such Subsidiary under the Note Guarantee of such Guarantor),
excluding debt in respect of its Note Guarantee, as they become absolute and
matured.
Each Guarantor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of merger or bankruptcy of the
Company, any requirement that the Trustee or any of the Holders protect,
secure, perfect or insure any security interest in or other Lien upon any
property subject thereto or exhaust any right or take any action against the
Issuer or any other Person, any right to require a proceeding first against
the Company, the benefit of discussion, protest or notice with respect to any
such Note or the debt evidenced thereby and all demands whatsoever (except as
specified above), and covenants that this Note Guarantee will not be
discharged as to any such Note except by payment in full of the principal
thereof and interest thereon and as provided in Section 11.01. The maturity
of the obligations Guaranteed hereby may be accelerated as provided in
Article 6 for the purposes of this Article 10. In the event of any
declaration of acceleration of such obligations as provided in Article 6,
such obligations (whether or not due and payable) shall forthwith become due
and payable by the Guarantors for the purpose of this Article 10. In
addition, without limiting the foregoing provisions, upon the effectiveness
of an acceleration under Article 6, the Trustee shall promptly make a demand
for payment on the Notes under the Note Guarantee provided for in this
Article 10.
The obligations of each Guarantor under this Note Guarantee are
independent of the obligations Guaranteed by such Guarantor hereunder, and a
separate action or actions may be brought and prosecuted by the Trustee on
behalf of, or by, the Holders, subject to the terms and conditions set forth
in this Indenture, against a Guarantor to enforce this Guaranty, irrespective
of whether any action is brought against the Company or whether the Company
is joined in any such action or actions.
If the Trustee or the Holder is required by any court or otherwise to
return to the Company or any Guarantor, or any custodian, receiver, liquidator,
trustee, sequestrator or other similar official acting in relation to the
Company or such Guarantor, any amount paid to the Trustee or such Holder in
respect of a Note, this Note Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each of the Guarantors further
agrees, to the fullest extent that it may lawfully do so, that, as between it,
on the one hand, and the Holders and the Trustee, on the other hand, the
maturity of the obligations Guaranteed hereby may be
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accelerated as provided in Article 6 hereof for the purposes of this Note
Guarantee, notwithstanding any stay, injunction or other prohibition extant
under any applicable bankruptcy law preventing such acceleration in respect
of the obligations Guaranteed hereby.
Each of the Guarantors hereby irrevocably waives any claim or other
rights which it may now or hereafter acquire against the Company or any other
Guarantor that arise from the existence, payment, performance or enforcement
of its obligations under this Note Guarantee and this Indenture, including,
without limitation, any right of subrogation, reimbursement, exoneration,
contribution, indemnification, any right to participate in any claim or
remedy of the Holders against the Company or any Guarantor or any collateral
which any such Holder or the Trustee on behalf of such Holder hereafter
acquires, whether or not such claim, remedy or right arises in equity, or
under contract, statute or common law, including, without limitation, the
right to take or receive from the Company or a Guarantor, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to a Guarantor in violation of the preceding sentence and the
principal of and accrued interest on the Notes shall not have been paid in
full, such amount shall be deemed to have been paid to such Guarantor for the
benefit of, and held in trust for the benefit of, the Holders, and shall
forthwith be paid to the Trustee for the benefit of the Holders to be
credited and applied upon the principal of and accrued interest on the Notes.
Each of the Guarantors acknowledges that it will receive direct and indirect
benefits from the issuance of the Notes pursuant to this Indenture and that
the waivers set forth in this Section 10.01 are knowingly made in
contemplation of such benefits.
Section 10.02. OBLIGATIONS UNCONDITIONAL.
Nothing contained in this Article 10 or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among any Guarantor and the
Holders of the Notes, the obligation of such Guarantor, which is absolute and
unconditional, upon failure by the Company to pay to the Holders of the Notes
the principal of and interest on the Notes as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the Holders and creditors of such Guarantor,
nor shall anything herein or therein prevent any Holder or the Trustee on
their behalf from exercising all remedies otherwise permitted by applicable
law upon default under this Indenture.
Without limiting the foregoing, nothing contained in this Article 10
will restrict the right of the Trustee or the Holders to take any action to
declare the Note Guarantee to be due and payable prior to the maturity of any
Notes pursuant to Section 6.01 or to pursue any rights or remedies hereunder.
Section 10.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
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(a) Nothing contained in this Indenture or in any of the Notes shall
prevent any consolidation or merger of a Guarantor with or into the Company or
another Guarantor or shall prevent any sale or conveyance of the property of a
Guarantor, as an entirety or substantially as an entirety, to the Company or the
Guarantor. Upon any such consolidation, merger, sale or conveyance, the
Guarantee given by such Guarantor shall no longer have any force or effect.
(b) Nothing contained in this Indenture or in any of the Notes shall
prevent any consolidation or merger of a Guarantor with or into a Person
(provided such Person is a corporation, partnership or trust) other than the
Company or another guarantor or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety to any
such Person (whether or not an Affiliate of the Guarantor). Upon the sale or
disposition of a Guarantor (or all or substantially all of its assets) to a
Person which is not a Subsidiary of the Company, which is otherwise in
compliance with this Indenture, such Guarantor shall be deemed released from all
its obligations under this Indenture and its Guarantee and such Guarantee shall
terminate; PROVIDED, HOWEVER, that any such termination shall occur only to the
extent that all obligations of such Guarantor under all its guarantees of, and
under all of its pledges of assets or other security interests which secure,
Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
(c) The Trustee shall, at the Company's expense, deliver an appropriate
instrument evidencing such release upon receipt of a request by the Company
accompanied by an Officers' Certificate certifying as to the compliance with
this Section 10.03. Any Guarantor not so released remains liable for the full
amount of principal of an interest on the Notes as provided in this Article Ten.
Section 10.04. NOTICE TO TRUSTEE.
A Guarantor shall give prompt written notice to the Trustee of any fact
known to such Guarantor which would prohibit the making of any payment to or by
the Trustee in respect of the Note Guarantee pursuant to the provisions of this
Article 10.
Section 10.05. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Note Guarantee set forth in Section 10.01, each Guarantor
hereby agrees that a notation of such Note Guarantee substantially in the form
included in Exhibit E shall be endorsed by an Officer of such Guarantor on each
Note authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of such Guarantor by its President or one of its Vice
Presidents.
Each Guarantor hereby agrees that its Note Guarantee set forth in Section
10.01 shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Note Guarantee.
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If an Officer whose signature is on this Indenture or on the Note Guarantee
no longer holds that office at the time the Trustee authenticates the Note on
which a Note Guarantee is endorsed, the Note Guarantee shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Note Guarantee set forth in this
Indenture on behalf of the Guarantors.
Section 10.06. ADDITIONAL GUARANTORS.
Any Person may become a Guarantor (pursuant to Section 4.10 or otherwise)
by executing and delivering to the Trustee (a) a supplemental indenture, in form
and substance substantially in the form of Exhibit F attached hereto, which
subjects such Person to the provisions of this Indenture as a Guarantor, and
(b) an Opinion of Counsel to the effect that such supplemental indenture has
been duly authorized and executed by such Person and constitutes the legal,
valid, binding and enforceable obligation of such Person (subject to such
customary exceptions concerning fraudulent conveyance laws, creditors' rights
and equitable principles as may be acceptable to the Trustee in its discretion).
ARTICLE 11
SATISFACTION AND DISCHARGE
Section 11.01. SATISFACTION AND DISCHARGE.
This Indenture shall upon Company Request cease to be of further effect
with respect to any Notes (except as to any surviving rights of registration of
transfer or exchange of Notes herein expressly provided for) and the Trustee
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture as to such Notes when
(a) either
(i) all Notes theretofore authenticated and delivered (other than
(A) Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.07, and (B) Notes for whose
payment money has theretofore been deposited in trust with the Trustee or
any Paying Agent or segregated and held in trust by the Company and
thereafter repaid to the Company, as provided in Section 4.14) have been
delivered to the Trustee for cancellation; or
(ii) all Notes not theretofore delivered to the Trustee for
cancellation
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(A) have become due and payable, or
(B) will become due and payable at their Stated Maturity
within one year, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company, and the Company,
in the case of (i), (ii) or (iii) above, has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose an amount, in U.S. dollars or in U.S. Government Obligations,
sufficient to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for principal,
premium, if any, and interest to the date of such deposit (in the case of
Notes which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 7.06, the obligations of
the Trustee to any Authenticating Agent under Section 7.11 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause (a) of
this Section 11.01, the obligations of the Trustee under Section 11.02 and the
last paragraph of Section 4.14 shall survive.
Section 11.02. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 4.14, all money
deposited with the Trustee pursuant to Section 11.01 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal, premium, if any,
and interest for whose payment such money has been deposited with the Trustee,
but such money need not be segregated from other funds except to the extent
required by law.
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Section 11.03. REPAYMENT OF TRUST MONEY.
The Trustee and the Paying Agent shall promptly turn over to the Company
upon request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal or interest that remains
unclaimed for two years. After payment to the Company, Holders entitled to the
money must look to the Company for payment as unsecured general creditors unless
an abandoned property law designates another person.
ARTICLE 12
MISCELLANEOUS
Section 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties shall control.
Section 12.02. NOTICES.
Any notice or communication by the Company, any Guarantor or the Trustee to
the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company and/or any Guarantor:
Protection One Alarm Monitoring, Inc.
6011 Bristol Parkway
Culver City, CA 90230
Telecopier No.: (310) 649-3855
Attention: President
With a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Telecopier No.: (214) 746-7777
Attention: Jeremy W. Dickens, Esq.
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If to the Trustee:
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Telecopier No.: (212) 815-5195
Attention: Corporate Trust Administration
The Company, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other documents provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing and
mailed, first-class postage prepaid or transmitted via facsimile, to or with the
Trustee at its Corporate Trust Office, or
(b) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid or transmitted via facsimile, to
the Company addressed to it at the address of its principal office specified in
the first paragraph of this Indenture or at any other address previously
furnished in writing to the Trustee by the Company.
ARTICLE 13
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 13.01. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Notes, by receiving and holding the same, agrees with the
Company and the Trustee that none of the Company or the Trustee or any agent of
either of them shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with TIA
Section 312, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under TIA Section 312(b).
Section 13.02. REPORTS BY TRUSTEE.
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Within 60 days after May 15 of each year commencing with the first May 15
after the first issuance of Notes pursuant to this Indenture, the Trustee shall
transmit to the Holders of Notes, in the manner and to the extent provided in
TIA Section 313(c), a brief report dated as of such May 15 if required by TIA
Section 313(a).
Section 13.03. REPORTS BY COMPANY.
The Company shall:
(a) file with the Trustee such information as is required pursuant to
Section 4.11;
(b) file with the Trustee and the SEC, in accordance with rules and
regulations prescribed from time to time by the SEC, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(c) transmit to all Holders, in the manner and to the extent provided in
TIA Section 313(c), within 30 days after the filing thereof with the Trustee,
such summaries of any information, documents and reports required to be filed by
the Company pursuant to clauses (a) and (b) of this Section 13.03 as may be
required by rules and regulations prescribed from time to time by the SEC.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Where this Indenture provides for notice of any event to Holders of Notes
by the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each such Holder affected by such event, at his address as
it appears in the Security Register within the time prescribed for the giving of
such notice. In any case where notice to Holders of Notes is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders of Notes given as provided. Any notice mailed to a
Holder in the manner herein prescribed shall be
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conclusively deemed to have been received by such Holder, whether or not such
Holder actually receives such notice.
In case, by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it shall be impractical to mail notice
of any event to Holders of Notes when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be sufficient
giving of such notice for every purpose hereunder.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 13.04. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA
Section 312(c).
Section 13.05. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 13.06. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
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(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
Section 13.07. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 13.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Guarantor, as such, shall have any liability
for any obligations of the Company or such Guarantor under the Notes, the Note
Guarantees, this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
Section 13.09. GOVERNING LAW.
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS
INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 13.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
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Section 13.11. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successors. All agreements of each Guarantor in this Indenture shall bind its
successors, except as otherwise provided in Section 10.03.
Section 13.12. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 13.13. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 13.14. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 13.15. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders of
the Outstanding Notes may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agents duly appointed in writing. Except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
or record or both are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments and any such record
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments
or so voting at any such meeting.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact
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and date of the execution of any such instrument or writing, or the
authority of the Person executing the same, may also be proved in any other
manner which the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any Person,
and the date of holding the same, shall be proved by the Security Register.
(d) If the Company shall solicit from the Holders of Notes any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to Board Resolution, fix in advance a
record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so. Notwithstanding TIA Section 316(c),
such record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 60 days prior to the
first solicitation of Holders generally in connection therewith and not later
than the date such solicitation is completed. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the Outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Note shall bind every future Holder of the
same Note and the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Note.
Section 13.16. LEGAL HOLIDAYS.
In any case where any interest payment date, redemption date, or Stated
Maturity or Maturity of any Note shall not be a Business Day at any Place of
Payment, then (notwithstanding any other provision of this Indenture or of any
Note) payment of interest or principal, premium, if any, need not be made at
such Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if made
on the interest payment date or redemption date or at the Stated Maturity or
Maturity; provided, however that no interest shall accrue for the period from
and after such interest payment date, redemption date, Stated Maturity or
Maturity, as the case may be.
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Section 13.17. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto, any Authenticating Agent, any
Paying Agent, any Registrar and their successors hereunder and the Holders of
Notes, any benefit or any legal or equitable right, remedy or claim under this
Indenture.
ARTICLE 14
SUBORDINATION OF NOTES
Section 14.01. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company, each Guarantor and the Trustee each covenants and agrees, and
each Holder, by its acceptance of a Note, likewise covenants and agrees that all
Notes shall be issued subject to the provisions of this Article 14; and each
Person holding any Note, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that the payments of
principal of, premium if any, and interest, including Additional Interest, if
any, on the Notes, and all other Obligations on the Notes shall, to the extent
and in the manner set forth in this Article 14, be subordinated in right of
payment to the prior payment in full, in cash, of all existing and future Senior
Indebtedness of the Company (including any interest accruing on or subsequent
to, or which would have accrued but for the occurrence of, an event specified in
Section 6.01(g) of this Indenture, whether or not such interest is an allowed
claim enforceable against the debtor under the United States Bankruptcy Code);
PROVIDED, HOWEVER, that payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described in Article 8 is
not subordinated to any Senior Indebtedness or subject to the restrictions
described herein.
Section 14.02. NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES.
(a) The Company may not pay principal of, premium, if any, or interest,
including Additional Interest, if any, or other Obligations with respect to the
Notes or make any deposit pursuant to Article 8 and may not otherwise redeem,
purchase or retire any Notes (collectively, "pay the Notes") if:
(i) any Senior Indebtedness is not paid when due; or
(ii) any other default on Senior Indebtedness occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, the default has been cured or waived and/or
any such acceleration has been rescinded or such Senior Indebtedness has
been paid;
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PROVIDED, HOWEVER, that the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Senior Indebtedness with respect to which
either of the events set forth in subclause (i) or (ii) of this Section 14.02(a)
has occurred and is continuing; and PROVIDED, FURTHER, that Holders of the Notes
may receive: (A) Qualified Capital Stock issued by Parent Guarantor or any of
its Restricted Subsidiaries to pay interest on the Notes or issued in exchange
for the Notes; (B) securities substantially identical to the Notes issued by the
Company in payment of interest accrued thereon; or (C) securities issued by the
Company which are subordinated to Senior Indebtedness at least to the same
extent as the Notes and having a Weighted Average Life to Maturity at least
equal to the remaining Weighted Average Life to Maturity of the Notes.
(b) During the continuance of any other default, other than a default
described in subclause (i) or (ii) of Section 14.02(a), with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Notes (except that holders of the notes may
receive (i) Qualified Capital Stock issued by Parent Guarantor or any of its
Restricted Subsidiaries to pay interest on the Notes or issued in exchange for
the Notes, (ii) securities substantially identical to the Notes issued by the
Company in payment of interest accrued thereon or (iii) securities issued by the
Company which are subordinated to Senior Indebtedness at least to the same
extent as the Notes and having a Weighted Average Life to Maturity at least
equal to the remaining Weighted Average Life to Maturity of the Notes) for a
period (a "Payment Blockage Period") commencing upon the receipt by the Trustee
(with a copy to the Company) of written notice (a "Blockage Notice") of such
default from the Representative of the holders of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) because the default giving rise
to such Blockage Notice has been cured or waived or is no longer continuing or
(iii) because such Designated Senior Indebtedness has been repaid in full).
(c) Notwithstanding clause (b) of this Section 14.02, but subject to
clause (a) of Section 14.02 and clause of (a) Section 14.03, the Company may
resume payments on the Notes after the end of such Payment Blockage Period.
(d) Not more than one Blockage Notice may be given, and not more than one
Payment Blockage Period may occur, in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the agent under the Senior Credit Facility), the agent
under the Senior Credit Facility may give another Blockage Notice within such
period. In no event, however, may the total number of days during which any
Payment
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Blockage Period or Payment Blockage Periods is in effect exceed 179 days in
the aggregate during any 360-consecutive-day period. No nonpayment default
that existed or was continuing on the date of delivery of any Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Blockage
Notice unless such default shall have been cured or waived for a period of
not less than 90 consecutive days. The failure of the Company to pay
principal for more than five days after the date due or to pay interest,
including Additional Interest, if any, on the Notes for more than 30 days
after the scheduled payment date therefor as a result of the occurrence of a
Payment Blockage Period shall nevertheless constitute an Event of Default
under this Indenture. For the purposes of this Article 14 (but without
limiting the effect of any other provision of this Article 14), paying any
Obligation on the Notes shall include any payment or distribution of any kind
or character by the Company or Guarantor, by set-off or otherwise, including,
without limitation, any repurchase, redemption or acquisition of the Notes
and any direct or indirect payment payable by reason of any other
Indebtedness or Obligation being subordinated to the Notes.
(e) In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee or any Holder when such payment is prohibited by Section
14.02 of this Indenture, the Trustee shall promptly notify the representatives
of such Senior Indebtedness of such prohibited payment and such payment shall be
held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior Indebtedness or their respective representatives, or to the
trustee or trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear, but
only to the extent that, upon notice from the Trustee to the representatives of
such Senior Indebtedness that such prohibited payment has been made, such
representatives within 30 days of receipt of such notice from the Trustee
notifies the Trustee of the amounts then due and owing on the Senior
Indebtedness, if any, and only the amounts specified in such notice to the
Trustee shall be paid to the representatives of such Senior Indebtedness and any
excess above such amounts due and owing on Senior Indebtedness shall be paid to
the Company.
Section 14.03. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
(a) Upon any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities (other
than with the money, securities or proceeds held under any defeasance trust
established in accordance with this Indenture), 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 similar proceedings, any assignment for the benefit of
creditors or any marshalling of assets for the benefit of creditors, all amounts
due or to become due upon all Senior Indebtedness (including any interest
accruing on or subsequent to, or which would have accrued but for the occurrence
of, an event specified in Section 6.01(g), whether or not such interest is an
allowed claim enforceable against the debtor under the United States Bankruptcy
Code) shall first be paid in full, in cash, before the Holders or the Trustee on
their behalf shall be entitled to receive any
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payment by (or on behalf of) the Company on account of Note 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 Note Obligations (other than with the money, securities or proceeds
held under any defeasance trust established in accordance with this
Indenture) in connection with any such dissolution, winding-up, liquidate,
reorganization, assignment, marshalling or proceeding, any payment or
distribution of assets or securities for 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 provisions of this
Article 14, 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 representatives of such 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 other 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 representatives of such Senior Indebtedness
except that Holders of the Notes may receive:
(i) Qualified Capital Stock issued by Parent Guarantor or any of
its Restricted Subsidiaries to pay interest on the Notes or issued in
exchange for the Notes;
(ii) securities substantially identical to the Notes issued by the
Company in payment of interest accrued thereon; or
(iii) securities issued by the Company which are subordinated to
Senior Indebtedness at least to the same extent as the Notes and having a
Weighted Average Life to Maturity at least equal to the remaining Weighted
Average Life to Maturity of the Notes.
(b) 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 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 obligation so declared fraudulent, invalid or otherwise set aside (and all
other amounts that
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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 hereof as if such declaration, invalidity or setting aside had
not occurred.
(c) In the event that, notwithstanding the foregoing provision prohibiting
such payment or distribution, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property or
securities, shall be received by the Trustee or any Holder at a time when such
payment or distribution is prohibited by Section 14.03(a) of this Indenture and
before all obligations in respect of Senior Indebtedness are paid in full, in
cash, such payment or distribution shall be received and held in trust for the
benefit of, and shall be paid over or delivered to, the representatives of such
Senior Indebtedness (PRO RATA to such holders on the basis of such respective
amount of Senior Indebtedness held by such holders) or their representatives, or
to the trustee or trustees under any indenture pursuant to which any such Senior
Indebtedness may have been issued, as their respective interests appear, for
application to the payment of Senior Indebtedness remaining unpaid until all
such Senior Indebtedness has been paid in full, in cash, after giving effect to
any concurrent payment, distribution or provision therefor to or for the holders
of such Senior Indebtedness.
(d) For purposes of this Section 14.03, the words "cash, property or
securities" shall not be deemed to include, so long as the effect of this clause
is not to cause the Notes to be treated in any case or proceeding or similar
event described in this Section 14.03 as part of the same class of claims as the
Senior Indebtedness or any class of claims PARI PASSU with, or senior to, the
Senior Indebtedness for any payment or distribution, securities of the Company
or any other corporation provided for by a plan of reorganization or
readjustment that are subordinated, at least to the extent that the Notes are
subordinated, to the payment of all Senior Indebtedness then outstanding;
PROVIDED that (1) if a new corporation results from such reorganization or
readjustment, such corporation assumes the Senior Indebtedness and (2) the
rights of the holders of the Senior Indebtedness are not, without the consent of
such holders, altered by such reorganization or readjustment. The consolidation
of the Company with, or the merger of the Company with or into, another
corporation or the liquidation or dissolution of the Company following the sale,
conveyance, transfer, lease or other disposition of all or substantially all of
its property and assets to another corporation upon the terms and conditions
provided in Article Five of this Indenture shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 14.03
if such other corporation shall, as a part of such consolidation, merger, sale,
conveyance, transfer, lease or other disposition, comply (to the extent
required) with the conditions stated in Article Five of this Indenture.
Section 14.04. SUBROGATION.
(a) Upon the payment in full of all Senior Indebtedness in cash, the
Holders shall be subrogated to the rights of the holders of Senior Indebtedness
to receive payments or distributions of cash, property or securities of the
Company made on such Senior Indebtedness
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until the principal of, premium, if any, and interest on the Notes shall be
paid in full; and, for the purposes of such subrogation, no payments or
distributions to the representatives of the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders or the
Trustee on their behalf would be entitled except for the provisions of this
Article 14, and no payment pursuant to the provisions of this Article 14 to
the holders of Senior Indebtedness by Holders or the Trustee on their behalf
shall, as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holders, be deemed to be a payment by the Company to or
on account of the Senior Indebtedness. It is understood that the provisions
of this Article 14 are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of the
Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article 14 shall have been
applied, pursuant to the provisions of this Article 14, to the payment of all
amounts payable under Senior Indebtedness, then, and in such case, the Holders
shall be entitled to receive from the holders of such Senior Indebtedness any
payments or distributions received by such holders of Senior Indebtedness in
excess of the amount required to make payment in full, in cash, of such Senior
Indebtedness of such holders.
Section 14.05. OBLIGATIONS OF COMPANY UNCONDITIONAL.
(a) Nothing contained in this Article 14 or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company and the
Holders, the obligation of the Company, which is absolute and unconditional, to
pay to the Holders the principal of, premium, if any, and interest on the Notes
as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Holders or the Trustee on their
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
14 of the holders of the Senior Indebtedness.
(b) Without limiting the generality of the foregoing, nothing contained in
this Article 14 will restrict the right of the Trustee or the Holders to take
any action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Section 6.01 of this Indenture or to pursue any rights or
remedies hereunder; PROVIDED, HOWEVER, that all Senior Indebtedness then due and
payable or thereafter declared to be due and payable shall first be paid in
full, in cash, before the Holders or the Trustee on behalf of the Holders are
entitled to receive any direct or indirect payment from the Company of Note
Obligations.
Section 14.06. NOTICE TO TRUSTEE.
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(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company that would prohibit the making of any payment to or
by the Trustee in respect of the Notes pursuant to the provisions of this
Article 14. The Trustee shall not be charged with the knowledge of the
existence of any default or event of default with respect to any Senior
Indebtedness or of any other facts that would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing the Corporate Trust Office of the Trustee to that effect
signed by an Officer of the Company, or by a holder of Senior Indebtedness or
trustee or agent thereof; and prior to the receipt of any such written
notice, the Trustee shall, subject to Article 7, be entitled to assume that
no such facts exist; PROVIDED that, if the Trustee shall not have received
the notice provided for in this Section 14.06 at least three Business Days
prior to the date upon which, by the terms of this Indenture, any monies
shall become payable for any purpose (including, without limitation, the
payment of the principal of, premium, if any, or interest on any Note), then,
notwithstanding anything herein to the contrary, the Trustee shall have full
power and authority to receive any monies from the Company and to apply the
same to the purpose for which they were received, and shall not be affected
by any notice to the contrary that may be received by it on or after such
prior date except for an acceleration of the Notes prior to such application.
Nothing contained in this Section 14.06 shall limit the right of the holders
of Senior Indebtedness to recover payments as contemplated by this Article
14. The foregoing shall not apply if the Paying Agent is the Company. The
Trustee shall be entitled to rely in good faith on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of
any Senior Indebtedness (or a trustee on behalf of, or other representative
of, such holder) to establish that such notice has been given by a holder of
such Senior Indebtedness or a trustee or representative on behalf of any such
holder.
(b) In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article 14, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled
to participate in such payment or distribution and any other facts pertinent
to the rights of such Person under this Article 14 and, if such evidence is
not furnished to the Trustee, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to
receive such payment.
Section 14.07. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.
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Upon any payment or distribution of assets or securities referred to in
this Article 14, the Trustee and the Holders shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, custodian, assignee for the benefit of
creditors, agent or other similar Person making such payment or distribution,
delivered to the Trustee or to the Holders for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other Indebtedness of the Company, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article 14, PROVIDED that such
court, trustee, receiver, custodian, assignee, agent or other Person has been
apprised of, or the order, decree or certificate makes reference to, the
provisions of this Article.
Section 14.08. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.
(a) The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article 14 with respect to any Senior Indebtedness
that may at any time be held by it in its individual or any other capacity to
the same extent as any other holder of Senior Indebtedness and nothing in
this Indenture shall deprive the Trustee or any Paying Agent of any of its
rights as such holder.
(b) With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article 14, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness
(except as provided in Sections 14.02(c) and 14.03(c) of this Indenture) and
shall not be liable to any such holders if the Trustee shall in good faith
mistakenly pay over or distribute to Holders of Notes or to the Company or to
any other person cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article 14 or otherwise.
Section 14.09. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination as provided in this Article 14 will at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof that any such holder may have or
otherwise be charged with. The provisions of this Article 14 are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Senior Indebtedness.
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Section 14.10. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
NOTES.
Each Holder by his acceptance of any Notes authorizes and expressly
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article 14, and
appoints the Trustee his attorney-in-fact for such purposes, including, in
the event of any dissolution, winding-up, liquidation or reorganization of
the Company (whether in bankruptcy, insolvency, receivership, reorganization
or similar proceedings or upon an assignment for the benefit of creditors or
otherwise) tending towards liquidation of the property and assets of the
Company, the filing of a claim for the unpaid balance of its Notes in the
form required in those proceedings. If the Trustee does not file a proper
claim or proof in indebtedness in the form required in such proceeding at
least 30 days before the expiration of the time to file such claim or claims,
each holder of Senior Indebtedness is hereby authorized to file an
appropriate claim for and on behalf of the Holders.
Section 14.11. NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of, premium, if
any, or interest on the Notes by reason of any provision of this Article 14
will not be construed as preventing the occurrence of an Event of Default.
Section 14.12. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article 14 will apply to amounts due to the Trustee
pursuant to other sections of this Indenture, including without limitation
Section 7.07.
Section 14.13. NO WAIVER OF SUBORDINATION PROVISIONS.
Without in any way limiting the generality of Section 14.09, the holders
of Senior Indebtedness may, at any time and from time to time, without the
consent of or notice to the Trustee or the Holders, without incurring
responsibility to the Holders and without impairing or releasing the
subordination provided in this Article 14 or the obligations hereunder of the
Holders to the holders of Senior Indebtedness, do any one or more of the
following: (a) change the manner, place or terms of payment or extend or
shorten the time of payment of, or renew or alter, Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (c) release any Person liable in any manner for the
collection of Senior Indebtedness; and (d) exercise or refrain from
exercising any rights against the Company and any other Person.
Section 14.14. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
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Nothing contained in this Article 14 or elsewhere in this Indenture
shall prevent (i) the Company except under the conditions described in
Section 14.02 or 14.03, from making payments of principal of, premium, if
any, and interest on the Notes, or from depositing with the Trustee any money
for such payments, or (ii) the application by the Trustee of any money
deposited with it for the purpose of making such payments of principal of,
premium, if any, and interest on the Notes to the holders entitled thereto
unless, at least three Business Days prior to the date upon which such
payment becomes due and payable, the Trustee shall have received the written
notice provided for in Section 14.02(b) of this Indenture (or there shall
have been an acceleration of the Notes prior to such application) or in
Section 14.06 of this Indenture. The Company shall give prompt written
notice to the Trustee of any dissolution, winding up, liquidation or
reorganization of, or similar proceeding (including any assignment for the
benefit of creditors or any marshalling of assets) with respect to, the
Company.
Section 14.15. CONSENT OF HOLDERS OF SENIOR INDEBTEDNESS UNDER THE SENIOR
CREDIT FACILITY.
The provisions of this Article 14 (including the definitions contained
in this Article and references to this Article contained in this Indenture)
shall not be amended in a manner that would adversely affect the rights of
the holders of Senior Indebtedness under the Senior Credit Facility, and no
such amendment shall become effective unless the holders of Senior
Indebtedness under the Senior Credit Facility shall have consented (in
accordance with the provisions of the Senior Credit Facility) to such
amendment. The Trustee shall be entitled to receive and rely on an Officers'
Certificate stating that such consent has been given.
Section 14.16. TRUST MONEYS NOT SUBORDINATED.
Notwithstanding anything contained herein to the contrary, payments from
money or the proceeds of U.S. Government Obligations held in trust under
Article Eight by the Trustee for the payment of principal of, premium, if
any, and interest on the Notes shall not be subordinated to the prior payment
of any Senior Indebtedness, and none of the Holders shall be obligated to pay
over any such amount to any holder of Senior Indebtedness.
Section 14.17. NOTICE TO REPRESENTATIVE OF DESIGNATED SENIOR INDEBTEDNESS.
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the Representative (if any)
of any issue of Designated Senior Indebtedness which is then outstanding;
PROVIDED, HOWEVER, that the Company and the Trustee shall be obligated to
notify such a Representative (other than with respect to the Senior Credit
Facility) only if such Representative has delivered or caused to be delivered
an address for the service of such a notice to the Company and the Trustee
(and the Company and the Trustee shall be obligated only to deliver the
notice to the address so specified). If a notice is required pursuant to the
immediately preceding sentence, the Company may not pay the Notes (except
payment (i) in Qualified Capital Stock issued by Parent Guarantor or any of
its Restricted
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Subsidiaries to pay interest on the Notes or issued in exchange for the
Notes, (ii) in securities substantially identical to the Notes issued by the
Company in payment of interest accrued thereon or (iii) in securities issued
by the Company which are subordinated to the Senior Indebtedness at least to
the same extent as the Notes and have a Weighted Average Life to Maturity at
least equal to the remaining Weighted Average Life to Maturity of the Notes),
until five Business Days after the respective Representative of the
Designated Senior Indebtedness receives notice (at the address specified in
the preceding sentence) of such acceleration and, thereafter, may pay the
Notes only if the subordination provisions of this Indenture otherwise permit
payment at that time.
ARTICLE 15
SUBORDINATION OF NOTE GUARANTEES
Section 15.01. NOTE GUARANTEES SUBORDINATED TO GUARANTOR SENIOR INDEBTEDNESS.
Each Guarantor and the Trustee each covenants and agrees, and each
Holder, by its acceptance of a Note Guarantee, likewise covenants and agrees
that all Note Guarantees shall be issued subject to the provisions of this
Article 15; and each Person holding any Note, whether upon original issue or
upon transfer, assignment or exchange thereof, accepts and agrees that all
Obligations on the Note Guarantees shall, to the extent and in the manner set
forth in this Article 15, be subordinated in right of payment to the prior
payment in full, in cash, of all existing and future Guarantor Senior
Indebtedness of such Guarantor (including any interest accruing on or
subsequent to, or which would have accrued but for the occurrence of an event
specified in Section 6.01(g) of this Indenture, whether or not such interest
is an allowed claim enforceable against the debtor under the United States
Bankruptcy Code).
Section 15.02. NO PAYMENT ON NOTE GUARANTEES IN CERTAIN CIRCUMSTANCES.
(a) A Guarantor may not fulfill any Obligations with respect to such
Guarantor's Note Guarantee if:
(i) any Guarantor Senior Indebtedness of such Guarantor is not
paid when due; or
(ii) any other default on such Guarantor Senior Indebtedness occurs
and the maturity of such Guarantor Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been
cured or waived and/or any such acceleration has been rescinded or such
Guarantor Senior Indebtedness has been paid;
PROVIDED, HOWEVER, that such Guarantor may fulfill its Obligations on such
Note Guarantee without regard to the foregoing if such Guarantor and the
Trustee receive written notice approving such fulfillment from the
Representative of such Guarantor Senior Indebtedness with respect to which
either of the events set forth in subclause (i) or (ii) of this Section
15.02(a) has
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occurred and is continuing; and provided, further, that Holders of the Notes
may receive: (A) Qualified Capital Stock issued by Parent Guarantor or any of
its Restricted Subsidiaries to pay interest on the Notes or issued in
exchange for the Notes; (B) guarantees by the Guarantors of securities
substantially identical to the Notes; or (C) guarantees by the Guarantors of
securities issued by the Company which are subordinated to Guarantor Senior
Indebtedness at least to the same extent as the Note Guarantees and having a
Weighted Average Life to Maturity at least equal to the remaining Weighted
Average Life to Maturity of the Note Guarantees.
(b) During the continuance of any other default, other than a default
described in subclause (i) or (ii) of Section 15.02(a), with respect to any
Designated Guarantor Senior Indebtedness of such Guarantor pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, such Guarantor may not fulfill
its Obligations on such Note Guarantee (except that Holders of the Notes may
receive: (A) Qualified Capital Stock issued by Parent Guarantor or any of its
Restricted Subsidiaries to pay interest on the Notes or issued in exchange
for the Notes; (B) guarantees by the Guarantors of securities substantially
identical to the Notes; or (C) guarantees by the Guarantors of securities
issued by the Company which are subordinated to Guarantor Senior Indebtedness
at least to the same extent as the Note Guarantees and having a Weighted
Average Life to Maturity at least equal to the remaining Weighted Average
Life to Maturity of the Note Guarantees) for a period (a "Guarantee Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to
such Guarantor) of written notice (a "Guarantee Blockage Notice") of such
default from the Representative of the holders of such Designated Guarantor
Senior Indebtedness specifying an election to effect a Guarantee Payment
Blockage Period and ending 179 days thereafter (or earlier if such Guarantee
Payment Blockage Period is terminated (i) by written notice to the Trustee
and such Guarantor from the Person or Persons who gave such Guarantee
Blockage Notice, (ii) because the default giving rise to such Guarantee
Blockage Notice has been cured or waived or is no longer continuing or (iii)
because such Designated Guarantor Senior Indebtedness has been repaid in
full).
(c) Notwithstanding clause (b) of this Section 15.02, but subject to
clause (a) of Section 15.02 and clause (a) and Section 15.03, such Guarantor
may resume fulfillment of its Obligations on such Note Guarantee after the
end of such Guarantee Payment Blockage Period.
(d) Not more than one Guarantee Blockage Notice may be given, and not
more than one Guarantee Payment Blockage Period may occur, in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Guarantor Senior Indebtedness during such period. However, if any
Guarantee Blockage Notice within such 360-day period is given by or on behalf
of any holders of Designated Guarantor Senior Indebtedness (other than the
agent under the Senior Credit Facility), the agent under the Senior Credit
Facility may give another Guarantee Blockage Notice within such period. In
no event, however, may the total number of days during which any Guarantee
Payment Blockage Period or Guarantee Payment
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Blockage Periods is in effect exceed 179 days in the aggregate during any
360-consecutive-day period. No nonpayment default that existed or was
continuing on the date of delivery of any Guarantee Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Guarantee Blockage
Notice unless such default shall have been cured or waived for a period of
not less than 90 consecutive days. For the purposes of this Article 15 (but
without limiting the effect of any other provision of this Article 15),
paying any Obligation on the Note Guarantee shall include any payment or
distribution of any kind or character by such Guarantor, by set-off or
otherwise, including, without limitation, any repurchase, redemption or
acquisition of the Notes and any direct or indirect payment payable by reason
of any other Indebtedness or Obligation being subordinated to the Notes.
(e) In the event that, notwithstanding the foregoing, any payment shall
be received by the Trustee or any Holder when such payment is prohibited by
Section 15.02 of this Indenture, the Trustee shall promptly notify the
representatives of such Guarantor Senior Indebtedness of such prohibited
payment and such payment shall be held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Guarantor Senior Indebtedness or
their respective representatives, or to the trustee or trustees under any
indenture pursuant to which any of such Guarantor Senior Indebtedness may
have been issued, as their respective interests may appear, but only to the
extent that, upon notice from the Trustee to the representatives of such
Guarantor Senior Indebtedness that such prohibited payment has been made,
such representatives within 30 days of receipt of such notice from the
Trustee notifies the Trustee of the amounts then due and owing on the
Guarantor Senior Indebtedness, if any, and only the amounts specified in such
notice to the Trustee shall be paid to the representatives of such Guarantor
Senior Indebtedness and any excess above such amounts due and owing on
Guarantor Senior Indebtedness shall be paid to such Guarantor.
Section 15.03. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
(a) Upon any payment or distribution of the assets of a Guarantor upon
a total or partial liquidation or dissolution or bankruptcy or reorganization
or similar proceeding relating to such Guarantor or its property, an
assignment for the benefit of creditors or any marshaling of such Guarantor's
assets and liabilities, the holders of Guarantor Senior Indebtedness will be
entitled to receive payment in full in cash of the Guarantor Senior
Indebtedness before the holders of the Note Guarantees are entitled to
receive any payment or distribution, and until the Guarantor Senior
Indebtedness is paid in full in cash, any payment or distribution to which
holders of the Note Guarantees would be entitled but for this Article 15 will
be made to holders of the Guarantor Senior Indebtedness as their interests
may appear (except that holders of the Note Guarantees may receive: (A)
Qualified Capital Stock issued by Parent Guarantor or any of its Restricted
Subsidiaries to pay interest on the Notes or issued in exchange for the
Notes; (B) guarantees by the Guarantors of securities substantially identical
to the Notes; or (C) guarantees by the Guarantors of securities issued by the
Company which are subordinated to Guarantor Senior Indebtedness at least to
the same extent as the Note Guarantees and having a
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Weighted Average Life to Maturity at least equal to the remaining Weighted
Average Life to Maturity of the Note Guarantees).
(b) To the extent any payment of Guarantor Senior Indebtedness (whether
by or on behalf of such Guarantor, 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 or other similar Person, the Guarantor
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 Guarantor Senior
Indebtedness is declared to be fraudulent, invalid, or otherwise set aside
under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then the obligation 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 Guarantor Senior Indebtedness for all purposes hereof as if
such declaration, invalidity or setting aside had not occurred.
(c) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of
assets or securities of such Guarantor of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or any Holder
at a time when such payment or distribution is prohibited by Section 15.03(a)
of this Indenture and before all obligations in respect of Guarantor Senior
Indebtedness are paid in full, in cash, such payment or distribution shall be
received and held in trust for the benefit of, and shall be paid over or
delivered to, the representatives of such Guarantor Senior Indebtedness (PRO
RATA to such holders on the basis of such respective amount of Guarantor
Senior Indebtedness held by such holders) or their representatives, or to the
trustee or trustees under any indenture pursuant to which any such Guarantor
Senior Indebtedness may have been issued, as their respective interests
appear, for application to the payment of Guarantor Senior Indebtedness
remaining unpaid until all such Guarantor Senior Indebtedness has been paid
in full, in cash, after giving effect to any concurrent payment, distribution
or provision therefor to or for the holders of such Guarantor Senior
Indebtedness.
(d) For purposes of this Section 15.03, the words "cash, property or
securities" shall not be deemed to include, so long as the effect of this clause
is not to cause the Note Guarantees to be treated in any case or proceeding or
similar event described in this Section 15.03 as part of the same class of
claims as the Guarantor Senior Indebtedness or any class of claims PARI PASSU
with, or senior to, the Guarantor Senior Indebtedness for any payment or
distribution, securities of such Guarantor or any other corporation provided for
by a plan of reorganization or readjustment that are subordinated, at least to
the extent that the Note Guarantees are subordinated, to the payment of all
Guarantor Senior Indebtedness then outstanding; PROVIDED
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that (1) if a new corporation results from such reorganization or
readjustment, such corporation assumes the Guarantor Senior Indebtedness and
(2) the rights of the holders of the Guarantor Senior Indebtedness are not,
without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Parent Guarantor with, or the merger
of the Parent Guarantor with or into, another corporation or the liquidation
or dissolution of the Parent Guarantor following the sale, conveyance,
transfer, lease or other disposition of all or substantially all of its
property and assets to another corporation upon the terms and conditions
provided in Article 5 of this Indenture shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section
15.03 if such other corporation shall, as a part of such consolidation,
merger, sale, conveyance, transfer, lease or other disposition, comply (to
the extent required) with the conditions stated in Article 5 of this
Indenture.
Section 15.04. SUBROGATION.
(a) Upon the payment in full of all Guarantor Senior Indebtedness of a
Guarantor in cash, the Holders shall be subrogated to the rights of the
holders of such Guarantor Senior Indebtedness to receive payments or
distributions of cash, property or securities of such Guarantor made on such
Guarantor Senior Indebtedness until the Obligations on the Note Guarantee of
such Guarantor is fulfilled; and, for the purposes of such subrogation, no
payments or distributions to the representatives of the holders of such
Guarantor Senior Indebtedness of any cash, property or securities to which
the Holders or the Trustee on their behalf would be entitled except for the
provisions of this Article 15, and no payment pursuant to the provisions of
this Article 15 to the holders of Guarantor Senior Indebtedness by Holders or
the Trustee on their behalf shall, as between such Guarantor, its creditors
other than holders of such Guarantor Senior Indebtedness, and the Holders, be
deemed to be a payment by such Guarantor to or on account of such Guarantor
Senior Indebtedness. It is understood that the provisions of this Article 15
are intended solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of such Guarantor Senior
Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article 15 shall have been
applied, pursuant to the provisions of this Article 15, to the payment of all
amounts payable under Guarantor Senior Indebtedness, then, and in such case,
the Holders shall be entitled to receive from the holders of such Guarantor
Senior Indebtedness any payments or distributions received by such holders of
Guarantor Senior Indebtedness in excess of the amount required to make
payment in full, in cash, of such Guarantor Senior Indebtedness of such
holders.
Section 15.05. OBLIGATIONS OF GUARANTOR UNCONDITIONAL.
(a) Nothing contained in this Article 15 or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among a Guarantor and the
Holders, the obligation of such Guarantor, which is absolute and unconditional,
to fulfill its Obligations on the Note Guarantee
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as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders
and creditors of such Guarantor other than the holders of such Guarantor
Senior Indebtedness, nor shall anything herein or therein prevent the Holders
or the Trustee on their behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article 15 of the holders of such Guarantor Senior
Indebtedness.
(b) Without limiting the generality of the foregoing, nothing contained
in this Article 15 will restrict the right of the Trustee or the Holders to
take any action to declare the Notes to be due and payable prior to their
stated maturity pursuant to Section 6.01 of this Indenture or to pursue any
rights or remedies hereunder; PROVIDED, HOWEVER, that all Guarantor Senior
Indebtedness then due and payable or thereafter declared to be due and
payable shall first be paid in full, in cash, before the Holders or the
Trustee on behalf of the Holders are entitled to receive any direct or
indirect payment from such Guarantor of Obligations on such Note Guarantee.
Section 15.06. NOTICE TO TRUSTEE.
(a) A Guarantor shall give prompt written notice to the Trustee of any
fact known to such Guarantor that would prohibit the making of any payment to
or by the Trustee in respect of the Note Guarantee of such Guarantor pursuant
to the provisions of this Article 15. The Trustee shall not be charged with
the knowledge of the existence of any default or event of default with
respect to any Guarantor Senior Indebtedness or of any other facts that would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing the Corporate Trust Office of
the Trustee to that effect signed by an Officer of such Guarantor, or by a
holder of Guarantor Senior Indebtedness or trustee or agent thereof; and
prior to the receipt of any such written notice, the Trustee shall, subject
to Article 7, be entitled to assume that no such facts exist. Nothing
contained in this Section 15.06 shall limit the right of the holders of
Guarantor Senior Indebtedness to recover payments as contemplated by this
Article 15. The Trustee shall be entitled to rely in good faith on the
delivery to it of a written notice by a Person representing himself or itself
to be a holder of any Guarantor Senior Indebtedness (or a trustee on behalf
of, or other representative of, such holder) to establish that such notice
has been given by a holder of such Guarantor Senior Indebtedness or a trustee
or representative on behalf of any such holder.
(b) In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 15, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article 15 and,
if such evidence is not furnished to the Trustee, the Trustee
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may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
Section 15.07. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.
Upon any payment or distribution of assets or securities referred to in
this Article 15, the Trustee and the Holders shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, custodian, assignee for the benefit of
creditors, agent or other similar Person making such payment or distribution,
delivered to the Trustee or to the Holders for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of the
Guarantor Senior Indebtedness and other Indebtedness of a Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 15, PROVIDED
that such court, trustee, receiver, custodian, assignee, agent or other
Person has been apprised of, or the order, decree or certificate makes
reference to, the provisions of this Article.
Section 15.08. TRUSTEE'S RELATION TO GUARANTOR SENIOR INDEBTEDNESS.
(a) The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article 15 with respect to any Guarantor Senior
Indebtedness that may at any time be held by it in its individual or any
other capacity to the same extent as any other holder of Guarantor Senior
Indebtedness and nothing in this Indenture shall deprive the Trustee or any
Paying Agent of any of its rights as such holder.
(b) With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article 15, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of
Guarantor Senior Indebtedness (except as provided in Sections 15.02(c) and
15.03(c) of this Indenture) and shall not be liable to any such holders if
the Trustee shall in good faith mistakenly pay over or distribute to Holders
of Note Guarantees or to a Guarantor or to any other person cash, property or
securities to which any holders of Guarantor Senior Indebtedness shall be
entitled by virtue of this Article 15 or otherwise.
Section 15.09. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF A
GUARANTOR OR HOLDERS OF GUARANTOR SENIOR INDEBTEDNESS.
No right of any present or future holders of any Guarantor Senior
Indebtedness to enforce subordination as provided in this Article 15 will at any
time in any way be prejudiced or
<PAGE>
112
impaired by any act or failure to act on the part of a Guarantor or by any
act or failure to act, in good faith, by any such holder, or by any
noncompliance by such Guarantor with the terms of this Indenture, regardless
of any knowledge thereof that any such holder may have or otherwise be
charged with. The provisions of this Article 15 are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Guarantor
Senior Indebtedness.
Section 15.10. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF NOTE
GUARANTEES.
Each Holder by his acceptance of any Note Guarantees authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 15, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of a Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
property and assets of such Guarantor, the filing of a claim for the unpaid
balance in connection with a Note Guarantee of such Guarantor in the form
required in those proceedings. If the Trustee does not file a proper claim
or proof in indebtedness in the form required in such proceeding at least 30
days before the expiration of the time to file such claim or claims, each
holder of Guarantor Senior Indebtedness is hereby authorized to file an
appropriate claim for and on behalf of the Holders.
Section 15.11. NOT TO PREVENT EVENTS OF DEFAULT.
The failure to fulfill all of the Obligations on the Note Guarantees by
reason of any provision of this Article 15 will not be construed as
preventing the occurrence of an Event of Default.
Section 15.12. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article 15 will apply to amounts due to the Trustee
pursuant to other sections of this Indenture, including without limitation
Section 7.07.
Section 15.13. NO WAIVER OF SUBORDINATION PROVISIONS.
Without in any way limiting the generality of Section 15.09, the holders
of Guarantor Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing
the subordination provided in this Article 15 or the obligations hereunder of
the Holders to the holders of Guarantor Senior Indebtedness, do any one or
more of the following: (a) change the manner, place or terms of payment or
extend or shorten the time of payment of, or renew or alter, Guarantor Senior
Indebtedness or any instrument evidencing the same or any agreement under
which Guarantor Senior Indebtedness is outstanding or secured; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing
<PAGE>
113
Guarantor Senior Indebtedness; (c) release any Person liable in any manner
for the collection of Guarantor Senior Indebtedness; and (d) exercise or
refrain from exercising any rights against a Guarantor and any other Person.
Section 15.14. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Article 15 or elsewhere in this Indenture
shall prevent a Guarantor, except under the conditions described in Section
15.02 or 15.03, from fulfilling its Obligations on the Note Guarantee of such
Guarantor. Such Guarantor shall give prompt written notice to the Trustee of
any dissolution, winding up, liquidation or reorganization of, or similar
proceeding (including any assignment for the benefit of creditors or any
marshalling of assets) with respect to, such Guarantor.
Section 15.15. CONSENT OF HOLDERS OF GUARANTOR SENIOR INDEBTEDNESS UNDER THE
SENIOR CREDIT FACILITY.
The provisions of this Article 15 (including the definitions contained
in this Article and references to this Article contained in this Indenture)
shall not be amended in a manner that would adversely affect the rights of
the holders of Guarantor Senior Indebtedness under the Senior Credit
Facility, and no such amendment shall become effective unless the holders of
Guarantor Senior Indebtedness under the Senior Credit Facility shall have
consented (in accordance with the provisions of the Senior Credit Facility)
to such amendment. The Trustee shall be entitled to receive and rely on an
officers' certificate of a Guarantor stating that such consent has been given.
Section 15.16. NOTICE TO REPRESENTATIVE OF DESIGNATED GUARANTOR SENIOR
INDEBTEDNESS.
If the Obligations on the Note Guarantee of a Guarantor is accelerated
because of an Event of Default, such Guarantor or the Trustee shall promptly
notify the Representative (if any) of any issue of Designated Guarantor
Senior Indebtedness which is then outstanding; PROVIDED, HOWEVER, that such
Guarantor and the Trustee shall be obligated to notify such a Representative
(other than with respect to the Senior Credit Facility) only if such
Representative has delivered or caused to be delivered an address for the
service of such a notice to such Guarantor and the Trustee (and such
Guarantor and the Trustee shall be obligated only to deliver the notice to
the address so specified). If a notice is required pursuant to the
immediately preceding sentence, such Guarantor may not fulfill its
Obligations on such Note Guarantee (except payment in Qualified Capital Stock
issued by the Parent Guarantor or any of its Restricted Subsidiaries to pay
interest on the Notes or issued in exchange for the Notes until five Business
Days after the respective Representative of the Designated Guarantor Senior
Indebtedness receives notice (at the address specified in the preceding
sentence) of such acceleration and, thereafter, may fulfill its Obligations
on such Note Guarantee only if the subordination provisions of this Indenture
otherwise permit payment at that time.
<PAGE>
114
<PAGE>
SIGNATURES
Dated as of December 21, 1998
PROTECTION ONE ALARM MONITORING, INC.
By: /s/ John W. Hesse
--------------------------------
Name: John W. Hesse
Title: Executive Vice President
PROTECTION ONE, INC.
By: /s/ John W. Hesse
--------------------------------
Name: John W. Hesse
Title: Executive Vice President
PROTECTION ONE INTERNATIONAL, INC.
By: /s/ Montgomery W. Cornell
--------------------------------
Name: Montgomery W. Cornell
Title: Vice President
PROTECTION ONE INVESTMENTS, INC.
By: /s/ Montgomery W. Cornell
--------------------------------
Name: Montgomery W. Cornell
Title: Vice President
DSC ENTERPRISES, INC.
By: /s/ Montgomery W. Cornell
--------------------------------
Name: Montgomery W. Cornell
Title: Vice President
<PAGE>
NETWORK MULTI-FAMILY SECURITY CORPORATION
By: /s/ Pat McColpin
--------------------------------
Name: Pat McColpin
Title: Vice President and
Chief Financial Officer
COMSEC NARRAGANSETT SECURITY, INC.
By: /s/ Montgomery W. Cornell
--------------------------------
Name: Montgomery W. Cornell
Title: Vice President
THE BANK OF NEW YORK
/s/ Remo J. Reale
- --------------------------------
Name: Remo J. Reale
Title: Assistant Vice President
<PAGE>
EXHIBIT A
[APPLICABLE LEGENDS]
[FACE OF NOTE]
PROTECTION ONE ALARM MONITORING, INC.
8 1/8% Senior Subordinated Note due 2009
CUSIP [__________]
No. ____ $_________
PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to _____________, or its
registered assigns, the principal sum of ______________________ ($____________)
on January 15, 2009.
Interest Payment Dates: January 15 and July 15, commencing July 15, 1999
Regular Record Dates: January 1 and July 1.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.
PROTECTION ONE ALARM MONITORING, INC.
By:
------------------------------------
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 8 1/8% Senior Subordinated Notes due 2009 described in the
within-mentioned Indenture.
Date:
THE BANK OF NEW YORK,
as Trustee
By:
------------------------------------
Authorized Signatory
<PAGE>
A-3
[REVERSE SIDE OF NOTE]
PROTECTION ONE ALARM MONITORING, INC.
8 1/8% Senior Subordinated Note due 2009
1. PRINCIPAL AND INTEREST.
The Company will pay the principal of this Note on January 15, 2009.
The Company promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth below, at the rate per annum shown
above.
Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the January 1 or July 1 immediately preceding
the Interest Payment Date) on each Interest Payment Date, commencing July 15,
1999.
If an exchange offer (the "Exchange Offer") registered under the Securities
Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the SEC, on or before June 21, 1999 in
accordance with the terms of the Registration Rights Agreement dated
December 21, 1998 between the Company and Morgan Stanley & Co. Incorporated,
Chase Securities Inc., First Union Capital Markets, a division of Wheat First
Securities, Inc., NationsBanc Montgomery Securities LLC and TD Securities (USA)
Inc., the annual interest rate borne by the Notes shall be increased by 0.5% per
annum from the rate shown above accruing from June 21, 1999, payable in cash
semiannually, in arrears, on each Interest Payment Date, commencing January 15,
2000 until the Exchange Offer is consummated or the Shelf Registration Statement
is declared effective. The Holder of this Note is entitled to the benefits of
such Registration Rights Agreement.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from December 21, 1998,
PROVIDED that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
2. METHOD OF PAYMENT.
<PAGE>
A-4
The Company will pay interest on the principal amount of the Notes as
provided above on each January 15 and July 15, commencing July 15, 1999 to the
persons who are Holders (as reflected in the Security Register at the close of
business on the January 1 or July 1 immediately preceding the Interest Payment
Date), in each case, even if the Note is cancelled on registration of transfer
or registration of exchange after such record date; PROVIDED that, with respect
to the payment of principal, the Company will make payment to the Holder that
surrenders this Note to a Paying Agent on or after January 15, 2009.
The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as authenticating agent, a Paying Agent and
the Registrar. The Company may change any authenticating agent, Paying Agent or
Transfer Agent without notice. The Company, any Subsidiary or any Affiliate of
any of them may act as a Paying Agent or a Transfer Agent.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of December 21,
1998 (the "Indenture"), between the Company and The Bank of New York, as trustee
(the "Trustee"). Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
The Notes are general unsecured obligations of the Company.
5. OPTIONAL REDEMPTION.
The Company has the option to redeem the Notes, in whole or in part, at any
time at the redemption price equal to the greater of (i) 100% of the principal
amount of the Notes to be
<PAGE>
A-5
redeemed or (ii) as determined by an Independent Investment Banker, the sum
of the present values of the Remaining Scheduled Payments discounted to the
redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case,
accrued and unpaid interest (including Additional Interest), if any, on the
Notes to be redeemed to the date of redemption.
6. REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control Triggering Event, each
Holder of Notes will have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described in Section 4.13 of the Indenture at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Additional Interest thereon, if any, to the date
of purchase. Within ten days following any Change of Control Triggering Event,
the Company shall mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control Triggering Event and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed. The Company will comply with the requirements of 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 connection with the
repurchase of the Notes as a result of a Change of Control Triggering Event. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions for the Change of Control Offer, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations with respect to the Change of Control Offer by
virtue thereof.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book-entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; PROVIDED, HOWEVER, that each such new Note will
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.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons in denominations of $1,000
of principal amount and multiples of $1,000 in excess thereof. A Holder may
register the transfer
<PAGE>
A-6
or exchange of Notes in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not register the transfer or exchange
of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.
8. PERSONS DEEMED OWNERS.
A Holder shall be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest remains
unclaimed for two years, the Trustee and the Paying Agent will pay the money
back to the Company at its request. After that, Holders entitled to the money
must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
Under certain circumstances, if the Company deposits with the Trustee
money, U.S. Government Obligations or a combination thereof sufficient to pay
the then outstanding principal of, premium, if any, and accrued interest on the
Notes to redemption or maturity of the Notes, the Company may, under certain
circumstances, be discharged from the Indenture and the Notes, except in certain
circumstances for certain provisions thereof, or from certain covenants set
forth in the Indenture.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding, and any existing default or compliance
with any provision may be waived with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding. Without notice to
or the consent of any Holder, the parties thereto may amend or supplement the
Indenture or the Notes to, among other things, cure any ambiguity, defect or
inconsistency and make any change that, in the good faith opinion of the Board
of Directors of the Parent Guarantor, does not materially and adversely affect
the rights of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the Company and
its Restricted Subsidiaries, among other things, to incur additional
Indebtedness or make Restricted
<PAGE>
A-7
Payments, and imposes certain limitations on the Parent Guarantor's or the
Company's ability to merge, consolidate or transfer substantially all of its
assets. Within 120 days after the end of the Company's fiscal year, the
Company shall deliver to the Trustee an Officers' Certificate stating whether
or not the signers thereof know of any Default or Event of Default under such
restrictive covenants.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the obligations of its
predecessor under the Notes and the Indenture, the predecessor person will be
released from those obligations.
14. DEFAULTS AND REMEDIES.
Any of the following events constitutes an "Event of Default" under the
Indenture:
(a) the failure to pay interest on the Notes when the same becomes due and
payable and the Default continues for a period of 30 days, whether or not such
payment is prohibited by the provisions of Article 14 of the Indenture;
(b) the failure to pay principal of or premium, if any, on any Notes when
such principal or premium, if any, becomes due and payable, at maturity, upon
redemption or otherwise, whether or not such payment is prohibited by the
provisions of Article 14 of the Indenture, and such default continues for five
or more days;
(c) a default in the observance or performance of any other covenant or
agreement contained in the Notes or the Indenture, which default continues for a
period of 60 days after the Company receives written notice thereof specifying
the default from the Trustee or holders of at least 25% in aggregate principal
amount of outstanding Notes and demanding that such default be remedied;
(d) there occurs with respect to any issue or issues of Indebtedness of
the Parent Guarantor or any Significant Subsidiary having an outstanding
principal amount of $20 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 60 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 60 days of such payment default;
<PAGE>
A-8
(e) any of the Note Guarantees ceases to be in full force and effect or
any of the Note Guarantees is declared to be null and void and unenforceable or
any of the Note Guarantees is found to be invalid or any of the Guarantors
denies its liability under its Note Guarantee, other than by reason of release
of a Guarantor in accordance with the terms of the Indenture;
(f) one or more judgments in an aggregate amount in excess of $20 million,
which are not covered by insurance as to which the insurer has not disclaimed
coverage, being rendered against Parent Guarantor or any of its Significant
Subsidiaries and such judgment or judgments remain undischarged or unstayed for
a period of 60 days after such judgment or judgments become final and
nonappealable; and
(g) (i) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Parent Guarantor or any of its
Significant Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law for relief of debtors now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Parent Guarantor or any of its
Significant Subsidiaries or for all or substantially all of the property and
assets of the Parent Guarantor or any of its Significant Subsidiaries or (C) the
winding up or liquidation of the affairs of the Parent Guarantor or any of its
Significant Subsidiaries and, in each case, such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or (ii) the Parent
Guarantor or any of its Significant Subsidiaries (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law for relief of
debtors 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 Parent Guarantor or
any of its Significant Subsidiaries or for all or substantially all of the
property and assets of the Parent Guarantor or any of its Significant
Subsidiaries or (C) effects any general assignment for the benefit of creditors.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.
15. SUBORDINATION.
<PAGE>
A-9
The payment of the Notes will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full, in cash, of all
Senior Indebtedness.
16. GUARANTEE.
The Company's obligations under the Notes are guaranteed on a senior
subordinated basis by each Guarantor. Each Guarantor's obligation with respect
to a Note Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full, in cash, of all
Guarantor Senior Indebtedness.
17. TRUSTEE DEALINGS WITH THE COMPANY.
The Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not the Trustee.
18. NO RECOURSE AGAINST OTHERS.
No incorporator or any past, present or future partner, stockholder, other
equityholder, officer, director, employee or controlling person, as such, of the
Company or of any successor Person shall have any liability for any obligations
of the Company under the Notes or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
19. AUTHENTICATION.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
20. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
The Company will furnish a copy of the Indenture to any Holder upon written
request and without charge. Requests may be made to Protection One Alarm
Monitoring, Inc., 6225 North Highway 161, Suite 400, Irving, Texas 75038;
Attention: General Counsel.
[FORM OF TRANSFER NOTICE]
<PAGE>
A-10
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
________________________________________________________________
Please print or typewrite name and address including zip code of assignee
________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ____________________________ attorney to transfer said Note on the
books of the Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
UNLEGENDED OFFSHORE GLOBAL NOTES AND
UNLEGENDED OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933
provided by Rule 144A thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished which comply with
the conditions of transfer set forth in this Note and the
Indenture.
<PAGE>
A-11
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:
------------- ----------------------------------------------------
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
Signature Guarantee:
-------------------------------
Signature must be guaranteed by a participant in a recognized signature guaranty
medallion program or other signature guarantor acceptable to the Trustee.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933 and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
------------- ----------------------------------------------------
NOTICE: To be executed by an executive officer
<PAGE>
A-12
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.09 or Section 4.13 of the Indenture, check the Box:
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.09 or Section 4.13 of the Indenture, state the amount:
$___________________.
Date:
------------------------
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
---------------------------
Signature must be guaranteed by a participant in a recognized signature guaranty
medallion program or other signature guarantor acceptable to the Trustee.
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE
_________________, ___
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Attention: Corporate Trust Administration
Protection One Alarm Monitoring, Inc.
6225 North Highway 161, Suite 400
Irving, Texas 75038
Attention: General Counsel
Re: Protection One Alarm Monitoring, Inc. (the "Company")
8 1/8% SENIOR SUBORDINATED NOTES DUE 2009 (THE "NOTES")
Dear Sirs:
This letter relates to U.S. $_______________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.02 of
the Indenture dated as of December 21, 1998 (the "Indenture") relating to the
Notes, we hereby certify that we are (or we will hold such securities on behalf
of) a person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933. Accordingly, you are hereby requested to exchange the legended
certificate for an unlegended certificate representing an identical principal
amount of Notes, all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
-----------------------------------
<PAGE>
Authorized Signature
<PAGE>
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
____________________ , ___
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Attention: Corporate Trust Administration
Re: Protection One Alarm Monitoring, Inc. (the"Company")
8 1/8% Senior Subordinated Notes due 2009 (the "Notes")
-------------------------------------------------------
Dear Sirs:
In connection with our proposed purchase of $ aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject to
certain restrictions and conditions set forth in the Indenture dated as of
December 21, 1998 (the "Indenture") relating to the Notes and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes
except in compliance with such restrictions and conditions and the Securities
Act of 1933, amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell any Notes within the time period referred to in Rule
144(k) of the Securities Act, we will do so only (A) to the Company or any
subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and, if such
transfer is in respect of an aggregate principal amount of less than $100,000,
an opinion of counsel acceptable to the Company that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
available) or (F)
<PAGE>
C-2
pursuant to an effective registration statement under the Securities Act, and
we further agree to provide to any person purchasing any of the Notes from us
a notice advising such purchaser that resales of the Notes are restricted as
stated herein.
3. We understand that, on any proposed resale of any Notes, we will be
required to furnish to you and the Company such certifications, legal opinions
and other information as you and the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We further
understand that the Notes purchased by us will bear a legend to the foregoing
effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes purchased by us for our own account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
------------------------------------------
Authorized Signature
<PAGE>
EXHIBIT D
Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to Regulation S
--------------------------------------------------
__________, ___
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Attention: Corporate Trust Administration
Re: Protection One Alarm Monitoring, Inc. (the "Company")
8 1/8% Senior Subordinated Notes due 2009 (the "Notes")
-------------------------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S.$_______________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933 and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
--------------------------------
<PAGE>
Authorized Signature
<PAGE>
EXHIBIT E
FORM OF NOTE OF GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture dated as of December 21,
1998 (the "Indenture") among Protection One Alarm Monitoring, Inc., a
Delaware corporation, the Guarantors listed on the signature page thereto and
The Bank of New York, as trustee (the "Trustee"), and subject to the
provisions in the Indenture, (a) the due and punctual payment of the
principal of, premium, if any, and interest and Additional Interest, if any,
on the Notes, when and as the same shall become due and payable, whether at
maturity, by acceleration, redemption or otherwise, the due and punctual
payment of interest and Additional Interest, if any, on overdue principal and
premium, if any, and, to the extent permitted by law, interest and Additional
Interest, if any, and the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee all in accordance
with the terms of the Notes and the Indenture and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, at stated
maturity, by acceleration or otherwise. The obligations of the Guarantors to
the Holders of Notes and to the Trustee pursuant to the Note Guarantee and
the Indenture are expressly set forth in Article 10 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the Note
Guarantee. Each capitalized term used but not defined herein shall have the
meaning ascribed thereto in the Indenture.
<PAGE>
PROTECTION ONE, INC.
By:
--------------------------------
Name:
Title:
PROTECTION ONE INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
PROTECTION ONE INVESTMENTS, INC.
By:
--------------------------------
Name:
Title:
DSC ENTERPRISES, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
NETWORK MULTI-FAMILY SECURITY CORPORATION
By:
--------------------------------
Name:
Title:
COMSEC NARRAGANSETT SECURITY, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, among __________________ (the "Guaranteeing Subsidiary"), a
subsidiary of ____________________ (or its permitted successor), the Company,
the other Guarantors (as defined in the Indenture referred to herein) and The
Bank of New York, as trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of December 21, 1998
providing for the issuance of its 8 1/8% Senior Subordinated Notes due 2009
(the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a
supplemental indenture pursuant to which the Guaranteeing Subsidiary shall
unconditionally guarantee all of the Company's Obligations under the Notes
and the Indenture on the terms and conditions set forth herein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees
as follows:
(a) Along with all Guarantors named in the Indenture, to jointly
and severally Guarantee to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
the Notes or the obligations of the Company hereunder or thereunder, that:
(i) the due and punctual payment of the principal of,
premium, if any, and interest and Additional Interest, if any, on each
Note, when and as the same shall become due and payable, whether at
maturity, by acceleration, redemption or otherwise, the due and
punctual payment of interest and Additional Interest, if any, on the
overdue principal and premium, if any, and Additional Interest, if
any, on the Notes, to the extent lawful, and the due and punctual
performance of all other obligations of the Company to the Holders or
the Trustee, all in accordance with the terms of such Note and this
Indenture; and
(ii) in the case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that the same
will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, at maturity, by acceleration or
otherwise.
<PAGE>
F-2
(b) The obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the Notes or the
Indenture, the absence of any action to enforce the same, any waiver or
consent by any Holder of the Notes with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to
enforce the same or any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence, presentment, demand
of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against
the Company, protest, notice and all demands whatsoever.
(d) This Note Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the Indenture,
and the Guaranteeing Subsidiary accepts all obligations of a Guarantor
under the Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors, or any Custodian,
Trustee, liquidator or other similar official acting in relation to either
the Company or the Guarantors, any amount paid by either to the Trustee or
such Holder, this Note Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to any right
of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed
hereby.
(g) As between the Guarantors, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 6 of the
Indenture for the purposes of this Note Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in
respect of the obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such obligations as provided in Article 6 of
the Indenture, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this
Note Guarantee.
(h) The Guarantors shall have the right to seek contribution from
any non-paying Guarantor so long as the exercise of such right does not
impair the rights of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving
effect to any maximum amount and any other contingent and fixed liabilities
that are relevant under any applicable Bankruptcy or fraudulent conveyance
laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under Article 10 of
the Indenture, this new Note Guarantee shall be limited to the maximum
amount permissible such that the obligations of such Guarantor under this
Note Guarantee will not constitute a fraudulent transfer or conveyance.
<PAGE>
F-3
3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that
the Note Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(a) Nothing contained in this Supplemental Indenture shall prevent
any consolidation or merger of the Guaranteeing Subsidiary with or into the
Company or another Guarantor or shall prevent any sale or conveyance of the
property of the Guaranteeing Subsidiary, as an entirety or substantially as
an entirety, to the Company or the Guarantor. Upon any such consolidation,
merger, sale or conveyance, the Note Guarantee given by the Guaranteeing
Subsidiary shall no longer have any force or effect.
(b) Nothing contained in this Supplemental Indenture shall prevent
any consolidation or merger of the Guaranteeing Subsidiary with or into a
Person (provided such Person is a corporation, partnership or trust) other
than the Company or another Guarantor or shall prevent any sale or
conveyance of the property of the Guaranteeing Subsidiary as an entirety or
substantially as an entirety to any such Person (whether or not an
Affiliate of the Guarantor). Upon the sale or disposition of the
Guaranteeing Subsidiary (or all or substantially all of its assets) to a
Person which is not a Subsidiary of the Company, which is otherwise in
compliance with this Supplemental Indenture, the Guaranteeing Subsidiary
shall be deemed released from all its obligations under this Supplemental
Indenture and its Note Guarantee and such Note Guarantee shall terminate;
PROVIDED, HOWEVER, that any such termination shall occur only to the extent
that all obligations of the Guaranteeing Subsidiary under all its
guarantees of, and under all of its pledges of assets or other security
interests which secure, Indebtedness of the Company shall also terminate
upon such release, sale or transfer.
(c) The Trustee shall, at the Company's expense, deliver an
appropriate instrument evidencing such release upon receipt of a request by
the Company accompanied by an Officers' Certificate certifying as to the
compliance with this Section 4. If the Guaranteeing Subsidiary is not so
released it remains liable for the full amount of principal of and interest
on the Notes as provided in this the Supplemental Indenture.
5. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the
Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees,
the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of the Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
<PAGE>
F-4
6. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
7. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
8. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
9. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiary and the
Company.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[GUARANTEEING SUBSIDIARY]
By:
-----------------------------------
Name:
Title:
THE BANK OF NEW YORK
as Trustee
By:
-----------------------------------
Name:
Title:
<PAGE>
REVOLVING CREDIT AGREEMENT
among
PROTECTION ONE ALARM MONITORING, INC.
BORROWER
NATIONSBANK, N.A.,
ADMINISTRATIVE AGENT
FIRST UNION NATIONAL BANK,
SYNDICATION AGENT
TORONTO DOMINION (TEXAS), INC.,
DOCUMENTATION AGENT
and
THE LENDERS NAMED HEREIN,
LENDERS
$500,000,000
DATED AS OF DECEMBER 21, 1998
MORGAN STANLEY SENIOR FUNDING, INC.,
Managing Agent
THE CHASE MANHATTAN BANK,
Managing Agent
WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH,
Co-Agent
NATIONSBANC MONTGOMERY SECURITIES LLC,
LEAD ARRANGER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 DEFINITIONS AND TERMS. . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Number and Gender of Words; Other References . . . . . . . . . . 17
1.3 Accounting Principles. . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2 BORROWING PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 17
2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 LC Subfacility . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.3 Voluntary Termination of Commitments . . . . . . . . . . . . . . 22
2.4 Borrowing Procedure. . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3 TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1 Loan Accounts and Payments . . . . . . . . . . . . . . . . . . . 23
3.2 Interest and Principal Payments. . . . . . . . . . . . . . . . . 24
3.3 Interest Options . . . . . . . . . . . . . . . . . . . . . . . . 24
3.4 Quotation of Rates . . . . . . . . . . . . . . . . . . . . . . . 25
3.5 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.6 Interest Recapture . . . . . . . . . . . . . . . . . . . . . . . 25
3.7 Interest Calculations. . . . . . . . . . . . . . . . . . . . . . 25
3.8 Maximum Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.9 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . 26
3.10 Conversions. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.11 Order of Application . . . . . . . . . . . . . . . . . . . . . . 27
3.12 Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . . 27
3.13 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.14 Booking Borrowings . . . . . . . . . . . . . . . . . . . . . . . 28
3.15 Replacement of Lenders under Certain Circumstances . . . . . . . 28
SECTION 4 CHANGE IN CIRCUMSTANCES. . . . . . . . . . . . . . . . . . . . . 28
4.1 Increased Cost and Reduced Return. . . . . . . . . . . . . . . . 28
4.2 Limitation on Types of Borrowings. . . . . . . . . . . . . . . . 30
4.3 Illegality.. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4 Treatment of Affected Loans. . . . . . . . . . . . . . . . . . . 30
4.5 Compensation.. . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.6 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.1 Treatment of Fees. . . . . . . . . . . . . . . . . . . . . . . . 33
5.2 Fees of Administrative Agent . . . . . . . . . . . . . . . . . . 33
5.3 LC Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.4 LC Issuance and Fronting Fees. . . . . . . . . . . . . . . . . . 33
5.5 Commitment Fees. . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6. GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(i)
<PAGE>
6.1 POI Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2 Subsidiary Guaranty. . . . . . . . . . . . . . . . . . . . . . . 34
6.3 Other Guaranties . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Conditions Precedent to Closing. . . . . . . . . . . . . . . . . 34
7.2 Conditions to all Borrowings.. . . . . . . . . . . . . . . . . . 36
SECTION 8 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 37
8.1 Purpose of Credit Facility . . . . . . . . . . . . . . . . . . . 37
8.2 Existence, Good Standing, Authority, and Authorizations. . . . . 37
8.3 Subsidiaries; Capital Stock. . . . . . . . . . . . . . . . . . . 37
8.4 Authorization and Contravention. . . . . . . . . . . . . . . . . 37
8.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 38
8.7 Litigation, Claims, Investigations . . . . . . . . . . . . . . . 38
8.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.9 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . 39
8.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 39
8.11 Properties; Liens. . . . . . . . . . . . . . . . . . . . . . . . 39
8.12 Government Regulations . . . . . . . . . . . . . . . . . . . . . 39
8.13 Material Agreements. . . . . . . . . . . . . . . . . . . . . . . 39
8.14 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.15 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.16 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 40
8.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 40
8.18 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 40
8.19 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . 40
8.20 Senior Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 41
9.1 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . 41
9.3 Items to be Furnished. . . . . . . . . . . . . . . . . . . . . . 41
9.4 Inspections. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.6 Maintenance of Existence, Assets, and Business . . . . . . . . . 42
9.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.8 Preservation and Protection of Rights. . . . . . . . . . . . . . 43
9.9 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . 43
9.10 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . 43
9.11 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 43
9.12 After-Acquired Subsidiaries. . . . . . . . . . . . . . . . . . . 43
9.13 Other Required Guarantors. . . . . . . . . . . . . . . . . . . . 44
SECTION 10 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 44
10.1 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 44
(ii)
<PAGE>
10.2 Debt of Foreign Subsidiaries . . . . . . . . . . . . . . . . . . 44
10.3 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.4 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 46
10.5 Compliance with Documents . . . . . . . . . . . . . . . . . . . 46
10.6 Fiscal Year and Accounting Methods . . . . . . . . . . . . . . . 46
10.7 New Business . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.8 Loans, Advances, and Investments . . . . . . . . . . . . . . . . 47
10.9 Distributions and Subordinated Debt Payments . . . . . . . . . . 47
10.10 Restrictions on Companies. . . . . . . . . . . . . . . . . . . . 48
10.11 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.12 Mergers and Dissolutions; Sale of Capital Stock. . . . . . . . . 49
10.13 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 11 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.1 Payment of Obligation. . . . . . . . . . . . . . . . . . . . . . 49
11.2 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.3 Debtor Relief. . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.4 Judgments and Attachments. . . . . . . . . . . . . . . . . . . . 50
11.5 Misrepresentation. . . . . . . . . . . . . . . . . . . . . . . . 50
11.6 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . 50
11.7 Default Under Other Debt and Agreements. . . . . . . . . . . . . 50
11.8 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 51
11.9 Validity and Enforceability of Loan Documents. . . . . . . . . . 51
11.10 Environmental Liability. . . . . . . . . . . . . . . . . . . . . 52
SECTION 12 RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . 52
12.1 Remedies Upon Default. . . . . . . . . . . . . . . . . . . . . . 52
12.2 Company Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 52
12.3 Performance by Administrative Agent. . . . . . . . . . . . . . . 52
12.4 Delegation of Duties and Rights. . . . . . . . . . . . . . . . . 53
12.5 Not in Control . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.6 Course of Dealing. . . . . . . . . . . . . . . . . . . . . . . . 53
12.7 Cumulative Rights. . . . . . . . . . . . . . . . . . . . . . . . 53
12.8 Application of Proceeds. . . . . . . . . . . . . . . . . . . . . 53
12.9 Certain Proceedings. . . . . . . . . . . . . . . . . . . . . . . 54
12.10 Expenditures by Lenders. . . . . . . . . . . . . . . . . . . . . 54
12.11 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 13 AGREEMENT AMONG LENDERS. . . . . . . . . . . . . . . . . . . . . 55
13.1 Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 55
13.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
13.3 Proportionate Absorption of Losses . . . . . . . . . . . . . . . 57
13.4 Delegation of Duties; Reliance . . . . . . . . . . . . . . . . . 57
13.5 Limitation of Liability. . . . . . . . . . . . . . . . . . . . . 57
13.6 Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
13.7 Limitation of Liability. . . . . . . . . . . . . . . . . . . . . 59
13.8 Relationship of Lenders. . . . . . . . . . . . . . . . . . . . . 59
(iii)
<PAGE>
13.9 Benefits of Agreement. . . . . . . . . . . . . . . . . . . . . . 59
13.10 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
13.11 Obligations Several. . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 14 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 59
14.1 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
14.2 Nonbusiness Days . . . . . . . . . . . . . . . . . . . . . . . . 59
14.3 Communications . . . . . . . . . . . . . . . . . . . . . . . . . 60
14.4 Form and Number of Documents . . . . . . . . . . . . . . . . . . 60
14.5 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 60
14.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
14.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 60
14.8 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . 60
14.9 Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
14.10 Jurisdiction; Venue; Service of Process; Jury Trial. . . . . . . 61
14.11 Amendments, Consents, Conflicts, and Waivers . . . . . . . . . . 62
14.12 Multiple Counterparts. . . . . . . . . . . . . . . . . . . . . . 63
14.13 Successors and Assigns; Assignments and Participations . . . . . 63
14.14 Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances. . . . . . . . . . . . . . . . . . . . . . . . . . 65
14.15 Designated Senior Indebtedness . . . . . . . . . . . . . . . . . 65
</TABLE>
(iv)
<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 2.1 - Lenders and Commitments; Addresses for Notice
Schedule 8.2 - Companies
Schedule 8.3 - Subsidiaries and Stock
Schedule 10.3 - Existing Capital Leases
Schedule 10.4 - Affiliate Transactions
Schedule 10.8 - Existing Investments
Exhibit A-1 - Form of Compliance Certificate
Exhibit A-2 - Form of Permitted Acquisition Compliance Certificate
Exhibit B - Form of Note
Exhibit C-1 - Form of Notice of Borrowing
Exhibit C-2 - Form of Notice of Conversion
Exhibit C-3 - Form of Notice of LC
Exhibit D-1 - Form of POI Guaranty
Exhibit D-2 - Form of Subsidiary Guaranty
Exhibit E - Form of Opinion of Counsel of Borrower
Exhibit F - Form of Assignment and Acceptance Agreement
</TABLE>
(viii)
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT is entered into as of December 21, 1998,
among PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation
("BORROWER"), Lenders (hereinafter defined), NATIONSBANK, N.A., a national
banking association, as Administrative Agent (hereinafter defined), FIRST
UNION NATIONAL BANK, a national banking association, as Syndication Agent
(hereinafter defined), and TORONTO DOMINION (TEXAS), INC., as Documentation
Agent (hereinafter defined).
R E C I T A L S
A. Borrower has requested that Lenders extend credit to Borrower in
the form of this Agreement, providing for a revolving credit and letter of
credit facility in the aggregate principal amount of $500,000,000.
B. Upon and subject to the terms and subject to the conditions of
this Agreement, Lenders are willing to extend such credit to Borrower.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower, Administrative Agent,
and Lenders agree, as follows:
SECTION 1 DEFINITIONS AND TERMS.
1.1 DEFINITIONS. As used herein:
ACQUISITION means any transaction or series of related transactions for
the purpose of, or resulting in, directly or indirectly, (a) the acquisition
by any Company of all or substantially all of the assets of a Person or of
any line of business or division of a Person, (b) the acquisition by any
Company of more than fifty percent (50%) of any class of Stock (or similar
ownership interests) of any Person (PROVIDED THAT formation or organization
of any entity shall not constitute an "ACQUISITION" to the extent that the
amount of the loan, advance, investment, or capital contribution in such
entity constitutes a permitted investment under SECTION 10.8); or (c) a
merger, consolidation, amalgamation, or other combination by any Company with
another Person if a Company is the surviving entity; PROVIDED THAT in any
merger involving Borrower, Borrower must be the surviving entity.
ADJUSTED EURODOLLAR RATE means, for any Eurodollar Borrowing for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by Administrative Agent to be equal to
the quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar
Borrowing for such Interest Period by (b) one (1) MINUS the Reserve
Requirement for such Eurodollar Borrowing for such Interest Period.
ADMINISTRATIVE AGENT means NationsBank, N.A., and its permitted
successors or assigns as "ADMINISTRATIVE AGENT" for Lenders under this
Agreement.
AFFILIATE as to any Person means any other Person who directly or
indirectly controls, or is controlled by, or is under common control with, such
Person, and, for purposes of this definition only, "CONTROL," "CONTROLLED BY,"
and "UNDER COMMON CONTROL WITH" mean possession, directly or indirectly, of the
power to
<PAGE>
direct or cause the direction of management or policies (whether through
ownership of voting securities, by contract, or otherwise).
AGENTS means, collectively, Administrative Agent, Syndication Agent,
Documentation Agent, and Lead Arranger, and AGENT means any one of the Agents.
AGREEMENT means this Revolving Credit Agreement (as the same may
hereafter be amended, modified, supplemented, or restated from time to time).
APPLICABLE LENDING OFFICE means, for each Lender and for each Type of
Borrowing, the "LENDING OFFICE" of such Lender (or an Affiliate of such
Lender) designated on SCHEDULE 2.1 attached hereto or such other office that
such Lender (or an Affiliate of such Lender) may from time to time specify to
Administrative Agent and Borrower by written notice in accordance with the
terms hereof.
APPLICABLE MARGIN means, as of any date of determination, the interest
margin over Base Rate or the Eurodollar Rate, as the case may be, that
corresponds to the Moody's Rating AND the S & P Rating set forth below on
such date of determination:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
APPLICABLE APPLICABLE APPLICABLE
LEVEL MOODY'S S & P RATING MARGIN MARGIN FOR MARGIN FOR
RATING FOR BASE RATE EURODOLLAR COMMITMENT
BORROWINGS BORROWINGS FEES
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Baa2 or BBB or better 0% 1.00% 0.20%
better
- ----------------------------------------------------------------------------------
2 Baa3 BBB- 0% 1.25% 0.25%
- ----------------------------------------------------------------------------------
3 Ba1 BB+ 0.25% 1.50% 0.275%
- ----------------------------------------------------------------------------------
4 Ba2 BB 0.50% 1.75% 0.30%
- ----------------------------------------------------------------------------------
5 Ba3 or lower BB- or lower 0.65% 2.00% 0.375%
or or
Not Rated Not Rated
- ----------------------------------------------------------------------------------
</TABLE>
For purposes of the foregoing: (a) if the Moody's Rating and the S & P Rating
shall fall within different LEVELS (but not more than one (1) LEVEL apart),
then the Applicable Margin shall be determined by reference to the
numerically lower LEVEL (E.G., if the S & P Rating is in LEVEL 1 and the
Moody's Rating is in LEVEL 2, then the Applicable Margin shall be determined
by reference to LEVEL 1); (b) if the Moody's Rating and the S & P Rating
shall fall within different LEVELS (and by more than one (1) LEVEL), then the
Applicable Margin shall be determined by reference to the LEVEL that is one
(1) LEVEL higher than the numerically lower LEVEL (E.G., if the S & P Rating
is in LEVEL 1 and the Moody's Rating is in LEVEL 4, then the Applicable
Margin shall be determined by reference to LEVEL 2); and (c) if either
Moody's or S & P no longer publishes ratings and Borrower and Administrative
Agent cannot agree on another ratings agency to replace Moody's or S & P, as
the case may be, then the Moody's Rating or the S & P Rating, as the case may
be, shall be deemed to be "NOT RATED." Each change in the Applicable Margin
shall be effective commencing on the fifth (5th) Business Day following the
earlier to occur of (i) Administrative Agent's receipt of notice from
Borrower, as required
2
<PAGE>
in SECTION 9.3(f), of a change in the Moody's Rating or the S & P Rating, and
(ii) Administrative Agent's actual knowledge of a change in the Moody's
Rating or the S & P Rating.
AUTHORIZATIONS means all filings, recordings, and registrations with,
and all validations or exemptions, approvals, orders, authorizations,
consents, franchises, licenses, certificates, and permits from, any
Governmental Authority.
BASE RATE means, for any day, the rate per annum equal to THE GREATER
OF (a) the Federal Funds Rate for such day plus one-half of one percent
(.5%), and (b) the Prime Rate for such day. Any change in the Base Rate due
to a change in the Prime Rate or the Federal Funds Rate shall be effective on
the effective date of such change in the Prime Rate or the Federal Funds
Rate, as applicable.
BASE RATE BORROWING means a Borrowing bearing interest at the SUM of
the Base Rate PLUS the Applicable Margin for Base Rate Borrowings.
BORROWER is defined in the preamble to this Agreement.
BORROWING means any amount disbursed (a) by one or more Lenders to
Borrower under the Loan Documents, whether such amount constitutes an
original disbursement of funds, the Continuation of an amount outstanding, or
payment of a draft under an LC, or (b) by any Lender in accordance with, and
to satisfy the obligations of any Obligor under, any Loan Document.
BORROWING DATE is defined in SECTION 2.4(a).
BUDGET means the annual financial budget for the Companies delivered to
Administrative Agent pursuant to SECTION 9.3(c), together with any
adjustments, if any, to any such budget listed on a schedule to a Permitted
Acquisition Compliance Certificate provided to Administrative Agent in
connection with a Material Acquisition.
BUSINESS DAY means (a) for all purposes, any day OTHER THAN Saturday,
Sunday, and any other day on which commercial banking institutions are
required or authorized by Law to be closed in Dallas, Texas, New York, New
York, or Los Angeles, California, and (b) in addition to the foregoing, in
respect of any Eurodollar Borrowing, a day on which dealings in United States
dollars are conducted in the London interbank market and commercial banks are
open for international business in London.
CAPITAL LEASE means any capital lease or sublease which should be
capitalized on a balance sheet in accordance with GAAP.
CLOSING DATE means the date upon which this Agreement has been executed
by Borrower and the Credit Parties and all conditions precedent specified in
SECTION 7.1 have been satisfied or waived.
CODE means the INTERNAL REVENUE CODE OF 1986, as amended.
COMMITMENT USAGE means, at the time of any determination thereof, THE
SUM OF (without duplication) (a) the Total Principal Debt, PLUS (b) the LC
Exposure.
3
<PAGE>
COMMITTED SUM means, for any Lender at any date of determination, the
amount stated beside each Lender's name on the most-recently amended SCHEDULE
2.1 (which amount is subject to increase, reduction, or cancellation in
accordance with this Agreement).
COMPANIES means, as of any date, POI and each of its Subsidiaries, and
COMPANY means any one of the Companies.
COMPLIANCE CERTIFICATE means a certificate signed by a Responsible
Officer, substantially in the form of EXHIBIT A-1.
CONSEQUENTIAL LOSS means any loss or expense which any Lender
reasonably incurs in respect of a Eurodollar Borrowing as a consequence of
any event described in SECTION 4.5.
CONSOLIDATED DEBT means, as of any date of determination, all Debt of
the Companies, on a consolidated basis, of the types described in CLAUSES
(a)(i) and (a)(ii) of the definition of Debt.
CONSOLIDATED EBITDA means, for any period of determination, the EBITDA
of the Companies, on a consolidated basis.
CONSOLIDATED INTEREST EXPENSE means, for any period of determination,
the Interest Expense of the Companies, on a consolidated basis.
CONSTITUENT DOCUMENTS means, with respect to any Person, its articles
or certificate of incorporation, bylaws, partnership agreements, limited
liability company agreements, trust agreement, or such other document as may
govern such Person's formation or organization.
CONTINUE, CONTINUATION, and CONTINUED refers to the continuation
pursuant to SECTION 3.10 hereof of a Eurodollar Borrowing from one Interest
Period to the next Interest Period.
CONVERT, CONVERSION, and CONVERTED refers to a conversion pursuant to
SECTION 3.10 of one Type of Borrowing into another Type of Borrowing.
CONVERTIBLE NOTE INDENTURE means that certain Indenture dated as of
August 29, 1996, as supplemented by that certain Supplemental Indenture No. 1
for the 6-3/4 Convertible Senior Subordinated Notes due 2003 dated as of
September 20, 1996, by and among State Street Bank and Trust Company, as
Trustee, Borrower, and POI, as the same may be amended, supplemented, or
otherwise modified from time to time.
CONVERTIBLE NOTES means the notes issued pursuant to the Convertible
Note Indenture.
CREDIT PARTIES means Agents and Lenders, and "CREDIT PARTY" means any
one of the Credit Parties.
CURRENT FINANCIALS means, at the time of any determination thereof, the
more recently delivered to Lenders of either (a) the Financial Statements for
the fiscal year ended December 31, 1997, and the nine-month period ended
September 30, 1998, calculated on a consolidated basis for the Companies, or
(b) the Financial Statements required to be delivered under SECTIONS 9.3(a)
or 9.3(b), as the case may be.
4
<PAGE>
DEALER ACQUISITIONS means the acquisition of the assets or contracts
(but not Stock) of a Person who is engaged in the business of originating
security, monitoring, and emergency response contracts.
DEBT means (without duplication), for any Person, the sum of the
following: (a) all liabilities, obligations, and indebtedness of such Person
which in accordance with GAAP should be classified upon such Person's balance
sheet as liabilities in respect of (i) money borrowed, including, without
limitation, the Principal Debt, (ii) obligations of such Person under Capital
Leases, and (iii) obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations, and
obligations under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (b) all obligations of
the type referred to in CLAUSES (a)(i) through (a)(iii) preceding of other
Persons for the payment of which such Person is responsible or liable as
obligor, guarantor, or otherwise; (c) all obligations of the type referred to
in CLAUSES (a)(i) through CLAUSE (a)(iii) and CLAUSE (b) preceding of other
Persons secured by any Lien on any property or asset of such Person (whether
or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the fair value of such property
or assets or the amount of the obligation so secured as determined in good
faith by such Person; (d) the face amount of all letters of credit and
banker's acceptances issued for the account of such Person, and without
duplication, all drafts drawn and unpaid thereunder; and (e) net liabilities
under Financial Hedges.
DEBTOR RELIEF LAWS means the BANKRUPTCY CODE OF THE UNITED STATES OF
AMERICA and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization,
fraudulent transfer or conveyance, suspension of payments, or similar Laws
from time to time in effect affecting the Rights of creditors generally.
DEFAULT is defined in SECTION 11.
DEFAULTING LENDER means, as of any date, any Lender that has (a) failed
to make a Borrowing required to be made by it hereunder, or (b) given notice
to Administrative Agent or Borrower that it will not make, or that it has
disaffirmed or repudiated any obligation to make, any Advances hereunder
(unless such notice is given by all Lenders).
DEFAULT RATE means a per annum rate of interest equal from day to day
to THE LESSER OF (a) the sum of the Base Rate PLUS the Applicable Margin for
Base Rate Borrowings PLUS two percent (2%), and (b) the Maximum Rate.
DISTRIBUTION for any Person means, with respect to any Stock issued by
such Person, (a) the retirement, redemption, purchase, or other acquisition
for value of any such Stock, (b) the declaration or payment of any dividend
on or with respect to any such Stock, and (c) any other payment by such
Person with respect to such Stock.
DOCUMENTATION AGENT means, collectively, Toronto Dominion (Texas), Inc.
and its respective permitted successors or assigns as "DOCUMENTATION AGENT"
under this Agreement.
DOLLARS and the symbol $ means lawful money of the United States of
America.
DOMESTIC SUBSIDIARY means any Subsidiary of POI other than a Foreign
Subsidiary.
5
<PAGE>
EBITDA means, with respect to any Person for any fiscal period, an
amount equal to (a) consolidated net income of such Person for such period,
MINUS (b) THE SUM OF (i) income tax credits, (ii) interest income, (iii)
gains from extraordinary items for such period, and (iv) any aggregate net
gain during such period arising from the sale, exchange, or other disposition
of capital assets by such Person (including any fixed assets, whether
tangible or intangible, and all inventory sold in conjunction with the
disposition of fixed assets, but excluding asset sales in the ordinary course
of business permitted pursuant to SECTION 10.11), in each case to the extent
included in the calculation of consolidated net income of such Person for
such period in accordance with GAAP, but without duplication, MINUS (c) any
cash payments made in respect of any item of extraordinary loss accrued
during a prior period and added back to EBITDA in such prior period pursuant
to CLAUSE (d)(v) below, PLUS (d) THE SUM OF (i) any provision for income
taxes, (ii) Interest Expense, (iii) the amount of depreciation and
amortization for such period, (iv) the amount of any deduction to
consolidated net income as the result of any Stock option expense, (v) the
amount of any item of extraordinary loss not paid in cash in such period, and
(vi) the absolute value of any aggregate net loss during such period arising
from the sale, exchange, or other disposition of capital assets by such
Person (including any fixed assets, whether tangible or intangible, and all
inventory sold in conjunction with the disposition of fixed assets, but
excluding asset sales in the ordinary course of business permitted pursuant
to SECTION 10.11), in each case to the extent included in the calculation of
consolidated net income of such Person for such period in accordance with
GAAP, but without duplication. In the case of any Permitted Acquisition
during any period of calculation, EBITDA shall, for the purposes of the
foregoing calculations, be adjusted to give effect to such Permitted
Acquisition, as if such Permitted Acquisition occurred on the first (1st) day
of such period, by increasing, if positive, or decreasing, if negative,
EBITDA by the EBITDA of such newly-acquired business during such period of
calculation occurring prior to the date of such Permitted Acquisition.
ELIGIBLE ASSIGNEE means: (a) a Lender; (b) an Affiliate of a Lender (so
long as such assignment is not made in conjunction with the sale of such
Affiliate); and (c) any other Person approved by Administrative Agent (which
approval will not be unreasonably withheld or delayed by Administrative
Agent) and, unless a Payment Default has occurred and is continuing at the
time any assignment is effected in accordance with SECTION 14.13, Borrower,
such approval not to be unreasonably withheld or delayed by Borrower and such
approval to be deemed given by Borrower if no objection is received by the
assigning Lender and Administrative Agent from Borrower within five (5)
Business Days after notice of such proposed assignment has been provided by
the assigning Lender to Borrower; PROVIDED, HOWEVER, that neither Borrower
nor any Affiliate of Borrower shall qualify as an Eligible Assignee.
EMPLOYEE PLAN means an employee pension benefit plan covered by TITLE
IV of ERISA and established or maintained by Borrower or any ERISA Affiliate,
but not including any Multiemployer Plan.
ENVIRONMENTAL LAW means any applicable Law that relates to (a) the
condition or protection of the environment (including air, groundwater,
surface water, soil, other environmental media, or natural resources) and
remediation to the environment, (b) the regulation of any Hazardous
Substances, or (c) the Release or threatened Release of Hazardous Substances,
including, without limitation, the COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT (42 U.S.C. SECTION 9601 ET SEQ.) ("CERCLA"),
the CLEAN AIR ACT (42 U.S.C. SECTION 7401 ET SEQ.), the FEDERAL WATER
POLLUTION CONTROL ACT, as amended by the CLEAN WATER ACT (33 U.S.C. SECTION
1251 ET SEQ.), the FEDERAL INSECTICIDE, FUNGICIDE, AND RODENTICIDE ACT (7
U.S.C. SECTION 136 ET SEQ.), the EMERGENCY PLANNING AND COMMUNITY RIGHT TO
KNOW ACT OF 1986 (42 U.S.C. SECTION 11001 ET SEQ.), the HAZARDOUS MATERIALS
TRANSPORTATION ACT (49 U.S.C. SECTION 1801 ET SEQ.), the NATIONAL
ENVIRONMENTAL POLICY ACT OF 1969 (42 U.S.C. SECTION 4321 ET SEQ.), the OIL
POLLUTION ACT (33 U.S.C. SECTION 2701 ET SEQ.), the RESOURCE CONSERVATION AND
RECOVERY ACT (42 U.S.C. SECTION 6901 ET SEQ.), the RIVERS AND HARBORS ACT (33
U.S.C. SECTION 401 ET
6
<PAGE>
SEQ.), the SAFE DRINKING WATER ACT (42 U.S.C. SECTION 201 and SECTION 300f ET
SEQ.), the SOLID WASTE DISPOSAL ACT, as amended by the RESOURCE CONSERVATION
AND RECOVERY ACT OF 1976 and the HAZARDOUS AND SOLID WASTE AMENDMENTS OF 1984
(42 U.S.C. SECTION 6901 ET SEQ.), the TOXIC SUBSTANCES CONTROL ACT (15 U.S.C.
SECTION 2601 ET SEQ.), and analogous state and local Laws, as any of the
foregoing may have been and may be amended or supplemented from time to time,
and any analogous future enacted or adopted Law.
ERISA means the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, as
amended.
ERISA AFFILIATE means any company or trade or business (whether or not
incorporated) which, for purposes of TITLE IV of ERISA, is a member of
Borrower's controlled group or which is under common control with Borrower
within the meaning of SECTION 414(b), (c), (m), or (o) of the Code.
EURODOLLAR RATE means, for any Eurodollar Borrowing for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Dow Jones Markets (Telerate) Page 3750 (or
any successor page) as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two (2) Business Days prior
to the first (1st) day of such Interest Period for a term comparable to such
Interest Period. If for any reason such rate is not available, then the term
"EURODOLLAR RATE" shall mean, for any Eurodollar Borrowing for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two (2) Business Days prior to the first (1st) day of such
Interest Period for a term comparable to such Interest Period; PROVIDED,
HOWEVER, if more than one (1) rate is specified on Reuters Screen LIBO Page,
then the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%).
EURODOLLAR BORROWING means a Borrowing bearing interest at the SUM of
the Adjusted Eurodollar Rate PLUS the Applicable Margin for Eurodollar
Borrowings.
EXCLUDED TAXES is defined in SECTION 4.6(a).
EXHIBIT means an exhibit to this Agreement unless otherwise specified.
FACILITY means the credit facility as described in and subject to the
limitations set forth in SECTION 2.1 hereof.
FEDERAL FUNDS RATE means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) determined (which
determination shall be conclusive and binding, absent manifest error) by
Administrative Agent to be equal to the weighted average of the rates on
overnight Federal funds transactions with member banks of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding such
day; PROVIDED THAT (a) if such day is not a Business Day, then the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
then the Federal Funds Rate for such day shall be the average rate quoted to
Administrative Agent (in its individual capacity) at approximately 10:00 a.m.
(Dallas, Texas time) on such day received by Administrative Agent from three
(3) Federal funds brokers of recognized national standing selected by
Administrative Agent in its sole discretion.
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FINANCIAL HEDGE means a swap, collar, floor, cap, or other contract
which is intended to reduce or eliminate the risk of fluctuations in interest
rates.
FINANCIAL STATEMENTS means balance sheets, statements of operations,
statements of shareholders' investments, and statements of cash flows
prepared in accordance with GAAP, which statements of operations and
statements of cash flows shall be in comparative form to the corresponding
period of the preceding fiscal year, and which balance sheets and statements
of shareholders' investments shall be in comparative form to the prior fiscal
year-end figures.
FOREIGN SUBSIDIARY means any Subsidiary of POI which is not organized
under the Laws of any State of the United States of America or the District
of Columbia.
GAAP means generally accepted accounting principles in the United
States of America as set forth in the opinions and pronouncements of the
American Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board which are
applicable from time to time.
GOVERNMENTAL AUTHORITY means any applicable (a) local, state,
municipal, or federal judicial, executive, or legislative instrumentality,
(b) private arbitration board or panel presiding over binding arbitration, or
(c) central bank.
GUARANTORS means POI, the Subsidiary Guarantors, and any other Person
that is required to execute a guaranty pursuant to SECTION 6.3, and GUARANTOR
means any one of the Guarantors.
GUARANTIES means the POI Guaranty, the Subsidiary Guaranty, and any
other guaranty executed pursuant to SECTION 6.3, and GUARANTY means any one
of the Guaranties.
HAZARDOUS SUBSTANCE means (a) any substance that is designated,
defined, or classified as a hazardous waste, hazardous material, pollutant,
contaminant, or toxic or hazardous substance by any applicable Governmental
Authority, including without limitation, any hazardous substance within the
meaning of SECTION 101 of CERCLA, or (b) any other substances regulated by a
Governmental Authority having jurisdiction over any Company with respect to
environmental matters because of their effect or potential effect on public
health and/or the environment, including, without limitation, (i) petroleum,
oil, gasoline, natural gas or liquids, fuel oil, motor oil, waste oil, diesel
fuel, jet fuel, and other petroleum hydrocarbons, (ii) regulated asbestos and
asbestos-containing materials in any form, (iii) polychlorinated biphenyls,
(iv) urea formaldehyde foam, (v) lead paint, and (vi) radioactive material.
IMMATERIAL ACQUISITION means any single Acquisition involving an
aggregate consideration (including, without limitation, cash paid, Stock
issued, or Debt issued or assumed) in an amount that does not exceed
$10,000,000.
INDEMNIFIED PARTIES is defined in SECTION 12.11.
INTEREST COVERAGE RATIO means, as of any date of determination thereof,
THE RATIO OF (a) THE PRODUCT OF (i) Consolidated EBITDA for the most-recent
fiscal quarter ending on or prior to the date of determination, and (ii) four
(4), to (b) Consolidated Interest Expense for the most-recent four (4) fiscal
quarters ending on or prior to the date of determination.
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INTEREST EXPENSE means, for any period of calculation thereof, for any
Person (a) interest expense determined in accordance with GAAP (excluding the
fees and other amounts payable on or before the Closing Date pursuant to
SECTION 5.2 and the fees and expenses incurred in connection with the Senior
Subordinated Note Indenture), MINUS (b) cash interest income received by such
Person during such period.
INTEREST PERIOD is defined in SECTION 3.9.
LAWS means all applicable statutes, laws, treaties, ordinances, tariff
requirements, rules, regulations, orders, writs, injunctions, decrees,
judgments, opinions, or binding interpretations of any Governmental Authority.
LC means the letter(s) of credit issued hereunder in the form agreed
upon among Borrower, Administrative Agent, and the beneficiary thereof at the
time of issuance thereof and participated in by Lenders pursuant to the terms
and conditions of SECTION 2.2 hereof.
LC AGREEMENT means a letter of credit application and agreement (in
form and substance reasonably satisfactory to Administrative Agent) submitted
by Borrower to Administrative Agent for an LC for Borrower's own account (and
for the benefit of Borrower or any other Company).
LC EXPOSURE means, at any time and without duplication, THE SUM OF (a)
the aggregate undrawn portion of all uncancelled and unexpired LCs, PLUS (b)
the aggregate unpaid reimbursement obligations of Borrower in respect of
drawings of drafts under any LC; PROVIDED THAT LC Exposure shall exclude the
aggregate undrawn portion of any uncanceled or unexpired LCs that have been
cash collateralized or for which back-up letters of credit have been provided
pursuant to SECTION 2.2(h).
LC SUBFACILITY means a subfacility for the issuance of LCs (the LC
Exposure in connection with which may never exceed $25,000,000), as described
in and subject to the limitations of SECTION 2.2.
LEAD ARRANGER means NationsBanc Montgomery Securities LLC, and its
successors and assigns.
LENDERS means, on any date of determination, the financial institutions
named on SCHEDULE 2.1 (as the same may be amended from time to time by
Administrative Agent to reflect the assignments made in accordance with
SECTION 14.13(b) of this Agreement and delivered to Borrower and the Credit
Parties), and subject to the terms and conditions of this Agreement, their
respective successors and assigns.
LEVERAGE RATIO means, as of any date of determination thereof, THE
RATIO OF (a) Consolidated Debt outstanding on such date, to (b) THE PRODUCT
OF (i) Consolidated EBITDA for the most-recent fiscal quarter ending on or
prior to the date of determination, and (ii) four (4).
LIEN means, with respect to any property or assets, any lien, mortgage,
collateral assignment, hypothecation, security interest, pledge, assignment,
charge, conditional sale or title retention agreement, levy, execution,
seizure, attachment, garnishment, or other encumbrance of any kind in respect
of such property or assets.
LIFELINE means Lifeline Systems, Inc., a Massachusetts corporation.
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LIFELINE ACQUISITION means the Acquisition of all of the issued and
outstanding Stock of Lifeline pursuant to that certain Agreement and Plan of
Contribution and Merger dated as of October 18, 1998, as amended on October
28, 1998, among POI, Protection One Acquisition Holding Corporation, P-1
Merger Sub, Inc. (Mass.), P-1 Merger Sub, Inc. (Del.), and Lifeline.
LITIGATION means any action by or before any Governmental Authority.
LOAN DOCUMENTS means (a) this Agreement, any Notes, the Guaranties, the
LCs, and the LC Agreements, (b) all agreements, documents, or instruments in
favor of any Credit Party ever delivered pursuant to this Agreement or
otherwise delivered in connection with all or any part of the Obligation, (c)
any Financial Hedge between any Obligor and any Credit Party or any Affiliate
of any Credit Party, and (d) any and all future renewals, extensions,
restatements, reaffirmations, or amendments of, or supplements to, all or any
part of the foregoing.
MATERIAL ACQUISITION means any single Acquisition or series of related
Acquisitions involving an aggregate consideration (including, without
limitation, cash paid, Stock issued, or Debt issued or assumed) in an amount
in excess of $125,000,000.
MATERIAL ADVERSE EVENT means any set of one or more circumstances or
events which, individually or collectively, could reasonably be expected to
result in any (a) material impairment of the ability of any Obligor to
perform any of its payment or other material obligations under the Loan
Documents or the ability of any Credit Party to enforce any such obligations
or any of their respective Rights under the Loan Documents, (b) material and
adverse effect on the business, properties, condition (financial or
otherwise), or results of operations of the Companies, taken as a whole, or
(c) Default.
MATERIAL COMPANIES means POI and its Material Subsidiaries, and
MATERIAL COMPANY means any one of the Material Companies.
MATERIAL STATE means any State of the United States of America or the
District of Columbia in which any Obligor is conducting business and where
the failure to qualify to do business as a foreign corporation or other
entity would be a Material Adverse Event.
MATERIAL SUBSIDIARY of POI means, at any time, any of:
(a) Borrower;
(b) any Domestic Subsidiary of POI that has (or, in respect of a
newly formed or acquired Subsidiary, would have on a pro forma basis)
contributed at least fifteen percent (15%) of either (i) the gross revenues
of the Companies for the immediately preceding fiscal year of the Companies,
or (ii) the consolidated net income of the Companies for the immediately
preceding fiscal year of the Companies, or (iii) the consolidated total
assets of the Companies as of the last day of the immediately preceding
fiscal year of the Companies (any Domestic Subsidiaries that do not meet the
requirements of this CLAUSE (b) being "INDIVIDUAL IMMATERIAL SUBSIDIARIES");
(c) such additional Domestic Subsidiaries that are Individual Immaterial
Subsidiaries selected by Borrower and approved by Administrative Agent so that
all other Individual Immaterial Subsidiaries shall collectively contribute
fifteen percent (15%) or less of each of (i) the gross revenues of the Companies
for
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the immediately preceding fiscal year of the Companies, or (ii) the
consolidated net income of the Companies for the immediately preceding fiscal
year of the Companies, or (iii) the consolidated total assets of the
Companies as of the last day of the immediately preceding fiscal year of the
Companies.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for each Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest
which, under applicable Law, such Lender is permitted to contract for,
charge, take, reserve, or receive on the Obligation.
MOODY'S means Moody's Investors Service, Inc.
MOODY'S RATING means the most recently-announced rating from time to
time of Moody's assigned to any class of long-term senior, unsecured debt
securities issued by Borrower, as to which no letter of credit or guaranty or
third-party credit support (other than from the Companies) is in place,
regardless of whether all or any part of such Indebtedness has been issued at
the time such rating was issued.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in SECTIONS
3(37) or 4001(a)(3) of ERISA or SECTION 414(f) of the Code to which any
Company or any ERISA Affiliate has any obligation or liability (contingent or
otherwise).
NATIONSBANK means NationsBank, N.A., a national banking association,
and its successors and assigns.
NOTES means any promissory notes executed pursuant to SECTION
3.1(a)(ii), and NOTE means any one of the Notes.
NOTICE OF BORROWING means a notice substantially in the form of EXHIBIT
C-1.
NOTICE OF CONVERSION means a notice substantially in the form of
EXHIBIT C-2.
NOTICE OF LC means a notice substantially in the form of EXHIBIT C-3.
OBLIGATION means all present and future indebtedness, liabilities, and
obligations, and all renewals and extensions thereof, or any part thereof,
now or hereafter owed to any Credit Party or any Affiliate of any Credit
Party by any Obligor arising from, by virtue of, or pursuant to any Loan
Document, together with all interest accruing thereon, fees, costs, and
expenses (including, without limitation, all reasonable attorneys' fees and
expenses incurred in the enforcement or collection thereof as provided in
SECTION 12.10 or in any other Loan Document) payable under the Loan Documents.
OBLIGORS means Borrower and Guarantors, and OBLIGOR means any one of
the Obligors.
OTHER REQUIRED GUARANTOR is defined in SECTION 6.3.
OTHER TAXES is defined in SECTION 4.6(b).
PARTICIPANT is defined in SECTION 14.13(e).
PAYMENT DEFAULT means any Default described in SECTION 11.1.
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PBGC means the Pension Benefit Guaranty Corporation, or any successor
thereof, established pursuant to ERISA.
PERMITTED ACQUISITIONS means:
(a) any Dealer Acquisition;
(b) the Lifeline Acquisition;
(c) any Immaterial Acquisition, PROVIDED THAT the aggregate
consideration with respect to such Immaterial Acquisition, when combined with
the aggregate consideration of all other Immaterial Acquisitions during the
twelve (12) month period prior to such Immaterial Acquisition, does not
exceed $10,000,000;
(d) any Acquisition by any Company with respect to which each of the
following requirements shall have been satisfied:
(i) as of the closing of any Acquisition, the Acquisition has been
approved and recommended by the board of directors (or other equivalent
governing body, if any) of the Person to be acquired or from which such
assets or business are to be acquired;
(ii) as of the closing of any Acquisition, after giving effect to
such Acquisition, the acquiring party must be Solvent and the Companies,
on a consolidated basis, must be Solvent;
(iii) as of the closing of any Acquisition, no Potential Default or
Default shall exist or occur as a result of, and after giving effect to,
such Acquisition;
(iv) as of the closing of any Acquisition, if such Acquisition is
structured as a merger, Borrower, (or if such merger is with any
Subsidiary of Borrower, then such Subsidiary) must be the surviving entity
after giving effect to such merger;
(v) the making and performance of the related acquisition
agreements with respect to such Acquisition, and all other agreements,
documents, and actions required thereunder, will not violate any provision
of any Law, except where such violation could not be a Material Adverse
Event, and will not violate any provisions of the Constituent Documents of
any Company, or constitute a default under any agreement by which any
Company or its respective property may be bound, except where such default
could not be a Material Adverse Event; and
(vi) if such Acquisition is a Material Acquisition,
contemporaneously with the closing of such Material Acquisition, Borrower
shall have delivered to Administrative Agent (A) a Permitted Acquisition
Compliance Certificate, demonstrating pro forma compliance with the terms
and conditions of the Loan Documents, after giving effect to the
Acquisition, and (B) any proposed adjustments to the Budget most-recently
delivered pursuant to the terms of this Agreement as a result of such
Acquisition; or
(e) any other Acquisition for which the prior written consent of
Required Lenders has been obtained (and Lenders agree to respond to a request
for consent to any such Acquisition within ten (10)
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Business Days following Borrower's request for such consent; PROVIDED THAT
the failure to provide a response to such request for consent shall be deemed
to be a refusal to grant such consent).
PERMITTED ACQUISITION COMPLIANCE CERTIFICATE means a certificate signed by
a Responsible Officer of Borrower, substantially in the form of EXHIBIT A-2.
PERMITTED LIENS means Liens permitted under SECTION 10.3 as described in
such SECTION.
PERSON means any individual, entity, or Governmental Authority.
POI means (a) prior to the Lifeline Acquisition, Protection One, Inc., a
Delaware corporation, and (b) on and after the Lifeline Acquisition, Protection
One Acquisition Holding Corp., a Delaware corporation (whose name shall be
changed to Protection One, Inc. following the Lifeline Acquisition).
POI GUARANTY means (a) an Unconditional Guaranty of Payment in
substantially the form of EXHIBIT D-1, executed and delivered by POI, and (b)
any amendments, modifications, supplements, restatements, ratifications, or
reaffirmations thereof made from time to time in accordance with the Loan
Documents.
POTENTIAL DEFAULT means the occurrence of any event or existence of any
circumstance which, with the giving of notice or lapse of time or both, would
become a Default.
PRIME RATE means, as of any date, the per annum rate of interest
established by NationsBank on such date as its prime rate, which rate may not be
the lowest rate of interest charged by NationsBank to its customers.
PRINCIPAL DEBT means, for a Lender and at any time, the unpaid principal
balance of all outstanding Borrowings from such Lender hereunder as of such
date.
PRO RATA or PRO RATA PART, for each Lender, means (a) for purposes of any
commitment to fund (or to purchase participations pursuant to SECTION 2.2) in
respect of the Facility or the L/C Subfacility, respectively, the percentage
stated opposite such Lender's name as set forth on SCHEDULE 2.1 or on the most
recently amended SCHEDULE 2.1, if any, prepared by Administrative Agent pursuant
to SECTION 14.13, (b) for purposes of sharing any amount or fee payable to any
Lender in respect of the Facility or the L/C Subfacility, respectively, the
proportion (whether held directly or through a participation therein pursuant to
SECTION 2.2 and determined after giving effect thereto) which the portion of the
Principal Debt or the LC Exposure, as applicable, owed to such Lender bears to
the Principal Debt or LC Exposure, as applicable, owed to all Lenders at the
time in question, and (c) for all other purposes, the proportion which the
portion of the Principal Debt owed to such Lender bears to the Principal Debt
owed to all Lenders at the time in question, or if no Principal Debt is
outstanding, then the proportion that the aggregate of such Lender's Committed
Sum bears to the Total Commitment then in effect.
REGISTER is defined in SECTION 14.13(c).
REGULATION D means Regulation D of the Board of Governors of the Federal
Reserve System, as amended.
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REGULATION U means Regulation U of the Board of Governors of the Federal
Reserve System, as amended.
RELEASE means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing into the
environment (including air, groundwater, surface water, soil, other
environmental media, or natural resources).
REPORTABLE EVENT shall have the meaning specified in SECTION 4043 of ERISA
or the regulations issued thereunder in connection with an Employee Plan,
excluding events for which the thirty (30) day notice requirement is waived
under applicable PBGC regulations other than those events described in
SECTIONS 2615.11, 2615.15 and 2615.19 of such regulations, including each such
provision as it may subsequently be renumbered.
REPRESENTATIVES means representatives, officers, directors, employees,
attorneys, and agents.
REQUIRED LENDERS means (a) on any date of determination prior to
termination of the Total Commitment, those Lenders (other than Defaulting
Lenders) holding more than fifty percent (50%) of the Total Commitment
(excluding the Committed Sums of any Defaulting Lenders), or (b) on any date of
determination occurring after the Total Commitment has terminated, those Lenders
holding more than fifty percent (50%) of the outstanding Total Principal Debt
(excluding the Principal Debt of any Defaulting Lenders).
RESERVE REQUIREMENT means, at any time, the maximum rate at which reserves
(including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against, in the case of
Eurodollar Borrowings, "EUROCURRENCY LIABILITIES" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks with respect to (a) any category of liabilities which includes
deposits by reference to which the Adjusted Eurodollar Rate is to be determined,
or (b) any category of extensions of credit or other assets which include
Eurodollar Borrowings. The Adjusted Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve
Requirement.
RESPONSIBLE OFFICER of Borrower means its chairman, president, chief
executive officer, chief financial officer (or officer having comparable
duties), treasurer, or secretary, or any vice president, assistant treasurer, or
assistant secretary, or, for all purposes under the Loan Documents, any other
officer designated from time to time by the Board of Directors of Borrower,
which designated officer is reasonably acceptable to Administrative Agent.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SCHEDULE means, unless specified otherwise, a schedule attached to this
Agreement, as the same may be supplemented and modified from time to time in
accordance with the terms of the Loan Documents.
SENIOR NOTE INDENTURE means that certain Indenture for the 7-3/8 Senior
Notes due 2005 dated as of August 16, 1998, by and among the Bank of New York,
as Trustee, Borrower and POI, as the same may be amended, supplemented, or
otherwise modified from time to time.
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SENIOR NOTES means the notes issued pursuant to the Senior Note Indenture.
SENIOR SUBORDINATED NOTE INDENTURE means that certain Indenture for the
8-1/8% Senior Subordinated Notes due 2009 dated as of December 21, 1998, by and
among Bank of New York, as Trustee, Borrower, as issuer, and the Guarantors
named therein, as the same may be amended, supplemented, or otherwise modified
from time to time.
SOLVENT means, as to a Person, that (a) the aggregate fair market value of
such Person's assets exceeds its liabilities (whether contingent, subordinated,
unmatured, unliquidated, or otherwise), (b) such Person has sufficient cash flow
to enable it to pay its Debts as they mature, and (c) such Person does not have
unreasonably small capital to conduct such Person's businesses.
S & P means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., a New York corporation.
S & P RATING means the most recently-announced rating from time to time of
S & P assigned to any class of long-term senior, unsecured debt securities
issued by Borrower, as to which no letter of credit or guaranty or third-party
credit support (other than from the Companies) is in place, regardless of
whether all or any part of such Indebtedness has been issued at the time such
rating was issued.
STOCK means all shares, options, warrants, general or limited partnership
interests, membership interests, or other ownership interests (regardless of how
designated) of or in a corporation, partnership, limited liability company,
trust, or other entity, whether voting or nonvoting, including common stock,
preferred stock, or any other "EQUITY SECURITY" (as such term is defined in RULE
3a11-1 of the GENERAL RULES AND REGULATIONS promulgated by the Securities and
Exchange Commission under the SECURITIES EXCHANGE ACT OF 1934, as amended).
SUBORDINATED DEBT means any Debt of any Obligor subordinated to the
Obligation, including, without limitation, Debt issued pursuant to the
Convertible Note Indenture, the Senior Subordinated Note Indenture, and the
Subordinated Note Indenture.
SUBORDINATED NOTE INDENTURE means that certain Indenture for the 13-5/8
Senior Subordinated Discount Notes due 2005 dated as of May 17, 1995, by and
among The First National Bank of Boston, as Trustee, Borrower, as issuer, and
POI, Protection One Alarm Services, Inc., and A-Able Lock & Alarm, Inc., as
guarantors, as the same may be amended, supplemented, or otherwise modified from
time to time.
SUBSIDIARY of any Person means (a) any entity of which an aggregate of
more than fifty percent (50%) (in number of votes) of the Stock is owned of
record or beneficially, directly or indirectly, by such Person, or (b) any
partnership (limited or general) of which such Person shall at any time be the
general partner.
SUBSIDIARY GUARANTORS means each Material Subsidiary of POI that has
executed the Subsidiary Guaranty, and SUBSIDIARY GUARANTOR means any one of the
Subsidiary Guarantors.
SUBSIDIARY GUARANTY means (a) an Unconditional Guaranty of Payment in
substantially the form of EXHIBIT D-2, executed and delivered by each Subsidiary
Guarantor pursuant to the requirements of
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SECTION 6.2, and (b) any amendments, modifications, supplements,
restatements, ratifications, or reaffirmations thereof made from time to time
in accordance with the Loan Documents.
SYNDICATION AGENT means, collectively, First Union National Bank and its
respective permitted successors or assigns as "SYNDICATION AGENT" under this
Agreement.
TAXES means, for any Person, taxes, assessments, duties, levies, imposts,
deductions, charges, or withholdings, or other governmental charges or levies
imposed upon such Person, its income, or any of its properties, franchises, or
assets.
TERMINATION DATE means the EARLIER of (a) December 21, 2001, and (b) the
effective date of any other termination or cancellation of Lenders' commitments
to lend under, and in accordance with, this Agreement.
TOTAL COMMITMENT means, on any date of determination, the sum of all
Committed Sums for all Lenders (as the same may have been reduced or canceled as
provided in the Loan Documents) then in effect.
TOTAL PRINCIPAL DEBT means, at any time, THE SUM OF the Principal Debt of
all Lenders.
TYPE means either a Base Rate Borrowing or a Eurodollar Borrowing, as the
context may require.
WHOLLY-OWNED when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding Stock (except shares
required as directors' qualifying Stock) shall be owned by Borrower or one or
more of its Wholly-owned Subsidiaries.
YEAR 2000 COMPLIANT is defined in SECTION 8.19.
YEAR 2000 PROBLEM is defined in SECTION 8.19.
1.2 NUMBER AND GENDER OF WORDS; OTHER REFERENCES. Unless otherwise
specified in the Loan Documents, (a) where appropriate, the singular includes
the plural and VICE VERSA, and words of any gender include each other gender,
(b) heading and caption references may not be construed in interpreting
provisions, (c) monetary references are to currency of the United States of
America, (d) section, paragraph, annex, schedule, exhibit, and similar
references are to the particular Loan Document in which they are used, (e)
references to "TELECOPY," "FACSIMILE," "FAX," or similar terms are to facsimile
or telecopy transmissions, (f) references to "INCLUDING" mean including without
limiting the generality of any description preceding that word, (g) the rule of
construction that references to general items that follow references to specific
items are limited to the same type or character of those specific items is not
applicable in the Loan Documents, (h) references to any Person include that
Person's heirs, personal representatives, successors, trustees, receivers, and
permitted assigns, (i) references to any Law include every amendment or
supplement to it, rule and regulation adopted under it, and successor or
replacement for it, and (j) references to any Loan Document or other document
include every renewal and extension of it, amendment and supplement to it, and
replacement or substitution for it.
1.3 ACCOUNTING PRINCIPLES. All accounting and financial terms used in
the Loan Documents and the compliance with each financial covenant therein shall
be determined in accordance with GAAP, and, all accounting principles shall be
applied on a consistent basis so that the accounting principles in a current
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period are comparable in all material respects to those applied during the
preceding comparable period. If Borrower or any Credit Party determines that a
change in GAAP from that in effect on the date hereof has altered the treatment
of certain financial data to its detriment under this Agreement, then such party
may, by written notice to Administrative Agent not later than ten (10) days
after the effective date of such change in GAAP, request renegotiation of the
financial covenants affected by such change whereupon the Borrower and
Administrative Agent, on behalf of Lenders, shall negotiate in good faith for a
period of not more than thirty (30) days regarding amendments to any affected
covenants to make such covenants consistent with the prior covenants and GAAP,
as then in effect, and, after any such revision as shall be agreed to by
Borrower and Required Lenders, this Agreement will be construed in accordance
with GAAP as then in effect. If Borrower and Required Lenders have not agreed
on revised covenants within thirty (30) days after delivery of such notice,
then, for purposes of this Agreement, GAAP will mean generally accepted
accounting principles on the date just prior to the date on which the change
that gave rise to the renegotiation occurred.
SECTION 2 BORROWING PROVISIONS.
2.1 COMMITMENTS. Subject to and in reliance upon the terms, conditions,
representations, and warranties in the Loan Documents, each Lender severally and
not jointly agrees to lend to Borrower such Lender's Pro Rata Part of one or
more Borrowings not to exceed such Lender's Committed Sum, which, may be repaid
and reborrowed from time to time in accordance with the terms and provisions of
the Loan Documents subject to the following conditions:
(a) each Borrowing requested by Borrower hereunder must occur on a
Business Day and no later than the Business Day immediately preceding the
Termination Date;
(b) each Borrowing requested by Borrower must be in an amount not less
than $5,000,000 or a greater multiple of $1,000,000;
(c) the Commitment Usage may not exceed the Total Commitment; and
(d) THE SUM OF (i) each Lender's Principal Debt PLUS (ii) such Lender's
Pro Rata Part of the LC Exposure may not exceed such Lender's Committed Sum.
2.2 LC SUBFACILITY.
(a CONDITIONS. Subject to the terms and conditions of this Agreement
and applicable Law, Administrative Agent agrees to issue LCs upon Borrower's
application therefor (denominated in Dollars) by delivering to Administrative
Agent a properly completed Notice of LC and an LC Agreement with respect thereto
no later than 10:00 a.m. Dallas, Texas time three (3) Business Days before such
LC is to be issued; PROVIDED THAT (i) on any date of determination and after
giving effect to any LC to be issued on such date, the Commitment Usage shall
never exceed the Total Commitment then in effect, (ii) on any date of
determination and after giving effect to any LC to be issued on such date, the
LC Exposure shall never exceed $25,000,000, (iii) at the time of issuance of
such LC, no Potential Default or Default shall exist, (iv) each LC requested by
Borrower must be in an amount not less than $1,000,000, and (v) each LC must
expire NO LATER than the EARLIER of the fifteenth (15th) day prior to the
Termination Date or one (1) year from its issuance; PROVIDED THAT any LC may
provide for automatic renewal for successive twelve (12) month periods (but no
renewal period may extend beyond the fifteenth (15th) day prior to the
Termination Date) unless Administrative Agent has given prior notice to the
applicable beneficiary of its election not to extend such LC.
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(b PARTICIPATION. Immediately upon the issuance by Administrative
Agent of any LC, Administrative Agent shall be deemed to have sold and
transferred to each other Lender, and each other such Lender shall be deemed
irrevocably and unconditionally to have purchased and received from
Administrative Agent, without recourse or warranty, an undivided interest and
participation, to the extent of such Lender's Pro Rata Part, in such LC, and all
Rights of Administrative Agent in respect thereof (OTHER THAN Rights to receive
certain fees provided for in SECTION 2.2(c)). Upon the issuance, renewal, or
extension of an LC, Administrative Agent shall provide copies of such LC to each
other Lender.
(c REIMBURSEMENT OBLIGATION. In order to induce Administrative Agent
to issue and maintain LCs and Lenders to participate therein, Borrower agrees to
pay or reimburse Administrative Agent (i) on the date on which Administrative
Agent notifies Borrower of the date and amount of any draft presented under any
LC, the amount of any draft paid or to be paid by Administrative Agent, and
(ii) promptly, upon demand, the amount of any fees (in addition to the fees
described in SECTION 5) which Administrative Agent customarily charges to a
Person similarly situated in the ordinary course of its business for amending LC
Agreements, for honoring drafts, and taking similar action in connection with
letters of credit; PROVIDED THAT (A) if Borrower has not reimbursed
Administrative Agent for any drafts paid or to be paid within twenty-four
(24) hours of demand therefor by Administrative Agent, then Administrative Agent
is hereby irrevocably authorized to fund such reimbursement obligations as a
Borrowing under the Facility to the extent of availability under the Facility,
and the proceeds of such Borrowing under the Facility shall be advanced directly
to Administrative Agent in payment of Borrower's reimbursement obligation with
respect to the draft under the LC, and (B) if for any reason, funds are not
advanced pursuant to the Facility, then Borrower's reimbursement obligation
shall continue to be due and payable. Borrower's obligations under this
SECTION 2.2(c) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim, or defense to
payment which Borrower may have at any time against Administrative Agent (except
to the extent resulting from the gross negligence or willful misconduct of
Administrative Agent) or any other Person, and shall be made in accordance with
the terms and conditions of this Agreement under all circumstances, including,
without limitation, any of the following circumstances: (1) any lack of validity
or enforceability of this Agreement or any of the Loan Documents; (2) the
existence of any claim, setoff, defense, or other Right which Borrower may have
at any time against a beneficiary named in a LC, any transferee of any LC (or
any Person for whom any such transferee may be acting), any Credit Party (except
to the extent resulting from the gross negligence or willful misconduct of such
Credit Party), or any other Person, whether in connection with this Agreement,
any LC, the transactions contemplated herein, or any unrelated transactions
(including any underlying transaction between Borrower and the beneficiary named
in any such LC); (3) any draft, certificate, or any other document presented
under the LC proving to be forged, fraudulent, invalid, or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect; and
(4) the occurrence of any Potential Default or Default. To the extent any
funding of a draft has been made by Lenders pursuant to SECTION 2.2(e) or under
the Facility, Administrative Agent shall promptly distribute any such payments
received from Borrower with respect to such draft to all Lenders funding such
draft according to their Pro Rata Part. Interest on any amounts remaining
unpaid by Borrower (and unfunded by a Borrowing under the Facility) under this
CLAUSE at any time from and after the date such amounts become payable until
paid in full shall be payable by Borrower to Administrative Agent at the Default
Rate. In the event any payment by Borrower received by Administrative Agent
with respect to an LC and distributed to Lenders on account of their
participations therein is thereafter set aside, avoided, or recovered from
Administrative Agent in connection with any receivership, liquidation, or
bankruptcy proceeding, each Lender which received such distribution shall, upon
demand by Administrative Agent, contribute to Administrative Agent such Lender's
ratable portion of the amount set aside, avoided, or
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recovered, together with interest at the rate required to be paid by
Administrative Agent upon the amount required to be repaid by it.
(d GENERAL. If any draft shall be presented for honor under any LC,
then Administrative Agent shall promptly notify Borrower of the date and amount
of such draft; PROVIDED THAT failure to give any such notice shall not affect
the obligations of Borrower hereunder. Administrative Agent shall make payment
upon presentment of a draft for honor unless it appears that presentment on its
face does not comply with the terms of such LC, regardless of whether (i) any
default or potential default under any other agreement has occurred, and
(ii) the obligations under any other agreement have been performed by the
beneficiary or any other Person (and Administrative Agent shall not be liable
for any obligation of any Person thereunder). The Credit Parties shall not be
responsible for, and Borrower's reimbursement obligations for honored drafts
shall not be affected by, any matter or event whatsoever (including, without
limitation, the validity or genuineness of documents or of any endorsements
thereof, even if such documents should in fact prove to be in any respect
invalid, fraudulent, or forged), or any dispute among any Company, the
beneficiary of any LC, or any other Person to whom any LC may be transferred, or
any claims whatsoever of any Company against any beneficiary of any LC or any
such transferee; PROVIDED THAT nothing in this Agreement shall constitute a
waiver of Borrower's Rights to assert any claim based upon the gross negligence
or wilful misconduct of any Credit Party.
(e OBLIGATION OF LENDERS. If Borrower fails to reimburse
Administrative Agent as provided in SECTION 2.2(c) within twenty-four (24) hours
after receiving notice of a draft pursuant to SECTION 2.2(d), then
Administrative Agent shall promptly notify each Lender of such failure, of the
date and amount of the draft paid, and of such Lender's Pro Rata Part thereof.
Each Lender shall promptly and unconditionally make available to Administrative
Agent in immediately available funds such Lender's Pro Rata Part of such unpaid
reimbursement obligation, which funds shall be paid to Administrative Agent on
or before the close of business on the Business Day on which such notice was
given by Administrative Agent (if given at or prior to 1:00 p.m., Dallas, Texas
time) or on the next succeeding Business Day (if notice was given after
1:00 p.m., Dallas, Texas time). All such amounts payable by any such Lender
shall include interest thereon accruing at the Federal Funds Rate from the day
the applicable draft is paid by Administrative Agent to (but not including) the
date such amount is paid by such Lender to Administrative Agent. The
obligations of Lenders to make payments to Administrative Agent with respect to
LCs shall be irrevocable and are not subject to any qualification or exception
whatsoever (other than the gross negligence or wilful misconduct of
Administrative Agent) and shall be made in accordance with the terms and
conditions of this Agreement under all circumstances, including, without
limitation, any of the following circumstances: (i) any lack of validity or
enforceability of this Agreement or any of the Loan Documents; (ii) the
existence of any claim, setoff, defense, or other Right which Borrower may have
at any time against a beneficiary named in a LC, any transferee of any LC (or
any Person for whom any such transferee may be acting), any Credit Party, or any
other Person, whether in connection with this Agreement, any LC, the
transactions contemplated herein, or any unrelated transactions (including any
underlying transaction between Borrower and the beneficiary named in any such
LC); (iii) any draft, certificate, or any other document presented under the LC
proving to be forged, fraudulent, invalid, or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; and (iv) the
occurrence of any Potential Default or Default.
(f DELIVERY AND CANCELLATION. Borrower acknowledges that each LC will
be deemed issued upon delivery to its beneficiary or Borrower. If Borrower
requests any LC be delivered to Borrower rather than the beneficiary, and
Borrower subsequently cancels such LC, then Borrower agrees to return it to
Administrative Agent together with Borrower's written certification that it has
never been delivered to such
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beneficiary. If any LC is delivered to its beneficiary pursuant to
Borrower's instructions, then no cancellation thereof by Borrower shall be
effective without written consent of such beneficiary to Administrative Agent
and the return of such LC to Administrative Agent. Borrower hereby agrees
that if Administrative Agent becomes involved in any dispute as a result of
Borrower's cancellation of any LC, then it shall indemnify the Credit Parties
for all losses, costs, damages, expenses, and reasonable attorneys' fees
suffered or incurred by the Credit Parties as a direct result thereof.
(g DUTIES OF ADMINISTRATIVE AGENT. Administrative Agent agrees with
each Lender that it will exercise and give the same care and attention to each
LC as it gives to its other letters of credit, and Administrative Agent's sole
liability to each Lender with respect to such LCs (OTHER THAN liability arising
from the gross negligence or willful misconduct of Administrative Agent) shall
be to distribute promptly to each Lender who has acquired a participating
interest therein such Lender's ratable portion of any payments made to
Administrative Agent by Borrower pursuant to SECTION 2.2(c). Each Lender and
Borrower agree that, in paying any draw under any LC, Administrative Agent shall
not have any responsibility to obtain any document (OTHER THAN any documents
required by the respective LC) or to ascertain or inquire as to the validity or
accuracy of any such document or the authority of the Person delivering any such
document. The Credit Parties and their respective Representatives shall not be
liable to any other Credit Party or any Obligor for the use which may be made of
any LC or for any acts or omissions of any beneficiary thereof in connection
therewith. Any action, inaction, error, delay, or omission taken or suffered by
Administrative Agent or any of its Representatives under or in connection with
any LC, the draws, drafts, or documents relating thereto, or the transmission,
dispatch, or delivery of any message or advice related thereto, if in good faith
and in conformity with such Laws as Administrative Agent or any of its
Representatives may deem applicable and in accordance with the standards of care
specified in the UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS issued by
the International Chamber of Commerce, as in effect on the date of issue of such
LC, shall be binding upon Obligors and the Credit Parties and shall not place
Administrative Agent or any of its Representatives under any resulting liability
to any Credit Party or any Obligor. Any action taken or omitted to be taken by
Administrative Agent under or in connection with any LC if taken or omitted in
the absence of gross negligence or wilful misconduct shall not create for
Administrative Agent any resulting liability to any Credit Party or any Obligor.
(h CASH COLLATERAL. On the Termination Date or upon any demand from
time to time by Administrative Agent or the Required Lenders at any time while a
Default exists, Borrower shall provide to Administrative Agent, for the benefit
of Lenders, either (i) cash collateral, or (ii) back-up letters of credit
reasonably acceptable to Administrative Agent, in an aggregate amount equal to
one hundred percent (100%) of the LC Exposure existing on the date of such
demand. Such cash (and all interest thereon) and letters of credit shall
constitute collateral for all LCs. Any cash collateral deposited, and all
interest earned thereon, shall be held by Administrative Agent and invested and
reinvested at the expense and the written direction of Borrower, in United
States Treasury Bills with maturities of no more than ninety (90) days from the
date of investment. In the absence of any such direction from Borrower,
Administrative Agent shall invest the funds held in the cash collateral account
(so long as the aggregate amount of such funds exceeds any relevant minimum
investment requirement) in one or more types of investments with such maturities
as Administrative Agent may specify, pending application of such funds on
account of any other Obligation, as the case may be. All such investments shall
be made in Administrative Agent's name for the account of the Credit Parties,
subject to the ownership interest therein of Borrower. Administrative Agent may
liquidate any investment held in the cash collateral account in order to apply
the proceeds of such investment on account of any of the Obligation if such
Obligation is then due and payable without regard to whether such
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investment has matured and without liability for any penalty or other fee
incurred (with respect to which Borrower hereby agrees to reimburse
Administrative Agent) as a result of such application.
(i INDEMNIFICATION. IN ADDITION TO AMOUNTS PAYABLE AS ELSEWHERE
PROVIDED IN THIS AGREEMENT, BORROWER HEREBY AGREES TO PROTECT, INDEMNIFY, PAY,
AND SAVE EACH CREDIT PARTY HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, LIABILITIES, DAMAGES, OR LOSSES OF, OR OWED TO THIRD PARTIES, AND ANY
AND ALL RELATED COSTS, CHARGES, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
FEES), WHICH ANY CREDIT PARTY MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE,
DIRECT OR INDIRECT, OF (A) THE ISSUANCE OF ANY LC, OR (B) THE FAILURE OF
ADMINISTRATIVE AGENT TO HONOR A DRAFT UNDER SUCH LC AS A RESULT OF ANY ACT OR
OMISSION, WHETHER RIGHTFUL OR WRONGFUL, OF ANY PRESENT OR FUTURE GOVERNMENTAL
AUTHORITY; PROVIDED THAT BORROWER SHALL HAVE NO LIABILITY TO INDEMNIFY ANY
CREDIT PARTY IN RESPECT OF ANY LIABILITY ARISING OUT OF THE GROSS NEGLIGENCE OR
WILFUL MISCONDUCT OF SUCH PARTY OR ANY REPRESENTATIVES OF SUCH PARTY. THE
PROVISIONS OF AND UNDERTAKINGS AND INDEMNIFICATIONS SET FORTH IN THIS
SECTION 2.2(i) SHALL SURVIVE THE SATISFACTION AND PAYMENT OF THE OBLIGATION AND
TERMINATION OF THIS AGREEMENT.
(j LC AGREEMENTS. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not in any
manner incorporated herein. Drafts under any LC shall be deemed part of the
Obligation. In the event of any conflict or inconsistency between the terms of
this Agreement and any LC Agreement, the terms of this Agreement shall be
controlling.
2.3 VOLUNTARY TERMINATION OF COMMITMENTS. Without premium or penalty,
and upon giving not less than three (3) Business Days prior telephonic notice
(followed by written notice) to Administrative Agent, Borrower may terminate in
whole or in part the unused portion of the Total Commitment; PROVIDED THAT:
(i) each partial termination shall be in an amount of not less than $10,000,000
or a greater integral multiple of $1,000,000; (ii) the amount of the Commitment
Usage may not exceed the Total Commitment (unless Borrowings are simultaneously
paid in an amount equal to such excess); and (iii) each reduction shall be
allocated Pro Rata among Lenders in accordance with their respective Pro Rata
Parts. Promptly after receipt of such notice of termination or reduction,
Administrative Agent shall notify each Lender of the proposed cancellation or
reduction. Such termination or partial reduction of the Total Commitment shall
be effective on the Business Day specified in Borrower's notice (which date must
be at least three (3) Business Days after Borrower's delivery of such notice).
In the event that the Total Commitment is reduced to zero at a time when there
shall be no LC Exposure or Principal Debt, this Agreement shall be terminated to
the extent specified in SECTION 14.14, and all commitment fees and other fees
then earned and unpaid hereunder and all other amounts of the Obligation then
due and owing shall be immediately due and payable, without notice or demand by
Administrative Agent or any Lender.
2.4 BORROWING PROCEDURE. The following procedures apply to Borrowings:
(a NOTICE OF BORROWING. Each Borrowing shall be made pursuant to a
Notice of Borrowing delivered to Administrative Agent requesting that Lenders
fund a Borrowing on a certain date (the "BORROWING DATE"), which notice
(i) shall be irrevocable and binding on Borrower, (ii) shall specify the
Borrowing Date, amount, Type, and (for a Borrowing comprised of Eurodollar
Borrowings) Interest Period, and (iii) must be received by Administrative Agent
no later than (A) 2:00 p.m. Dallas, Texas time on the third (3rd) Business Day
preceding the Borrowing Date for any Eurodollar Borrowing, and (B) 11:00 a.m.
Dallas,
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Texas time on the Borrowing Date for any Base Rate Borrowing. Administrative
Agent shall timely notify each Lender with respect to each Notice of
Borrowing.
(b FUNDING. Each Lender shall remit its Pro Rata Part of each
requested Borrowing to Administrative Agent's principal office in Dallas, in
funds which are or will be available for immediate use by Administrative
Agent by 1:00 p.m. Dallas time on the Borrowing Date therefor. Subject to
receipt of such funds, Administrative Agent shall (unless to its actual
knowledge any of the conditions precedent therefor have not been satisfied by
Borrower or waived by Required Lenders) make such funds available to Borrower
by causing such funds to be deposited to Borrower's account as designated to
Administrative Agent by Borrower. Notwithstanding the foregoing, unless
Administrative Agent shall have been notified by a Lender prior to a
Borrowing Date that such Lender does not intend to make available to
Administrative Agent such Lender's Pro Rata Part of the applicable Borrowing,
Administrative Agent may assume that such Lender has made such proceeds
available to Administrative Agent on such date, as required herein, and
Administrative Agent may (unless to its actual knowledge any of the
conditions precedent therefor have not been satisfied by Borrower or waived
by Required Lenders), in reliance upon such assumption (but shall not be
required to), make available to Borrower a corresponding amount in accordance
with the foregoing terms, but, if such corresponding amount is not in fact
made available to Administrative Agent by such Lender on such Borrowing Date,
then Administrative Agent shall be entitled to recover such corresponding
amount on demand (i) from such Lender, together with interest at the Federal
Funds Rate during the period commencing on the date such corresponding amount
was made available to Borrower and ending on (but excluding) the date
Administrative Agent recovers such corresponding amount from such Lender, or
(ii) if such Lender fails to pay such corresponding amount forthwith upon
such demand, then from Borrower, together with interest at a rate per annum
equal to the applicable rate for such Borrowing during the period commencing
on such Borrowing Date and ending on (but excluding) the date Administrative
Agent recovers such corresponding amount from Borrower. No Lender shall be
responsible for the failure of any other Lender to make its Pro Rata Part of
any Borrowing.
SECTION 3 TERMS OF PAYMENT.
3.1 LOAN ACCOUNTS AND PAYMENTS.
(a LOAN ACCOUNTS.
(i) The Obligation payable to each Lender shall be evidenced by
one or more loan accounts or records maintained by such Lender in the
ordinary course of business. The loan accounts or records maintained by
Administrative Agent and each Lender shall be conclusive evidence absent
manifest error of the amount of the Obligation owing to each Lender. Any
failure to so record or any error in doing so shall not, however, limit or
otherwise affect the obligation of Borrower hereunder to pay any amount
owing to any Lender with respect to the Obligation.
(ii) Upon the request of any Lender made through Administrative
Agent, the Principal Debt of the Obligation owing to such Lender may be
evidenced by one or more Notes in addition to loan accounts. Each such
Note shall be in substantially the form of EXHIBIT B and be executed by
Borrower and payable to the order of such Lender in the maximum original
principal amount equal to such Lender's Committed Sum. Each such Lender
may endorse on the schedules annexed to its Note(s) the date, amount, and
maturity of each Borrowing made by it and the amount of each payment of
principal made by Borrower with respect thereto and each Lender's record
shall be
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conclusive absent manifest error; PROVIDED, HOWEVER, that the failure of
a Lender to make, or an error by a Lender in making, a notation thereon
with respect to any Borrowing shall not limit or otherwise affect the
obligations of Borrower hereunder or under any such Note to such Lender.
(b PAYMENTS GENERALLY. Each payment or prepayment on the Obligation is
due and must be paid at Administrative Agent's principal office in Dallas in
funds which are or will be available for immediate use by Administrative Agent
at or before 1:00 p.m. Dallas, Texas time on the day due. Payments made after
1:00 p.m., Dallas, Texas time shall be deemed made on the Business Day next
following. Administrative Agent shall pay to each Lender any payment or
prepayment to which such Lender is entitled hereunder on the same day
Administrative Agent shall have received the same from Borrower; PROVIDED THAT
such payment or prepayment is received by Administrative Agent at or before
1:00 p.m. Dallas, Texas time, and otherwise at or before 1:00 p.m. Dallas, Texas
time on the Business Day next following. If and to the extent Administrative
Agent shall not make such payments to Lenders when due as set forth in the
preceding sentence, then such unpaid amounts shall accrue interest, payable by
Administrative Agent, at the Federal Funds Rate from the due date until (but not
including) the date on which Administrative Agent makes such payments to
Lenders.
3.2 INTEREST AND PRINCIPAL PAYMENTS.
(a INTEREST PAYMENTS. Interest on each Eurodollar Borrowing shall be
due and payable as it accrues on the last day of its respective Interest Period
and on the Termination Date, as applicable; PROVIDED THAT with respect to
Eurodollar Borrowings having an Interest Period in excess of three (3) months,
Borrower shall pay interest on each three (3) month anniversary date of such
Interest Period and on the expiration of such Interest Period. Interest on each
Base Rate Borrowing shall be due and payable as it accrues on each March 31,
June 30, September 30, and December 31, and on the Termination Date.
(b MANDATORY PAYMENTS. The Total Principal Debt is due and payable on
the Termination Date. On any date of determination, if the Commitment Usage
exceeds the Total Commitment, then Borrower shall make a mandatory prepayment of
the Principal Debt in the amount of such excess, together with (i) all accrued
and unpaid interest on the principal amount so prepaid, and (ii) any
Consequential Loss arising as a result thereof. All mandatory prepayments
hereunder shall be applied Pro Rata.
(c VOLUNTARY PREPAYMENTS. After giving Administrative Agent advance
telephonic notice (promptly followed by written notice) of the intent to prepay,
Borrower may voluntarily prepay all or any part of the Principal Debt from time
to time and at any time, in whole or in part, without premium or penalty;
PROVIDED THAT: (i) such notice must be received by Administrative Agent at or
before 1:00 p.m. Dallas, Texas time on (A) the third (3rd) Business Day
preceding the date of prepayment of a Eurodollar Borrowing, and (B) the Business
Day of a prepayment of a Base Rate Borrowing; (ii) each such partial prepayment
must be in a minimum amount of at least $5,000,000 or a greater integral
multiple of $1,000,000 thereof (if a Eurodollar Borrowing or a Base Rate
Borrowing); (iii) all accrued interest on any Eurodollar Borrowing being prepaid
must also be paid in full, to the date of such prepayment; and (iv) Borrower
shall pay any related Consequential Loss within ten (10) days after demand
therefor. Each notice of prepayment shall specify the prepayment date and the
Type of Borrowing(s) and amount(s) of such Borrowing(s) to be prepaid and shall
constitute a binding obligation of Borrower to make a prepayment on the date
stated therein unless such notice is given in connection with the payment in
full of all Borrowings under this Agreement, the termination of the Total
Commitment, and a termination of this Agreement in which case the parties hereto
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acknowledge that such payment may (subject to any Consequential Loss) occur on a
date after the date given in such notice as a result of normal delays with
respect to such payment.
3.3 INTEREST OPTIONS. Except where specifically otherwise provided,
Borrowings shall bear interest at a rate per annum equal to THE LESSER OF
(a) the Base Rate PLUS the Applicable Margin for Base Rate Borrowings or the
Adjusted Eurodollar Rate PLUS the Applicable Margin for Eurodollar Borrowings,
in each case as designated in accordance with the terms of this Agreement, AND
(b) the Maximum Rate. Each change in the Base Rate or the Maximum Rate, subject
to the terms of this Agreement, will become effective, without notice to
Borrower or any other Person, upon the effective date of such change.
3.4 QUOTATION OF RATES. A Responsible Officer or other appropriately
designated officer of Borrower may call Administrative Agent on or before the
date on which a Notice of Borrowing is to be delivered by Borrower in order to
receive an indication of the rates then in effect, but such indicated rates
shall neither be binding upon Administrative Agent or Lenders nor affect the
rate of interest which thereafter is actually in effect when the Notice of
Borrowing is given.
3.5 DEFAULT RATE. To the extent permitted by Law, all past-due
Principal Debt and accrued interest thereon shall bear interest from maturity
(stated or by acceleration) at the Default Rate until paid, regardless whether
such payment is made before or after entry of a judgment; PROVIDED THAT the
Default Rate shall automatically apply in the case of SECTION 2.2(c) where the
Default Rate is specified.
3.6 INTEREST RECAPTURE. If the designated rate applicable to any
Borrowing exceeds the Maximum Rate, then the rate of interest on such Borrowing
shall be limited to the Maximum Rate, but any subsequent reductions in such
designated rate shall not reduce the rate of interest thereon below the Maximum
Rate until the total amount of interest accrued thereon equals the amount of
interest which would have accrued thereon if such designated rate had at all
times been in effect. In the event that at maturity (stated or by
acceleration), or at final payment of the Total Principal Debt, the total amount
of interest paid or accrued is less than the amount of interest which would have
accrued if such designated rates had at all times been in effect, then, at such
time and to the extent permitted by Law, Borrower shall pay an amount equal to
the difference between (a) THE LESSER OF the amount of interest which would have
accrued if such designated rates had at all times been in effect AND the amount
of interest which would have accrued if the Maximum Rate had at all times been
in effect, and (b) the amount of interest actually paid or accrued on the Total
Principal Debt.
3.7 INTEREST CALCULATIONS.
(a All payments of interest shall be calculated on the basis of actual
number of days (including the first (1st) day but excluding the last day)
elapsed but computed as if each calendar year consisted of 360 days in the case
of a Eurodollar Borrowing (unless such calculation would result in the interest
on the Borrowings exceeding the Maximum Rate, in which event such interest shall
be calculated on the basis of a year of 365 or 366 days, as the case may be),
and 365 or 366 days, as the case may be, in the case of a Base Rate Borrowing.
All interest rate determinations and calculations by Administrative Agent shall
be conclusive and binding absent manifest error.
(b The provisions of this Agreement relating to the calculation of the
Base Rate and the Adjusted Eurodollar Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate.
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3.8 MAXIMUM RATE. Regardless of any provision contained in any Loan
Document, no Credit Party shall ever be entitled to contract for, charge,
take, reserve, receive, or apply, as interest on the Obligation, or any part
thereof, any amount in excess of the Maximum Rate, and, if any Credit Party
ever does so, then such excess shall be deemed a partial prepayment of
principal and treated hereunder as such and any remaining excess shall be
refunded to Borrower. In determining if the interest paid or payable exceeds
the Maximum Rate, Borrower and the Credit Parties shall, to the maximum
extent permitted under applicable Law, (a) treat all Borrowings as but a
single extension of credit (and the Credit Parties and Borrower agree that
such is the case and that provision herein for multiple Borrowings is for
convenience only), (b) characterize any non-principal payment as an expense,
fee, or premium rather than as interest, (c) exclude voluntary prepayments
and the effects thereof, and (d) amortize, prorate, allocate, and spread the
total amount of interest throughout the entire contemplated term of the
Obligation; PROVIDED THAT if the Obligation is paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum
Amount, then the Credit Parties shall refund such excess, and, in such event,
the Credit Parties shall not, to the extent permitted by Law, be subject to
any penalties provided by any Laws for contracting for, charging, taking,
reserving, or receiving interest in excess of the Maximum Amount.
3.9 INTEREST PERIODS. When Borrower requests any Eurodollar
Borrowing, Borrower may elect the interest period (each an "INTEREST PERIOD")
applicable thereto, which shall be, at Borrower's option, one (1) month or
two (2), three (3), or six (6) months, in each case to the extent available
from each Lender (or other periods, if requested by Borrower and agreed to by
each Lender); PROVIDED, HOWEVER, that: (a) the initial Interest Period for a
Eurodollar Borrowing shall commence on the date of such Borrowing (including
the date of any Conversion thereto), and each Interest Period occurring
thereafter in respect of such Borrowing shall commence on the day on which
the next preceding Interest Period applicable thereto expires; (b) if any
Interest Period for a Eurodollar Borrowing begins on a day for which there is
no numerically corresponding Business Day in the calendar month at the end of
such Interest Period, then such Interest Period shall end on the next
Business Day immediately following what otherwise would have been such
numerically corresponding day in the calendar month at the end of such
Interest Period (unless such date would be in a different calendar month from
what would have been the month at the end of such Interest Period, or unless
there is no numerically corresponding day in the calendar month at the end of
the Interest Period; whereupon, such Interest Period shall end on the last
Business Day in the calendar month at the end of such Interest Period); (c)
no Interest Period may be chosen with respect to any portion of the Total
Principal Debt which would extend beyond the Termination Date; and (d) no
more than an aggregate of ten (10) Interest Periods shall be in effect at one
time.
3.10 CONVERSIONS. Borrower may (a) Convert a Eurodollar Borrowing on
the last day of an Interest Period to a Base Rate Borrowing, (b) Convert a
Base Rate Borrowing at any time to a Eurodollar Borrowing, and (c) Continue a
Eurodollar Borrowing by electing a new Interest Period, by giving a Notice of
Conversion no later than 2:00 p.m. Dallas, Texas time on the third (3rd)
Business Day prior to the date of Conversion or the last day of the Interest
Period, as the case may be (in the case of a Conversion to a Eurodollar
Borrowing or an election of a new Interest Period), and no later than 11:00
a.m. Dallas, Texas time on the last day of the Interest Period (in the case
of a Conversion to a Base Rate Borrowing); PROVIDED THAT the principal amount
Converted to, or Continued as, a Eurodollar Borrowing shall be in an amount
not less than $5,000,000 or a greater integral multiple of $1,000,000.
Administrative Agent shall timely notify each Lender with respect to each
Notice of Conversion. Absent Borrower's Notice of Conversion or election of
a new Interest Period, a Eurodollar Borrowing shall be deemed Converted to a
Base Rate Borrowing effective as of the expiration of the Interest Period
applicable thereto. No Eurodollar Borrowing may be either made
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or Continued as a Eurodollar Borrowing, and no Base Rate Borrowing may be
Converted to a Eurodollar Borrowing, if (i) the interest rate for such
Eurodollar Borrowing would exceed the Maximum Rate, or (ii) a Default exists.
3.11 ORDER OF APPLICATION.
(a If no Default exists, then payments and prepayments of the
Obligation shall be applied in the order and manner as Borrower may direct in
writing.
(b If a Default exists (or if Borrower fails to give directions as
permitted under SECTION 3.11(a)), then any payment or prepayment (including
proceeds from the exercise of any Rights) shall be applied to the Obligation
in the following order: (i) to the ratable payment of all fees, expenses,
and indemnities for which the Credit Parties have not been paid or reimbursed
in accordance with the Loan Documents; (ii) to the ratable payment of accrued
and unpaid interest on the Total Principal Debt; (iii) to the ratable payment
of any reimbursement obligation with respect to any LC issued pursuant to the
Facility which is due and payable and which remains unfunded by any Borrowing
under the Facility; PROVIDED THAT such payments shall be allocated ratably
among Administrative Agent and all Lenders which have funded their
participation in such LC; (iv) to the ratable payment of the Total Principal
Debt; (v) as a deposit with Administrative Agent, for the benefit of the
Credit Parties, as security for, and to provide for the payment of, any LC
Exposure as of the date of such application to the Obligation; and (vi) to
the payment of the remaining Obligation in the order and manner Required
Lenders deem appropriate.
(c Subject to the provisions of SECTION 13 and provided that
Administrative Agent shall not in any event be bound to inquire into or to
determine the validity, scope, or priority of any interest or entitlement of
any Credit Party and may suspend all payments or seek appropriate relief
(including, without limitation, instructions from Required Lenders or an
action in the nature of interpleader) in the event of any doubt or dispute as
to any apportionment or distribution contemplated hereby, Administrative
Agent shall promptly distribute such amounts to each Credit Party in
accordance with the Agreement and the related Loan Documents.
3.12 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment
(whether voluntary, involuntary, or otherwise, including, without limitation,
as a result of exercising its Rights under SECTION 3.13) which is in excess
of its ratable share of any such payment, such Lender shall purchase from the
other Lenders such participations as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
PROVIDED, HOWEVER, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, then the purchase shall be
rescinded and the purchase price restored to the extent of such recovery.
Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this SECTION 3.12 may, to the fullest extent permitted by
Law, exercise all of its Rights of payment (including the Right of offset)
with respect to such participation as fully as if such Lender were the direct
creditor of Borrower in the amount of such participation.
3.13 OFFSET. Upon the occurrence and during the continuance of a
Default, each Credit Party shall be entitled to exercise (for the benefit of
all Lenders in accordance with SECTION 3.12) the Rights of offset and/or
banker's Lien against each and every account and other property, or any
interest therein, which any Obligor may now or hereafter have with, or which
is now or hereafter in the possession of, such Credit Party to the extent of
the full amount of the Obligation; PROVIDED THAT if any Credit Party should
exercise its Right
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of offset hereunder, then such Credit Party shall thereafter promptly provide
notice of such offset to Administrative Agent and Borrower.
3.14 BOOKING BORROWINGS. To the extent permitted by Law, any Lender
may make, carry, or transfer its Borrowings at, to, or for the account of any
of its branch offices or the office of any of its Affiliates; PROVIDED THAT
no Affiliate shall be entitled to receive any greater payment under SECTION 4
than the transferor Lender would have been entitled to receive with respect
to such Borrowings.
3.15 REPLACEMENT OF LENDERS UNDER CERTAIN CIRCUMSTANCES. If at any
time (a) Borrower becomes obligated to pay additional amounts described in
SECTION 4.1(a) or SECTION 4.6 as a result of any condition described in such
SECTIONS or any Lender ceases to make Eurodollar Borrowings pursuant to
SECTION 4.2(b), in any such case where such condition or circumstance is not
applicable to all Lenders, (b) any Lender becomes insolvent and its assets
become subject to a receiver, liquidator, trustee, custodian, or other Person
having similar powers, or (c) any Lender becomes a Defaulting Lender, then
Borrower may, on ten (10) Business Days' prior written notice to
Administrative Agent and such Lender, replace such Lender by causing such
Lender to (and such Lender shall be obligated to) assign pursuant to SECTION
14.13(b) all of its Rights and obligations under this Agreement to a Lender
or other Eligible Assignee selected by Borrower and reasonably acceptable to
Administrative Agent for a purchase price equal to the outstanding principal
amount of such Lender's Principal Debt and all accrued interest and fees and
other amounts payable hereunder (including amounts payable under SECTION 4.5
as though such Lender was being paid instead of being purchased), PROVIDED
THAT (i) neither Administrative Agent nor any Lender shall have any
obligation to Borrower to find a replacement Lender or other such entity, and
(ii) in no event shall the Lender hereby replaced be required to pay or
surrender to such replacement Lender or other entity any of the fees received
by such Lender hereby replaced pursuant to this Agreement. In the case of a
replacement of a Lender to which Borrower becomes obligated to pay additional
amounts to such Lender prior to such Lender being replaced, the payment of
such additional amounts shall be a condition to the replacement of such
Lender. Upon the satisfaction of all the foregoing conditions, such Lender
that is being replaced shall cease to be a "LENDER" for purposes of this
Agreement, PROVIDED THAT Borrower shall continue to be obligated to such
Lender under SECTION 12.11 with respect to any indemnified liabilities
arising prior to such termination. Borrower's right to replace a Defaulting
Lender pursuant to this SECTION 3.15 is, and shall be, in addition to, and
not in lieu of, all other rights and remedies available to Borrower against
such Defaulting Lender under this Agreement or under applicable Law.
SECTION 4 CHANGE IN CIRCUMSTANCES.
4.1 INCREASED COST AND REDUCED RETURN.
(a) CHANGE IN LAWS. If, after the date hereof, the adoption of any
applicable Law, or any change in any applicable Law, or any change in the
interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by
any Lender (or its Applicable Lending Office) with any request or directive
(whether or not having the force of law) of any such Governmental Authority:
(i) shall subject such Lender (or its Applicable Lending Office)
to any tax, duty, or other charge with respect to any Eurodollar
Borrowing, its Note (if any), or its obligation to make Eurodollar
Borrowings, or change the basis of taxation of any amounts payable to such
Lender (or its Applicable Lending Office) under this Agreement or its Note
(if any) in respect of any Eurodollar
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Borrowings (other than taxes imposed on the overall gross or net income
of such Lender or franchise taxes imposed on such Lender, in each case
by the jurisdiction in which such Lender has its principal office or
such Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve, special
deposit, assessment, or similar requirement (other than the Reserve
Requirement utilized in the determination of the Adjusted Eurodollar Rate)
relating to any extensions of credit or other assets of, or any deposits
with or other liabilities or commitments of, such Lender (or its
Applicable Lending Office), including the Commitment of such Lender
hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending Office)
or the London interbank market any other condition affecting this
Agreement or its Note (if any) or any of such extensions of credit or
liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Borrowings or to reduce any sum received or
receivable by such Lender (or its Applicable Lending Office) under this
Agreement with respect to any Eurodollar Borrowings, then Borrower shall pay
to such Lender from time to time as specified by the affected Lender such
amount or amounts as will compensate such Lender for such increased cost or
reduction. If any Lender requests compensation by Borrower under this
SECTION 4.1(a), then Borrower may, by notice to such Lender (with a copy to
Administrative Agent), suspend the obligation of such Lender to make or
Continue Eurodollar Borrowings, or Convert all Eurodollar Borrowings into
Base Rate Borrowings, until the event or condition giving rise to such
request ceases to be in effect (in which case the provisions of SECTION 4.4
shall be applicable); PROVIDED THAT such suspension shall not affect the
Right of such Lender to receive the compensation so requested.
(b) CAPITAL ADEQUACY. If, after the date hereof, any Lender shall
have determined that the adoption of any applicable Governmental Requirement
regarding capital adequacy or any change therein or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such Governmental Authority, has or would have the effect of reducing the
rate of return on the capital of such Lender or any corporation controlling
such Lender as a consequence of such Lender's obligations hereunder to a
level below that which such Lender or such corporation could have achieved
but for such adoption, change, request, or directive (taking into
consideration its policies with respect to capital adequacy), then from time
to time upon demand Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender for such reduction.
(c) NOTICE. Each Lender shall promptly notify Borrower and
Administrative Agent of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Lender to compensation pursuant to
this SECTION 4.1 and will designate a different Applicable Lending Office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the judgment of such Lender, be otherwise
materially disadvantageous to it. Any Lender claiming compensation under
this SECTION 4.1 shall furnish to Borrower and Administrative Agent a
certificate setting forth the additional amount or amounts to be paid to it
hereunder and shall include in reasonable detail the basis for the demand for
additional compensation, which certificate shall be conclusive in the absence
of manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods. Although no Lender shall have
any liability to any Credit Party or any Company for its failure to give the
notice
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required by this SECTION 4.1(c), Borrower shall not be obligated to pay to
any Credit Party any amounts under this SECTION 4.1 that arise, accrue, or
are imposed more than one hundred and eighty (180) days before any such
notice to the extent it is applicable to those amounts.
4.2 LIMITATION ON TYPES OF BORROWINGS. If on or prior to the first
(1st) day of any Interest Period for any Eurodollar Borrowing:
(a) Administrative Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar
Rate for such Interest Period; or
(b) Required Lenders determine (which determination shall be
conclusive) and notify Administrative Agent that the Adjusted Eurodollar Rate
will not adequately and fairly reflect the cost to Lenders of funding
Eurodollar Borrowings for such Interest Period;
then Administrative Agent shall give Borrower prompt notice thereof
specifying the relevant amounts or periods, and so long as such condition
remains in effect, Lenders shall be under no obligation to make additional
Eurodollar Borrowings, Continue any Eurodollar Borrowings, or to Convert any
Base Rate Borrowings to Eurodollar Borrowings and Borrower shall, on the last
day(s) of the then-current Interest Period(s) for the outstanding Eurodollar
Borrowings, either prepay such Borrowings or Convert such Borrowings into
Base Rate Borrowings in accordance with the terms of this Agreement.
4.3 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain, or fund Eurodollar Borrowings
hereunder, then such Lender shall promptly notify Administrative Agent and
Borrower thereof and such Lender's obligation to make or Continue Eurodollar
Borrowings and to Convert Base Rate Borrowings into Eurodollar Borrowings
shall be suspended until such time as such Lender may again make, maintain,
and fund Eurodollar Borrowings (in which case the provisions of SECTION 4.4
shall be applicable).
4.4 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to
make or Continue Eurodollar Borrowings or to Convert Base Rate Borrowings
into Eurodollar Borrowings shall be suspended pursuant to SECTIONS 4.1, 4.2,
or 4.3, then such Lender's Eurodollar Borrowings shall be automatically
Converted into Base Rate Borrowings on the last day(s) of the then current
Interest Period(s) for all Eurodollar Borrowings (or, in the case of a
Conversion required by SECTION 4.3, on such earlier date as such Lender may
specify to Borrower with a copy to Administrative Agent) and, unless and
until such Lender gives notice as provided below that the circumstances
specified in SECTIONS 4.1, 4.2, or 4.3 that gave rise to such Conversion no
longer exist:
(a) to the extent that such Lender's Eurodollar Borrowings have been
so Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Borrowings shall be applied instead to
its Base Rate Borrowings; and
(b) all Borrowings that would otherwise be made or Continued by such
Lender as Eurodollar Borrowings shall be made or Continued instead as Base
Rate Borrowings, and all Borrowings of such Lender that would otherwise be
Converted into Eurodollar Borrowings shall be Converted instead into (or
shall remain as) Base Rate Borrowings.
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If such Lender gives notice to Borrower (with a copy to Administrative Agent)
that the circumstances specified in SECTIONS 4.1, 4.2, or 4.3 that gave rise
to the Conversion of such Lender's Eurodollar Borrowings pursuant to this
SECTION 4.4 no longer exist (which such Lender agrees to do promptly upon
such circumstances ceasing to exist) at a time when Eurodollar Borrowings
made by other Lenders are outstanding, then such Lender's Base Rate
Borrowings shall be automatically Converted, on the first (1st) day(s) of the
next succeeding Interest Period(s) for such outstanding Eurodollar
Borrowings, to the extent necessary so that, after giving effect thereto, all
Eurodollar Borrowings held by Lenders are held Pro Rata (as to principal
amounts, Types, and Interest Periods).
4.5 COMPENSATION. Upon the request of any Lender, Borrower shall pay
to such Lender such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost, or
expense (herein called a "CONSEQUENTIAL LOSS") incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar Borrowing
for any reason (including, without limitation, the acceleration of the
Obligation pursuant to SECTION 12.1) on a date other than the last day of
the Interest Period for such Borrowing; or
(b) any failure by Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in SECTION 7.2
to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar
Borrowing on the date for such borrowing, Conversion, Continuation, or
prepayment specified in the relevant Borrowing Notice.
4.6 TAXES.
(a) Any and all payments by Borrower to or for the account of any
Credit Party hereunder or under any other Loan Document shall be made free
and clear of and without deduction for any and all present or future Taxes
arising after the date hereof, EXCLUDING, in the case of each Credit Party,
Taxes based on or measured by its gross or net income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Credit Party
(or its Applicable Lending Office) is organized or any political subdivision
thereof (such income and franchise Taxes being "EXCLUDED TAXES"). If
Borrower shall be required by law to deduct any Taxes (other than Excluded
Taxes) from or in respect of any sum payable under this Agreement or any
other Loan Document to any Credit Party, then (i) the sum payable shall be
increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
SECTION 4.6) such Credit Party receives an amount equal to the sum it would
have received had no such deductions been made, (ii) Borrower shall make such
deductions, (iii) Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with all Laws, and (iv)
Borrower shall, upon the request of Administrative Agent, furnish to
Administrative Agent, at its address referred to in SECTION 14.3, the
original or a certified copy of a receipt evidencing payment thereof.
(b) In addition, Borrower agrees to pay any and all present or future
stamp or documentary Taxes and any other excise or property Taxes or charges
or similar levies which arise from any payment made under this Agreement or
any other Loan Document or from the execution or delivery of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter
referred to as "OTHER TAXES").
(c) Borrower agrees to indemnify each Credit Party for the full
amount of Taxes (other than Excluded Taxes) and Other Taxes (including,
without limitation, any Taxes (other than Excluded Taxes) or Other Taxes
imposed or asserted by any jurisdiction on amounts payable under this SECTION
4.6) paid by such
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Credit Party (as the case may be) and any liability (including penalties,
interest, and expenses) arising therefrom or with respect thereto. If any
Credit Party receives a refund in respect of any Taxes or Other Taxes in
which it has been indemnified by Borrower pursuant to this SECTION 4.6, then
such Credit Party shall promptly notify Borrower of such refund and shall
promptly, upon receipt, repay such refund to Borrower.
(d) Each Lender organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of
this Agreement in the case of each Lender listed on the signature pages
hereof and on or prior to the date on which it becomes a Lender in the case
of each other Lender, and from time to time thereafter if requested in
writing by Borrower or Administrative Agent (but only so long as such Lender
remains lawfully able to do so), shall provide Borrower and Administrative
Agent with (i) INTERNAL REVENUE SERVICE FORM 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying
that such Lender is entitled to benefits under an income tax treaty to which
the United States is a party which reduces the rate of withholding tax on
payments of interest or certifying that the income receivable pursuant to
this Agreement is effectively connected with the conduct of a trade or
business in the United States, (ii) INTERNAL REVENUE SERVICE FORM W-8 or W-9,
as appropriate, or any successor form prescribed by the Internal Revenue
Service, and (iii) any other form or certificate required by any taxing
authority (including any certificate required by SECTIONS 871(h) and 881(c)
of the Code), certifying that such Lender is entitled to an exemption from or
a reduced rate of tax on payments pursuant to this Agreement or any of the
other Loan Documents.
(e) For any period with respect to which a Lender has failed to
provide Borrower and Administrative Agent with the appropriate form pursuant
to SECTION 4.6(d) (unless such failure is due to a change in Law occurring
subsequent to the date on which a form originally was required to be
provided), such Lender shall not be entitled to indemnification under
SECTIONS 4.6(a) or (b) with respect to Taxes imposed by the United States;
PROVIDED, HOWEVER, that should a Lender, which is otherwise exempt from or
subject to a reduced rate of withholding tax, become subject to Taxes (other
than Excluded Taxes) because of its failure to deliver a form required
hereunder, Borrower shall take such steps as such Lender shall reasonably
request to assist such Lender to recover such Taxes.
(f) If Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this SECTION 4.6, then such Lender will
agree to use reasonable efforts to change the jurisdiction of its Applicable
Lending Office so as to eliminate or reduce any such additional payment which
may thereafter accrue if such change, in the judgment of such Lender, is not
otherwise disadvantageous to such Lender.
(g) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in
this SECTION 4.6 shall survive the termination of the Total Commitment and
the payment in full of the Obligation.
SECTION 5 FEES.
5.1 TREATMENT OF FEES. Except as otherwise provided by Law, the fees
described in this SECTION 5: (a) do not constitute compensation for the use,
detention, or forbearance of money; (b) are in addition to, and not in lieu
of, interest and expenses otherwise described in this Agreement; (c) shall be
payable in accordance with SECTION 3.1; (d) shall be non-refundable; (e)
shall, to the fullest extent permitted by Law, bear interest, if not paid
when due, at the Default Rate; and (f) shall be calculated on the basis of
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actual number of days (including the first day but excluding the last day)
elapsed, but computed as if each calendar year consisted of 365 or 366 days,
as the case may be.
5.2 FEES OF ADMINISTRATIVE AGENT. Borrower shall pay to
Administrative Agent the fees specified in the letter agreement between
Administrative Agent and Borrower, which fees shall be for the account of
Administrative Agent and for the account of the Credit Parties as shall be
agreed between Administrative Agent and each other Credit Party.
5.3 LC FEES. Borrower shall pay to Administrative Agent, for the
ratable benefit of Lenders, in accordance with their respective Pro Rata
Parts, a fee for each LC, payable in installments in arrears, so long as such
LC remains outstanding. Such installments shall be paid for the period from
and including the date of issuance of the applicable LC to but excluding the
next quarterly payment date (as hereinafter specified), and thereafter for
the period from and including such quarterly payment date to but excluding
the next quarterly payment date or (if earlier) the expiry date of such LC.
Such installments shall be paid on each March 31, June 30, September 30, and
December 31. Each such installment shall be in an amount equal to THE
PRODUCT OF (a) the Applicable Margin for Eurodollar Borrowings in effect on
the date of payment of such fee (and applied on a per annum basis) TIMES (b)
the face amount of such LC, and pro rated (in accordance with SECTION 5.1(f))
for the period for which such installment is due.
5.4 LC ISSUANCE AND FRONTING FEES. Borrower shall pay Administrative
Agent, as the issuer of LCs and for the individual account of Administrative
Agent, an LC issuance and fronting fee for each LC, payable in installments
in arrears, so long as such LC remains outstanding. Such installments shall
be paid for the period from and including the date of issuance of the
applicable LC, to but excluding the next quarterly payment date (as
hereinafter specified), and thereafter for the period from and including such
quarterly payment date to but excluding the next quarterly payment date or
(if earlier) the expiry date of such LC. Such installments shall be paid on
each March 31, June 30, September 30, and December 31. Each such installment
shall be in an amount equal to THE PRODUCT OF (a) 0.125% per annum TIMES (b)
the face amount of such LC, and pro rated (in accordance with SECTION 5.1(f))
for the period for which such installment is due. In addition, Borrower
shall pay to Administrative Agent, for its individual account, standard
administrative charges for LC amendments provided for in SECTION 2.2(c).
5.5 COMMITMENT FEES. Following the Closing Date, Borrower shall pay
to Administrative Agent, for the ratable account of Lenders, a commitment
fee, payable in installments in arrears, on each March 31, June 30, September
30, and December 31 and on the Termination Date, commencing December 31,
1998. Each installment shall be, in an amount equal to the Applicable Margin
for Commitment Fees TIMES the amount by which (a) the average daily Total
Commitment exceeds (b) the average daily Commitment Usage, in each case
during the period from and including the last payment date to and excluding
the payment date for such installment; PROVIDED THAT each such installment
shall be calculated in accordance with SECTION 5.1(f).
SECTION 6. GUARANTIES.
6.1 POI GUARANTY. As an inducement to the Credit Parties to enter
into this Agreement, Borrower shall cause POI to unconditionally guarantee in
favor of the Credit Parties the full payment and performance of the
Obligation pursuant to the POI Guaranty.
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6.2 SUBSIDIARY GUARANTY. As an inducement to the Credit Parties to
enter into this Agreement, Borrower shall cause each Material Subsidiary to
unconditionally guarantee in favor of the Credit Parties the full payment and
performance of the Obligation pursuant to the Subsidiary Guaranty or an
addendum thereto in the form attached to the Subsidiary Guaranty; PROVIDED
THAT upon the sale or dissolution of any Material Subsidiary otherwise
permitted by this Agreement and the other Loan Documents, Administrative
Agent shall, at the request of Borrower and so long as no Default exists or
would result therefrom, release such Material Subsidiary from the Subsidiary
Guaranty.
6.3 OTHER GUARANTIES. As an inducement to the Credit Parties to
enter into this Agreement, Borrower shall cause each Other Required Guarantor
to unconditionally guarantee in favor of the Credit Parties the full payment
and performance of the Obligation pursuant to a guaranty in form and
substance reasonably acceptable to Administrative Agent. "OTHER REQUIRED
GUARANTOR" means, as of any date, any Person (other than POI or a Subsidiary
Guarantor) that is an Affiliate of any Company that has, as of such date,
guaranteed the payment or performance of any Debt of POI, Borrower, or any
other Company exceeding $25,000,000 individually or in the aggregate.
SECTION 7 CONDITIONS PRECEDENT.
7.1 CONDITIONS PRECEDENT TO CLOSING. This Agreement shall not become
effective, and Lenders shall not be obligated to advance any Borrowing or
issue any LC, unless the following conditions precedent are satisfied on or
before the Closing Date:
(a) BORROWER DOCUMENTS. Borrower shall deliver or cause to be
delivered to Administrative Agent the following, each, unless otherwise
noted, dated as of the Closing Date:
(i) certified copies of its Constituent Documents, together with a
good standing certificate from the Secretary of State of the state of its
incorporation and each other Material State and, to the extent generally
available, a certificate or other evidence of good standing as to payment
of any applicable franchise or similar taxes from the appropriate taxing
authority of each of such states, each dated a recent date or brought down
to a recent date prior to the Closing Date;
(ii) an officer's certificate of Borrower certifying (A) its
Constituent Documents, (B) resolutions of its Board of Directors
approving and authorizing the execution, delivery, and performance of
this Agreement and the other Loan Documents, certified as of the Closing
Date as being in full force and effect without modification or amendment,
and (C) signatures and incumbency of its officers executing this
Agreement and the other Loan Documents;
(iii) executed originals of this Agreement, any Notes requested
by any Lenders pursuant to SECTION 3.1(a)(ii), and the other Loan
Documents to be executed by Borrower; and
(iv) Uniform Commercial Code searches as Administrative Agent
may reasonably request covering Borrower, as debtor, and showing no Liens
on any of Borrower's assets (other than Permitted Liens).
(b) POI DOCUMENTS. Borrower shall deliver or cause to be delivered
to Administrative Agent the following, each, unless otherwise noted, dated as
of the Closing Date:
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(i) certified copies of POI's Constituent Documents, together with
a good standing certificate from the Secretary of State of the state of
its incorporation and each other Material State and, to the extent
generally available, a certificate or other evidence of good standing as
to payment of any applicable franchise or similar taxes from the
appropriate taxing authority of each of such states, each dated a recent
date or brought down to a recent date prior to the Closing Date;
(ii) an officer's certificate of POI certifying (A) its Constituent
Documents, (B) resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of the Loan Documents
to be executed by POI, certified as of the Closing Date as being in full
force and effect without modification or amendment, and (C) signatures and
incumbency of its officers executing the Loan Documents to be executed by
POI; and
(iii) executed originals of the POI Guaranty and the other Loan
Documents to be executed by POI.
(c) SUBSIDIARIES DOCUMENTS. Borrower shall deliver or cause to be
delivered to Administrative Agent the following with respect to each
Subsidiary Guarantor, each, unless otherwise noted, dated as of the Closing
Date:
(i) certified copies of its Constituent Documents, together with a
good standing certificate from the Secretary of State of the state of its
incorporation and each other Material State and, to the extent generally
available, a certificate or other evidence of good standing as to the
payment of any applicable franchise or other similar taxes from the
appropriate taxing authority of each of such states, each dated a recent
date or brought down to a recent date prior to the Closing Date;
(ii) an officer's certificate of each Subsidiary Guarantor
certifying (A) its Constituent Documents, (B) resolutions of its Board of
Directors approving and authorizing the execution, delivery, and
performance of the Loan Documents to which it is a party, certified as of
the Closing Date as being in full force and effect without modification or
amendment, and (C) signatures and incumbency of its officers executing the
Loan Documents to which it is a party; and
(iii) executed originals of the Loan Documents to which it is a
party.
(d) OPINIONS OF COUNSEL FOR THE COMPANIES. The Credit Parties and
their respective counsel shall have received originally executed copies of a
favorable written opinion of counsel for the Companies, in form and substance
reasonably satisfactory to Administrative Agent and its counsel, dated as of
the Closing Date, and setting forth substantially the matters in the opinions
designated in EXHIBIT E and as to such other matters as Administrative Agent,
acting on behalf of the Credit Parties, may reasonably request, including,
without limitation, an opinion that the Debt incurred under this Agreement
and the related Loan Documents (i) has been incurred or entered into in
compliance with the requirements of the Senior Notes and all Subordinated
Debt, and (ii) constitutes "SENIOR INDEBTEDNESS" and "GUARANTOR SENIOR
INDEBTEDNESS" under the terms of all Subordinated Debt.
(e) FEES. Borrower shall have paid to Administrative Agent, for
distribution (as appropriate) to the Credit Parties, the fees payable on the
Closing Date referred to in SECTION 5.2.
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(f) NO MATERIAL ADVERSE EVENT. No Material Adverse Event has
occurred since September 30, 1998.
7.2 CONDITIONS TO ALL BORROWINGS. The obligations of Lenders to make
all Borrowings (including the initial Borrowing) and Administrative Agent to
issue all LCs (including the initial LC) are subject to the following
conditions precedent:
(a) NOTICE OF BORROWING; NOTICE OF LC. Administrative Agent shall
have received, (i) in the case of a Borrowing, in accordance with the
provisions of SECTIONS 2.1 and 2.4, an originally executed Notice of
Borrowing, and (b) in the case of an LC, in accordance with SECTION 2.2, a
Notice of LC.
(b) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. As of
the date of such Borrowing or the issuance of such LC, the representations
and warranties in Loan Documents are true, correct, and complete in all
material respects (unless they speak to a specific date or are based on facts
which have changed by transactions expressly contemplated or permitted by
this Agreement).
(c) NO DEFAULT. No Potential Default, Default, or Material Adverse
Event exits or would be caused by the making of such Borrowing or the
issuance of such LC.
(d) NO INJUNCTION OR RESTRAINING ORDER. No order, judgment, or
decree of any Governmental Authority shall purport to enjoin or restrain (i)
any Lender from making the Borrowing to be made by it, or (ii) Administrative
Agent from issuing such LC.
Each condition precedent in this Agreement is material to the transactions
contemplated in this Agreement, and time is of the essence in respect of each
thereof. Subject to the prior approval of Required Lenders, Lenders may fund
any Borrowing and Administrative Agent may issue any LC, without all
conditions being satisfied, but, to the extent permitted by Law, the same
shall not be deemed to be a waiver of the requirement that each such
condition precedent be satisfied as a prerequisite for any subsequent funding
or issuance, unless Required Lenders specifically waive each such item in
writing.
SECTION 8 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
the Credit Parties as follows:
8.1 PURPOSE OF CREDIT FACILITY. Borrower will use (or will loan such
proceeds to the Companies to so use) all proceeds of Borrowings for general
working capital and other lawful corporate purposes (including Permitted
Acquisitions). No Company is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying any "MARGIN STOCK" within the meaning of REGULATION U. No part
of the proceeds of any Borrowing will be used, directly or indirectly, for a
purpose which violates any Law, including, without limitation, the provisions
of REGULATIONS T, U, or X (as enacted by the Board of Governors of the
Federal Reserve System, as amended). "MARGIN STOCK" (as defined in
Regulation U) constitutes less than twenty-five percent (25%) of those assets
of the Companies that are subject to any limitation on sale, pledge, or
similar restrictions hereunder.
8.2 EXISTENCE, GOOD STANDING, AUTHORITY, AND AUTHORIZATIONS. Each
Company is duly organized, validly existing, and in good standing under the
Laws of its jurisdiction of organization (such jurisdictions as of the
Closing Date being identified on SCHEDULE 8.2). Each Company is duly
qualified to transact business and is in good standing in each jurisdiction
where the nature and extent of its business and
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properties require the same except to the extent that the failure to so
qualify could not be a Material Adverse Event. Each Company possesses all
the Authorizations, franchises, permits, licenses, certificates of
compliance, and approvals and grants of authority necessary or required in
the conduct of its respective business(es), and the same are valid, binding,
enforceable, and subsisting without any defaults thereunder or enforceable
adverse limitations thereon and are not subject to any proceedings or claims
opposing the issuance, development, or use thereof or contesting the validity
thereof, except to the extent that the failure to have such Authorizations,
franchise, permit, license, or certificates of compliance, approvals, and
grants of authority, failure to maintain the validity thereof, or where such
default pursuant to the terms thereof, could not be a Material Adverse Event.
No Authorization, consent, approval, waiver, license, or formal exemptions
from, nor any filing, declaration, or registration with, any Governmental
Authority (federal, state, or local), or non-governmental entity, under the
terms of contracts or otherwise, is required by reason of or in connection
with the execution and performance of the Loan Documents by each Obligor
except for (a) Authorizations, consents, approvals, waivers, and licenses
that have been obtained, or (b) consents under immaterial contractual
obligations in which the failure to obtain such consents could not be a
Material Adverse Event.
8.3 SUBSIDIARIES; CAPITAL STOCK. The Companies have no Subsidiaries
except (a) Subsidiaries as of the Closing Date disclosed on SCHEDULE 8.3, and
(b) Subsidiaries formed or acquired after the Closing Date as a result of
transactions permitted by the Loan Documents. All of the outstanding Stock
of each Subsidiary is duly authorized, validly issued, fully paid, and
nonassessable and, as of the Closing Date, are owned of record and
beneficially as set forth on SCHEDULE 8.3, free and clear of any Liens,
restrictions, claims, or Rights of another Person, other than Permitted
Liens. Except as set forth in SCHEDULE 8.3, as of the Closing Date, no
Company has outstanding any warrant, option, or other Right of any Person to
acquire any of its Stock.
8.4 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by
each Obligor of each Loan Document to which it is a party and the performance
by such Obligor of its obligations thereunder (a) are within the corporate
power of such Obligor, (b) have been duly authorized by all necessary
corporate action on the part of such Obligor, (c) require no action by or in
respect of, or filing with, any Governmental Authority, which action or
filing has not been taken or made on or prior to the Closing Date (or if
later, the date of execution and delivery of such Loan Document), (d) will
not violate any provision of the Constituent Documents of any Company, (e)
will not violate any provision of Law applicable to any Company, other than
such violations which individually or collectively could not be a Material
Adverse Event, (f) will not violate any material written or oral agreements,
contracts, commitments, or understandings to which any Company is a party,
other than such violations which could not be a Material Adverse Event, or
(g) will not result in the creation or imposition of any Lien on any material
asset of any Company.
8.5 BINDING EFFECT. Upon execution and delivery by all parties
thereto, each Loan Document will constitute a legal, valid, and binding
obligation of each Obligor that is a party thereto, enforceable against each
such Obligor in accordance with its terms, except as enforceability may be
limited by applicable Debtor Relief Laws and general principles of equity.
8.6 FINANCIAL STATEMENTS. The Current Financials were prepared in
accordance with GAAP (except as disclosed therein) and present fairly, in all
material respects, the consolidated financial condition, results of
operations, and cash flows of the Companies as of and for the portion of the
fiscal year ending on the date or dates thereof (subject only to normal
year-end audit adjustments). There were no material liabilities, direct or
indirect, fixed or contingent, of the Companies as of the date or dates of
the Current
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Financials which are required under GAAP to be reflected therein or in the
notes thereto, and are not so reflected. Except for transactions directly
related to, or specifically contemplated by, the Loan Documents, there have
been no material changes in the consolidated financial condition of the
Companies from that shown in the Current Financials after such date which
could be a Material Adverse Event, nor has any Company incurred any liability
(including, without limitation, any liability under any Environmental Law),
direct or indirect, fixed or contingent, after such date which could be a
Material Adverse Event.
8.7 LITIGATION, CLAIMS, INVESTIGATIONS. Except as disclosed in
Borrower's FORM 10-KS and FORM 10-QS filed with the Securities and Exchange
Commission as of the date hereof, no Company is subject to, or aware of the
threat of, any Litigation which could reasonably be expected to be determined
adversely to any Company, and, if so adversely determined, could
(individually or collectively with other Litigation) be a Material Adverse
Event. There are no outstanding orders or judgments for the payment of money
in excess of $25,000,000 (individually or collectively) and not paid or
covered by insurance or indemnified in a manner reasonably acceptable to
Administrative Agent, or any warrant of attachment, sequestration, or
similar proceeding against the assets of any Company having a value
(individually or collectively) of $25,000,000 or more which is not either (a)
stayed on appeal, or (b) being contested in good faith by appropriate
proceedings diligently conducted, and against which reserves or other
provisions required by GAAP have been made. Except as disclosed in Borrower's
FORM 10-KS and FORM 10-QS filed with the Securities and Exchange Commission
as of the date hereof, there are no formal complaints, suits, claims,
investigations, or proceedings initiated at or by any Governmental Authority
pending or, to Borrower's knowledge, threatened by or against any Company
which, if adversely determined, could be a Material Adverse Event, nor any
judgments, decrees, or orders of any Governmental Authority outstanding
against any Company that could be a Material Adverse Event.
8.8 TAXES. All Tax returns of each Company required to be filed have
been filed (or extensions have been granted) prior to delinquency, except for
any such returns for which the failure to so file could not be a Material
Adverse Event, and all Taxes imposed upon each Company which are due and
payable have been paid prior to delinquency, other than Taxes (a) that are
being contested in good faith by appropriate proceedings diligently
conducted, and against which reserves or other provisions required by GAAP
have been made, or (b) for which nonpayment thereof could not be a Material
Adverse Event.
8.9 ENVIRONMENTAL MATTERS. No Company (a) knows of any environmental
condition or circumstance, such as the presence or Release of any Hazardous
Substance, on any property presently or previously owned or leased by any
Company that could be a Material Adverse Event, (b) knows of any violation by
any Company of any Environmental Law, except for such violations that could
not be a Material Adverse Event, or (c) knows that any Company is under any
obligation to remedy any violation of any Environmental Law, except for such
obligations that could not be a Material Adverse Event.
8.10 EMPLOYEE BENEFIT PLANS. (a) No Employee Plan has incurred an
accumulated funding deficiency, as defined in SECTION 302 of ERISA and
SECTION 412 of the Code, (b) neither Borrower nor any ERISA Affiliate has
incurred material liability which is currently due and remains unpaid beyond
the due date thereof under TITLE IV of ERISA to the PBGC or to an Employee
Plan in connection with any such Employee Plan, (c) neither Borrower nor any
ERISA Affiliate has withdrawn in whole or in part from participation in a
Multiemployer Plan as to which there is any material unsatisfied liability
(whether or not assessed), (d) Borrower has not engaged in any "PROHIBITED
TRANSACTION" (as defined in SECTION 406 of ERISA or SECTION 4975 of the Code)
which could be a Material Adverse Event, and (e) no Reportable Event has
occurred which is likely to result in the termination of an Employee Plan.
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8.11 PROPERTIES; LIENS. Each Company has good and indefeasible title
with respect to all its material real property and good and sufficient title
with respect to all its material personal property reflected on the Current
Financials, except for property that (a) that is obsolete, or (b) has been
disposed of in the ordinary course of business or as otherwise permitted by
the Loan Documents. Except for Permitted Liens, there is no Lien on any
material property of any Company.
8.12 GOVERNMENT REGULATIONS. No Company is subject to regulation
under the INVESTMENT COMPANY ACT OF 1940, as amended, the PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935, as amended, or any other Law (other than
REGULATIONS T, U, and X of the Board of Governors of the Federal Reserve
System) which regulates the incurrence of Debt.
8.13 MATERIAL AGREEMENTS. No Company is a party to any agreement,
contract, or instrument or is subject to any corporate restriction that is or
could be a Material Adverse Event.
8.14 LABOR MATTERS. There are no actual or, to Borrower's knowledge,
threatened strikes, labor disputes, slow downs, walkouts, or other concerted
interruptions of operations by the employees of any Company that could be a
Material Adverse Event. Hours worked by and payment made to employees of the
Companies have not been in violation of the FAIR LABOR STANDARDS ACT or any
other applicable Law dealing with such matters, other than any such
violations which could not, individually or collectively, be a Material
Adverse Event. All payments due from any Company on account of employee
health and welfare insurance have been paid or accrued as a liability on its
books, other than any such non-payment which could not, individually or
collectively, be a Material Adverse Event.
8.15 SOLVENCY. At the time of each Borrowing hereunder, each Company
is (and after giving effect to the transactions contemplated by the Loan
Documents, will be) Solvent.
8.16 INTELLECTUAL PROPERTY. Each Company owns or has sufficient and
legally enforceable rights to use all material licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
and trade names necessary to continue to conduct its businesses as heretofore
conducted by it, now conducted by it, and now proposed to be conducted by it
other than those in which the failure to obtain or to apply for could not be
a Material Adverse Event. Each Company is conducting its business without
infringement or claim of infringement of any license, patent, copyright,
service mark, trademark, trade name, trade secret, or other intellectual
property right of others, other than any such infringements or claims which,
if successfully asserted against and determined adversely to any Company,
could not, individually or collectively, be a Material Adverse Event.
8.17 COMPLIANCE WITH LAWS. No Company is in violation of any Laws,
other than such violations which could not, individually or collectively, be
a Material Adverse Event. No Company has received notice alleging any
non-compliance with any Laws, except for such non-compliance which no longer
exists or which could not be a Material Adverse Event.
8.18 FULL DISCLOSURE. There is no material fact or condition relating
to the Loan Documents or the financial condition, business, or property of
any Company which could be a Material Adverse Event and which has not been
related, in writing, to Administrative Agent. All written information
heretofore furnished by any Company to any Credit Party in connection with
the Loan Documents was, and all such information hereafter furnished by any
Company to any Credit Party will be, true and accurate in all material
respects,
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or in the case of projections, based on reasonable estimates and assumptions
on the date as of which such information is dated or certified.
8.19 YEAR 2000 COMPLIANCE. Except to the extent that the failure to
do any of the following could not reasonably be expected to be a Material
Adverse Event, Borrower has (a) initiated a review and assessment of all
areas within each Company's business and operations (including those affected
by suppliers and vendors) that could be adversely affected by the "YEAR 2000
PROBLEM" (that is, the risk that computer applications used by any Company
(or its suppliers and vendors) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any
date after December 31, 1999), (b) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (c) to date,
implemented that plan in accordance with that timetable. Borrower reasonably
believes that all computer applications (including those of its suppliers and
vendors) that are material to its or any of each Company's business and
operations will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is, be "YEAR
2000 COMPLIANT"), except to the extent that a failure to do so could not
reasonably be expected to be a Material Adverse Event.
8.20 SENIOR DEBT. The Obligation (and each Borrowing comprising the
Obligation) constitutes "SENIOR INDEBTEDNESS" and "GUARANTOR SENIOR
INDEBTEDNESS" under the terms of the Convertible Note Indenture, the Senior
Subordinated Note Indenture, and the Subordinated Note Indenture.
SECTION 9 AFFIRMATIVE COVENANTS. Borrower covenants and agrees to
perform, observe, and comply with each of the following covenants, from the
Closing Date until the payment in full of the Obligation and the termination
or cancellation of all outstanding LCs, if any:
9.1 USE OF PROCEEDS. Borrower shall use the proceeds of Borrowings
only for the purposes set forth in SECTION 8.1.
9.2 BOOKS AND RECORDS. Borrower shall, and shall cause each other
Company to, maintain books, records, and accounts necessary to prepare all
Financial Statements in accordance with GAAP.
9.3 ITEMS TO BE FURNISHED. Borrower shall cause the following to be
furnished to Administrative Agent (with sufficient copies for each Lender):
(a) ANNUAL FINANCIAL STATEMENTS. Promptly after preparation, and no
later than one hundred and twenty (120) days after the last day of each
fiscal year of POI, Financial Statements showing the consolidated financial
condition and results of operations for the Companies, as of, and for the
year ended on, such day, each accompanied by:
(i) the opinion of a firm of nationally-recognized independent
certified public accountants, based on an audit using generally accepted
auditing standards, that such Financial Statements were prepared in
accordance with GAAP and present fairly the consolidated financial
condition and results of operations of the Companies without a "GOING
CONCERN" or like qualification; and
(ii) a Compliance Certificate.
(b) PERIODIC FINANCIAL STATEMENTS. Promptly after preparation, and
no later than sixty (60) days after the last day of each fiscal quarter of
the Companies, Financial Statements showing the consolidated financial
condition and results of operations calculated for the Companies for such
fiscal quarter and for the
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period from the beginning of the then-current fiscal year to, such last day,
accompanied by a Compliance Certificate with respect to such Financial
Statements.
(c) BUDGET. On or prior to March 31 of each fiscal year of the
Companies, the consolidated financial budget for the Companies for such
fiscal year.
(d) NOTICES OF LITIGATION, DEFAULTS, ETC. Notice, promptly after
Borrower knows or has reason to know of (i) the existence and status of any
Litigation which could, if adversely determined, reasonably be expected to be
a Material Adverse Event, or of any order or judgment for the payment of
money which (individually or collectively) is in excess of $25,000,000, or
any warrant of attachment, sequestration, or similar proceeding against the
assets of any Company having a value (individually or collectively) of
$25,000,000 and not covered by insurance or indemnified in a manner
reasonably acceptable to Administrative Agent, (ii) any material change in
any material fact or circumstance represented or warranted in any Loan
Document, (iii) a Potential Default or Default specifying the nature thereof
and what action Borrower or any other Company has taken, is taking, or
proposes to take with respect thereto, (iv) the receipt by any Company of
notice of any violation or alleged violation of any Environmental Law, which
violation or alleged violation could individually or collectively with other
such violations or allegations, be a Material Adverse Event, or (v) (A) the
occurrence of a Reportable Event that, alone or together with any other
Reportable Event, could reasonably be expected to result in liability of any
Company to the PBGC in an aggregate amount exceeding $25,000,000; (B) any
expressed statement in writing on the part of the PBGC of its intention to
terminate any Employee Plan or Plans; (C) Borrower's or an ERISA Affiliate's
becoming obligated to file with the PBGC a notice of failure to make a
required installment or other payment with respect to an Employee Plan; or
(D) the receipt by Borrower or an ERISA Affiliate from the sponsor of a
Multiemployer Plan of either a notice concerning the imposition of withdrawal
liability in an aggregate amount exceeding $25,000,000 or of the impending
termination or reorganization of such Multiemployer Plan.
(e) SEC FILINGS. Promptly after the filing thereof, a true, correct,
and complete copy of each FORM 10-K, FORM 10-Q, and FORM 8-K filed by or on
behalf of any Company with the Securities and Exchange Commission.
(f) CHANGE IN RATINGS. Promptly upon the receipt of notice thereof,
and in any event within five (5) Business Days after any change in the
Moody's Rating or the S & P Rating, notice of such change.
(g) OTHER INFORMATION. Promptly upon request therefor by any Credit
Party, such information (not otherwise required to be furnished under the
Loan Documents) respecting the business affairs, assets, and liabilities of
the Companies, and such opinions, certifications, and documents, in addition
to those mentioned in this Agreement, as reasonably requested (other than
privileged and confidential communications between any Company and its legal
advisors).
9.4 INSPECTIONS. Borrower shall, and shall cause each other Company
to, upon reasonable prior notice and during normal business hours, allow
Administrative Agent (or its Representatives) to inspect any of their
properties, to review reports, files, and other records and, if reasonably
requested, to make and take away copies thereof, to conduct tests or
investigations, and to discuss any of their affairs, conditions, and finances
with other directors, officers, employees, other representatives, and
independent accountants of the Companies, from time to time, during normal
business hours; PROVIDED THAT Administrative Agent shall notify
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such Company and Borrower prior to any contacts with such accountants and
give such Company and Borrower the reasonable opportunity to participate in
such discussions.
9.5 TAXES. Borrower shall, and shall cause each other Company to (a)
promptly pay when due any and all Taxes other than Taxes (i) the
applicability, amount, or validity of which is being contested in good faith
by appropriate proceedings diligently conducted, and against which reserves
or other provisions required by GAAP have been made, and in respect of which
levy and execution of any lien securing same have been and continue to be
stayed, and (ii) in which the failure to so pay could not be a Material
Adverse Event, and (b) notify Administrative Agent immediately if the
Internal Revenue Service or any other taxing authority commences or notifies
any Company of its intention to commence an audit or investigation with
respect to any taxes of any kind due or alleged to be due from any Company.
9.6 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Except as
otherwise permitted by SECTION 10.11, Borrower shall, and shall cause each
other Company to, at all times: (a) maintain its existence and good standing
in the jurisdiction of its organization and its authority to transact
business in all other jurisdictions where the failure to so maintain its
authority to transact business could be a Material Adverse Event; (b)
maintain all licenses, permits, and franchises necessary for its business
where the failure to so maintain could be a Material Adverse Event; (c) keep
all of its material assets which are useful in and necessary to its business
in good working order and condition (ordinary wear and tear excepted) and
make all necessary repairs thereto and replacements thereof; and (d) do all
things necessary to obtain, renew, extend, and continue in effect all
Authorizations which may at any time and from time to time be necessary for
the Companies to operate their businesses in compliance with applicable Law,
where the failure to so renew, extend, or continue in effect could be a
Material Adverse Event.
9.7 INSURANCE. Borrower shall, and shall cause each other Company
to, maintain with financially sound, responsible, and reputable insurance
companies or associations insurance concerning its properties and businesses
against casualties and contingencies and of types and in amounts (and with
co-insurance and deductibles) as is customary in the case of similar
businesses. At Administrative Agent's request, Borrower shall, and shall
cause each Company to, promptly deliver to Administrative Agent evidence of
insurance for each policy of insurance and evidence of payment of all
premiums.
9.8 PRESERVATION AND PROTECTION OF RIGHTS. Borrower shall, and shall
cause each other Company to, perform such acts and duly authorize, execute,
acknowledge, deliver, file, and record any additional agreements, documents,
instruments, and certificates as Administrative Agent or Required Lenders may
reasonably deem necessary or appropriate in order to preserve and protect the
Rights of the Credit Parties under any Loan Document.
9.9 ENVIRONMENTAL LAWS. Borrower shall, and shall cause each other
Company to (a) conduct its business so as to comply in all material respects
with all applicable Environmental Laws and shall promptly take corrective
action to remedy any material non-compliance with any Environmental Law, and
(b) promptly investigate and remediate any known Release or threatened
Release of any Hazardous Substance on any property owned by any Company or at
any facility operated by any Company to the extent and degree necessary to
comply in all material respects with all applicable Environmental Laws.
9.10 YEAR 2000 COMPLIANCE. Borrower shall promptly notify Administrative
Agent in the event Borrower discovers or determines that any computer
application (including those of its suppliers and vendors) that is material to
any Company's business and operations will not be Year 2000 Compliant on a
timely basis,
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except to the extent that such failure to be Year 2000 Compliant could not
reasonably be expected to be a Material Adverse Event.
9.11 COMPLIANCE WITH LAWS. Borrower shall, and shall cause each other
Company to, comply with the provisions of any Laws applicable to it, or any
material written or oral agreement, contract, commitment, or understanding to
which it is a party, if such non-compliance alone, or when aggregated with
all other such violations, could reasonably be expected to be a Material
Adverse Event.
9.12 AFTER-ACQUIRED SUBSIDIARIES. Borrower shall, and shall cause
each other Company to, cause each Material Subsidiary acquired or formed
after the Closing Date (an "AFTER-ACQUIRED SUBSIDIARY") to execute and
deliver to Administrative Agent, within thirty (30) days following the
acquisition or formation thereof, counterpart signature pages to the
Subsidiary Guaranty and to provide to Administrative Agent (a) certified
copies of such After-Acquired Subsidiary's Constituent Documents, together
with a good standing certificate, from the Secretary of State of the state of
its incorporation, and (b) an officer's certificate of such After-Acquired
Subsidiary certifying (i) its Constituent Documents, (ii) resolutions of its
Board of Directors approving and authorizing the execution, delivery, and
performance of the Loan Documents to be executed by such After-Acquired
Subsidiary, and (iii) signatures and incumbency of its officers executing the
Loan Documents to be executed by such After-Acquired Subsidiary.
9.13 OTHER REQUIRED GUARANTORS. Borrower shall cause each Other
Required Guarantor to execute and deliver to Administrative Agent, within
thirty (30) days after the execution of any guaranty required by SECTION 6.3,
(a) certified copies of such Other Required Guarantor's Constituent
Documents, together with a good standing certificate, from the Secretary of
State of the state of its incorporation, and (b) an officer's certificate of
such Other Required Guarantor certifying (i) its Constituent Documents, (ii)
resolutions of its Board of Directors approving and authorizing the
execution, delivery, and performance of the Loan Documents to be executed by
such Other Required Guarantor, and (iii) signatures and incumbency of its
officers executing the Loan Documents to be executed by such Other Required
Guarantor.
SECTION 10 NEGATIVE COVENANTS. Borrower covenants and agrees to perform,
observe, and comply with each of the following covenants, from the Closing
Date until the payment in full of the Obligation and the termination or
cancellation of all LCs, if any:
10.1 EMPLOYEE BENEFIT PLANS. Borrower shall not, and shall not permit
any ERISA Affiliate to, directly or indirectly, engage in any "PROHIBITED
TRANSACTION" (as defined in SECTION 406 of ERISA or SECTION 4975 of the
Code), and the Companies, and their respective ERISA Affiliates shall not,
directly or indirectly, (a) incur any "ACCUMULATED FUNDING DEFICIENCY" as
such term is defined in SECTION 302 of ERISA with respect to any Employee
Plan, (b) permit any Employee Plan to be subject to involuntary termination
proceedings pursuant to TITLE IV of ERISA, or (c) fully or partially withdraw
from any Multiemployer Plan, if such prohibited transaction, accumulated
funding deficiency, termination proceeding, or withdrawal could reasonably be
expected to be a Material Adverse Event.
10.2 DEBT OF FOREIGN SUBSIDIARIES. Borrower shall not permit any
Foreign Subsidiary to, directly or indirectly, create, incur, guarantee,
assume, or suffer to exist any Debt or any direct, indirect, fixed, or
contingent liability for any Debt other than (a) Debt payable to any Company,
(b) Capital Leases of C.E.T., S.A. existing on Closing Date and any
refinancings, renewals, or extensions thereof (without any increase in the
principal amount thereof), and (c) in addition to the Debt permitted by
CLAUSES (a) and (b)
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above, other Debt in an aggregate principal amount for all Foreign
Subsidiaries not to exceed $25,000,000 at any time outstanding.
10.3 LIENS. Borrower shall not, and shall not permit any other
Company to, directly or indirectly, create, incur, or suffer or permit to be
created or incurred or to exist any Lien upon any of its assets, except the
following ("PERMITTED LIENS"):
(i) pledges or deposits made to secure payment of worker's
compensation, or to participate in any fund in connection with worker's
compensation, unemployment insurance, pensions, or other social security
programs;
(ii) pledges or deposits made to secure performance of bids,
tenders, insurance or other contracts (other than for the repayment of
borrowed money), or leases, or to secure statutory obligations, surety or
appeal bonds, or indemnity, performance, or other similar bonds as all
such Liens arise in the ordinary course of business of the Companies;
(iii) encumbrances consisting of zoning restrictions, easements,
rights-of-way, covenants, minor exceptions to title, or other restrictions
on the use of real property, none of which impair in any material respect
the use of such property by the Person in question in the operation of its
business, and none of which is violated by existing or proposed structures
or land use (where such violation could be a Material Adverse Event);
(iv) Liens of landlords or of mortgagees of landlords on fixtures
and movable property located on premises leased in the ordinary course of
business;
(v) claims and Liens for Taxes (A) that are not due and payable,
or (B) in which the applicability, amount, or validity of which is being
contested in good faith by appropriate proceedings diligently conducted,
and against which reserves or other provisions required by GAAP have been
made and levy and execution thereon have been stayed and continue to be
stayed;
(vi) claims and Liens of mechanics, materialmen, warehousemen,
carriers, landlords, or other like Liens in which (A) the amounts due
thereunder are not overdue for a period of more than thirty (30) days, or
(B) the applicability, amount, or validity of which is being contested in
good faith by appropriate proceedings diligently conducted, and against
which reserves or other provisions required by GAAP have been made and
levy and execution thereon have been stayed and continue to be stayed;
(vii) Liens in existence on the date hereof listed on
SCHEDULE 10.3, securing Debt existing as of the Closing Date and any
refinancings, renewals, or extensions thereof (without any increase in the
principal amount thereof);
(viii) Liens on assets acquired pursuant to a Permitted Acquisition
securing Debt of any Company assumed in connection with such Permitted
Acquisition not to exceed fifteen percent (15%) of the aggregate
consideration for such Permitted Acquisition;
(ix) any interest or title of a lessor under any lease entered
into by any Company in the ordinary course of its business and covering
only the assets so leased;
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(x) any obligations or duties affecting any of the properties of
any Company to any municipality or public authority with respect to any
franchise, grant, license, or permit which do not materially impair the
use of such property for the purposes for which it is held;
(xi) liens imposed by operation of law with respect to any
judgments or orders not constituting a Default;
(xii) Liens arising from precautionary Uniform Commercial Code
financing statement filings with respect to operating leases entered into
by any Company in the ordinary course of business;
(xiii) licenses, leases, or subleases permitted hereunder granted to
others not interfering in any material respect with the business of any
Company;
(xiv) Liens in favor of banking institutions arising by operation
of law encumbering deposits (including the right of setoff) held by such
banking institution incurred in the ordinary course of business and which
are within the general parameters customary in the banking industry; and
(xv) Liens not otherwise permitted by this SECTION 10.3 PROVIDED
THAT the aggregate outstanding principal amount of the obligations secured
thereby does not exceed $25,000,000 in the aggregate at any time
outstanding.
10.4 TRANSACTIONS WITH AFFILIATES. Borrower shall not, and shall not
permit any other Company to, enter into any transaction with any of its
Affiliates, other than transactions upon fair and reasonable terms not
materially less favorable than such Company could obtain or could become
entitled to in an arm's-length transaction with a Person that was not its
Affiliate; PROVIDED, HOWEVER, that the Companies shall be entitled to make
the following payments and/or enter into the following transactions:
(a) the payment of reasonable and customary fees and reimbursement of
expenses payable to directors of any Company;
(b) the employment arrangements with respect to the procurement of
services of directors, officers, and employees in the ordinary course of
business and the payment of reasonable fees in connection therewith;
(c) the transactions, agreements, and arrangements described on
SCHEDULE 10.4; and
(d) any other transaction between Affiliates otherwise expressly
permitted by this Agreement.
10.5 COMPLIANCE WITH DOCUMENTS. Borrower shall not, and shall not
permit any other Company to, (a) violate the provisions of its Constituent
Documents, or (b) modify, repeal, replace, or amend any provision of its
Constituent Documents, in each case where such action could be a Material
Adverse Event.
10.6 FISCAL YEAR AND ACCOUNTING METHODS. Borrower shall not, and
shall not permit any other Company to, change its fiscal year for book
accounting purposes; PROVIDED THAT POI and Borrower may
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change their respective fiscal year with the prior written consent of
Administrative Agent, such consent not to be unreasonably withheld.
10.7 NEW BUSINESS. Borrower shall not, and shall not permit any other
Company (other than Subsidiaries of POI that in the aggregate contribute five
percent (5%) or less of the consolidated total assets of the Companies as of
the last day of the immediately preceding fiscal year of the Companies) to,
directly or indirectly, permit or suffer to exist any material change in the
type of businesses in which it is engaged from the businesses of the
Companies as conducted on the Closing Date or reasonable extensions thereof.
10.8 LOANS, ADVANCES, AND INVESTMENTS. Borrower shall not, and shall
not permit any other Company to, make any loan, advance, extension of credit,
or capital contribution to, make any investment in, or purchase or commit to
purchase any Stock or evidences of Debt of, or interests in, any other
Person, other than: (a) readily marketable, direct, full faith and credit
obligations of the United States of America, or obligations guaranteed by the
full faith and credit of the United States of America, maturing within not
more than one year from the date of acquisition; (b) short term certificates
of deposit and time deposits, which mature within one year from the date of
issuance and which are fully insured by the Federal Deposit Insurance
Corporation; (c) commercial paper maturing in 365 days or less from the date
of issuance and rated either "P-1" by Moody's, or "A-1" by S & P; (d) debt
instruments of a domestic issuer which mature in one (1) year or less and
which are rated "A" or better by Moody's or S&P on the date of acquisition of
such investment; (e) demand deposit accounts which are maintained in the
ordinary course of business; (f) Permitted Acquisitions; (g) trade accounts
receivable which are for goods furnished or services rendered in the ordinary
course of business and are payable in accordance with customary trade terms;
(h) investments by the Companies in Domestic Subsidiaries as of the Closing
Date and formed in accordance with the terms of this Agreement; (i) loans and
advances by the Companies to their respective directors, officers, and
employees in an aggregate principal amount not to exceed $2,500,000 in the
aggregate at any time outstanding; (j) loans, advances, or investments
existing on the Closing Date and listed on SCHEDULE 10.8, and extensions,
renewals, modifications, restatements, or replacements thereof; (k)
investments consisting of Debt of any Company to any other Company; (l)
promissory notes and other similar non-cash consideration received by any
Company in connection with the dispositions permitted by SECTION 10.11; (m)
investments in Financial Hedge Agreements; (n) investments received in
connection with the bankruptcy or reorganization or suppliers and customers
in settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business; (o)
investments of (i) the Companies (other than Foreign Subsidiaries) in Foreign
Subsidiaries in an aggregate amount not to exceed at any one time outstanding
fifteen percent (15%) of the consolidated total assets of the Companies
determined in accordance with GAAP for the most recent fiscal year (without
regard to any write down or write up thereof), and (ii) Foreign Subsidiaries
in other Foreign Subsidiaries; and (p) in addition to the foregoing, other
investments by the Companies in an aggregate amount not exceeding five
percent (5%) of the consolidated total assets of the Companies determined in
accordance with GAAP for the most recent fiscal year (without regard to any
write down or write up thereof).
10.9 DISTRIBUTIONS AND SUBORDINATED DEBT PAYMENTS.
(a) DISTRIBUTIONS. Borrower shall not, and shall not permit any
other Company to, directly or indirectly declare, make, or pay any
Distributions, other than (i) Distributions declared, made, or paid by any
Company wholly in the form of its capital Stock, and (ii) Distributions by
any Company to Borrower or Lifeline, (iii) so long as no Default exists or
would result from the payment thereof, Distributions by any Company to POI
and Distributions by POI to the holders of its Stock, in each case in an
aggregate amount
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during any fiscal year of the Companies not to exceed the SUM of (A)
twenty-five percent (25%) of the consolidated net income of the Companies for
the immediately preceding fiscal year of the Companies, PLUS (B) an amount
for the purpose of making Distributions to the holders of POI's Stock equal
to the net proceeds from the issuance of POI's Stock, (iv) Distributions in
the form of Common Stock of POI issued in connection with the conversion of
the Convertible Notes, and (v) Distributions from any Subsidiary of POI to
POI the proceeds of which:
(A) shall be applied by POI directly to pay out-of- pocket
expenses, for administrative, legal, and accounting services provided by
third parties that are reasonable and customary and incurred in the
ordinary course of business for such professional services, or to pay
franchise fees and similar costs;
(B) will be used to repurchase the Stock of POI (x) from
directors, employees, or members of the management of any Company, at a
price not in excess of the fair market value of such Stock, in an
aggregate amount not in excess of $10,000,000 (net of the proceeds
received by POI as a result of any resales of any such Stock), or (y) in
order to fulfill the obligations of any Company under an employee Stock
purchase plan or similar plan covering employees of any Company as from
time to time in effect;
(C) will be used to pay taxes of the Companies as part of a
consolidated, combined, or unitary tax filing group or of the separate
operations of POI; or
(D) will be used to make investments in, or loans to, any
Subsidiary of POI otherwise permitted pursuant to this Agreement.
(b) SUBORDINATED DEBT. Borrower shall not, and shall not permit any
other Company to, make any payment on any Subordinated Debt (i) when it
violates the subordination provisions thereof, PROVIDED THAT so long as no
Default exists Borrower may (A) redeem, defease, or repurchase Subordinated
Debt with the proceeds of issuance of Stock of POI or Borrower, and (B)
refinance Subordinated Debt with the proceeds of other Subordinated Debt, or
(ii) with the proceeds of any Debt that is not Subordinated Debt if the
Leverage Ratio is, as of the most recent date of determination hereunder,
greater than 4.5 to 1.0.
10.10 RESTRICTIONS ON COMPANIES. Borrower shall not, and shall not
permit any other Company to, enter into or permit to exist any material
arrangement or agreement (other than the Loan Documents and, solely with
respect to Foreign Subsidiaries, the agreements evidencing the Debt permitted
by SECTION 10.2) which directly or indirectly prohibits any Subsidiary of
Borrower from (i) declaring, making, or paying, directly or indirectly, any
Distribution to Borrower, (ii) paying any Debt owed to Borrower, (iii) making
loans, advances, or investments to Borrower, or (iv) transferring any of its
property or assets to Borrower.
10.11 SALE OF ASSETS. Borrower shall not, and shall not permit any
other Company to, sell, assign, transfer, or otherwise dispose of any of its
assets, other than (a) sales of inventory and equipment leases (including,
without limitation, equipment leases originated or acquired by C.E.T., S.A.
or its Subsidiaries) in the ordinary course of business, (b) the sale,
discount, or transfer of delinquent accounts receivable in the ordinary
course of business for purposes of collection, (c) sales of immaterial assets
for consideration not less than the fair market value thereof, (d)
dispositions of obsolete assets and assets no longer useful in the respective
businesses of the Companies, (e) transfers resulting from any casualty or
condemnation of property of assets, (f) licenses or sublicenses of
intellectual property and general intangibles and licenses, leases, or
subleases of other property in each case in the ordinary course of business
and that do not materially interfere
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with the business of any Company, (g) dispositions permitted by SECTION
10.12, and (h) other asset sales during any fiscal year of the Companies in
an aggregate amount not exceeding ten percent (10%) of the consolidated total
assets of the Companies determined in accordance with GAAP for the most
recent fiscal year (without regard to any write down or write up thereof).
10.12 MERGERS AND DISSOLUTIONS; SALE OF CAPITAL STOCK. Borrower shall
not, and shall not permit any other Company to, directly or indirectly, merge
or consolidate with any other Person, other than (a) as a result of a
Permitted Acquisition, (b) mergers or consolidations involving Borrower if
Borrower is the surviving entity, and (c) mergers among Wholly-owned
Companies; PROVIDED THAT in any merger involving Borrower (including a
Permitted Acquisition effected as a merger), Borrower must be the surviving
entity, and, in any merger involving any other Company (including a Permitted
Acquisition effected as a merger), a Company must be the surviving entity.
Borrower shall not, and shall not permit any other Company to, liquidate,
wind up, or dissolve (or suffer any liquidation or dissolution), other than
liquidations, wind ups, or dissolutions incident to mergers permitted under
this SECTION 10.12.
10.13 FINANCIAL COVENANTS. As calculated on a consolidated basis for
the Companies:
(a) LEVERAGE RATIO. Borrower shall not permit the Leverage Ratio, as
of the last day of any fiscal quarter of the Companies during the following
periods, to be greater than the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
--------------------------------------------------------------
PERIOD RATIO
--------------------------------------------------------------
<S> <C>
Closing Date through 5.0 to 1.0
December 30, 1999
--------------------------------------------------------------
December 31, 1999 and 4.5 to 1.0
thereafter
--------------------------------------------------------------
</TABLE>
(b) INTEREST COVERAGE. Borrower shall not permit the Interest
Coverage Ratio, as of the last day of any fiscal quarter of the Companies, to
be less than 2.75 to 1.0.
SECTION 11 DEFAULT. The term "DEFAULT" means the occurrence of any one or
more of the following events:
11.1 PAYMENT OF OBLIGATION.
(a) The failure or refusal of Borrower to pay any of the Obligation
(other than principal) when it becomes due and payable under the Loan
Documents and such failure shall continue for five (5) days after such
payment became due.
(b) The failure or refusal of Borrower to pay any principal of the
Obligation when it becomes due and payable under the Loan Documents
11.2 COVENANTS.
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(a) The failure or refusal of Borrower (and, if applicable, any other
Material Company) to punctually and properly perform, observe, and comply
with any covenant, agreement, or condition contained in any SECTION 9.3 or
SECTION 10.
(b) The failure or refusal of Borrower (and, if applicable, any other
Material Company) to punctually and properly perform, observe, and comply
with any covenant, agreement, or condition contained in any Loan Document
(other than the covenants to pay the Obligation and the covenants in (a)
preceding) and, if such failure is capable of being cured within the
appropriate time, then such failure shall continue for thirty (30) days after
the earlier to occur of the date (i) any Responsible Officer knows of, or
(ii) Borrower receives notice from Administrative Agent of, such failure or
refusal.
11.3 DEBTOR RELIEF. Any Material Company (a) shall not be Solvent,
(b) fails to pay its Debts generally as they become due, (c) voluntarily
seeks, consents to, or acquiesces in the benefit of any Debtor Relief Law,
other than as a creditor or claimant, or (d) becomes a party to or is made
the subject of any proceeding provided for by any Debtor Relief Law, other
than as a creditor or claimant, that could suspend or otherwise adversely
affect the Rights of any Credit Party granted in the Loan Documents (UNLESS,
in the event such proceeding is involuntary, the petition instituting same is
dismissed within sixty (60) days after its filing).
11.4 JUDGMENTS AND ATTACHMENTS. Any Material Company fails, within
sixty (60) days after entry, to pay, bond, or otherwise discharge any
judgment or order for the payment of money in excess of $25,000,000
(individually or collectively) and not paid or covered by insurance or
indemnified in a manner reasonably acceptable to Administrative Agent, or any
warrant of attachment, sequestration, or similar proceeding against any
Material Company's assets having a value (individually or collectively) of
$25,000,000 which is not stayed on appeal.
11.5 MISREPRESENTATION. Any representation or warranty made by any
Company contained in any Loan Document shall at any time prove to have been
incorrect in any material respect when made.
11.6 CHANGE OF CONTROL.
(a) POI shall cease to own, directly or indirectly, one hundred
percent (100%) of the voting control (directly or indirectly) of Borrower; or
(b) Western Resources, Inc. shall cease to own, directly or
indirectly, more than fifty percent (50%) of the voting control (directly or
indirectly) of POI.
11.7 DEFAULT UNDER OTHER DEBT AND AGREEMENTS.
(a) The occurrence of any "DEFAULT" or "EVENT OF DEFAULT" or other
breach which remains uncured after the expiration of any period of grace,
notice, or right to cure, if any, or unwaived on any date of determination
under or with respect to the Senior Notes or any Subordinated Debt; or
(b) The trustee with respect to, or any holder of, the Senior Notes
or any Subordinated Debt shall effectively declare all or any portion of such
Debt or obligation thereunder due and payable prior to the stated maturity
thereof; or
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(c) Any Material Company fails to pay when due (after lapse of any
applicable grace periods) any Debt of such Material Company (other than the
Obligation) in excess (individually or collectively) of $25,000,000.
11.8 EMPLOYEE BENEFIT PLANS.
(a) A "REPORTABLE EVENT" or "REPORTABLE EVENTS," or a failure to make
a required installment or other payment (within the meaning of SECTION
412(n)(1) of the Code), shall have occurred with respect to any Employee Plan
or Employee Plans that is reasonably expected to result in liability of
Borrower to the PBGC or to a Plan in an aggregate amount exceeding
$25,000,000; or
(b) Borrower or any ERISA Affiliate has provided to any affected
party a sixty (60) day notice of intent to terminate an Employee Plan
pursuant to a distress termination in accordance with SECTION 4041(c) of
ERISA if the liability reasonably expected to be incurred as a result of such
termination will exceed $25,000,000; or
(c) A trustee shall be appointed by a United States district court to
administer any Employee Plan; or
(d) the PBGC shall institute proceedings (including giving notice of
intent thereof) to terminate any Employee Plan; or
(e) (i) Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred withdrawal liability
(within the meaning of SECTION 4201 of ERISA) to such Multiemployer Plan,
(ii) Borrower or such ERISA Affiliate does not have reasonable grounds for
contesting such withdrawal liability or is not contesting such withdrawal
liability in a timely and appropriate manner and (iii) the amount of such
withdrawal liability specified in such notice, when aggregated with all other
amounts required to be paid to Multiemployer Plans in connection with
withdrawal liabilities (determined as of the date or dates of such
notification), exceeds $25,000,000; or
(f) Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of TITLE IV of
ERISA, if solely as a result of such reorganization or termination the
aggregate annual contributions of Borrower and its ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or have been or are being
terminated have been or will be increased over the amounts required to be
contributed to such Multiemployer Plans for their most recently completed
plan years by an amount exceeding $25,000,000.
11.9 VALIDITY AND ENFORCEABILITY OF LOAN DOCUMENTS. Any Loan Document
shall, at any time after its execution and delivery and for any reason, cease
to be in full force and effect in any material respect or be declared to be
null and void (other than in accordance with the terms hereof or thereof)
and, if such invalidity is capable of being cured without materially
disadvantaging any Credit Party, Borrower fails to cure such invalidity
within thirty (30) days after Borrower receives written notice from
Administrative Agent of such invalidity, or the validity or enforceability
thereof shall be contested by any Company party thereto or any Company shall
deny in writing that it has any or any further liability or obligations under
any Loan Document to which it is a party.
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11.10 ENVIRONMENTAL LIABILITY. If any event or condition shall occur
or exist with respect to any activity or substance regulated under the
Environmental Law and as a result of such event or condition, any Company
shall have incurred or in the opinion of the banks be reasonably likely to
incur a liability in excess of $25,000,000 liability during any consecutive
twelve (12) month period.
SECTION 12 RIGHTS AND REMEDIES.
12.1 REMEDIES UPON DEFAULT.
(a) If a Default exists under SECTION 11.3(c) or 11.3(d), then the
commitment to extend credit hereunder shall automatically terminate and the
entire unpaid balance of the Obligation shall automatically become due and
payable without any action or notice of any kind whatsoever and Borrower
shall be required to provide cash collateral in an amount equal to one
hundred percent (100%) of the LC Exposure then existing in accordance with
SECTION 2.2(h).
(b) If any Default exists, then Administrative Agent may with the
consent of Required Lenders (and, subject to the terms of SECTION 13, shall
upon the request of Required Lenders) do any one or more of the following:
(i) if the maturity of the Obligation has not already been accelerated under
SECTION 12.1(a), then declare the entire unpaid balance of the Obligation, or
any part thereof, immediately due and payable, whereupon it shall be due and
payable; (ii) terminate the commitments of Lenders to extend credit
hereunder; (iii) reduce any claim to judgment; (iv) to the extent permitted
by Law, exercise (or request each Lender to, and each Lender shall be
entitled to, exercise) the Rights of offset or banker's Lien against the
interest of any Company in and to every account and other property of any
Company which are in the possession of any Credit Party to the extent of the
full amount of the Obligation (to the extent permitted by Law, Borrower being
deemed directly obligated to each Credit Party in the full amount of the
Obligation for such purposes); PROVIDED, HOWEVER, such Credit Party shall
thereafter promptly notify Borrower and Administrative after any such offset
and the application made by such Lender; (v) if the maturity of the
Obligation has not already been accelerated under SECTION 12.1(a), then
demand Borrower to provide cash collateral in an amount equal to one hundred
percent (100%) of the LC Exposure then existing in accordance with SECTION
2.2(h); and (vi) exercise any and all other legal or equitable Rights
afforded by the Loan Documents, the Laws of the State of Texas, or any other
applicable jurisdiction as Administrative Agent shall deem appropriate, or
otherwise, including, but not limited to, the Right to bring suit or other
proceedings before any Governmental Authority either for specific performance
of any covenant or condition contained in any of the Loan Documents or in aid
of the exercise of any Right granted to any Credit Party in any of the Loan
Documents.
12.2 COMPANY WAIVERS. To the extent permitted by Law, the Companies
and Guarantors hereby waive presentment and demand for payment, protest,
notice of intention to accelerate, notice of acceleration, and notice of
protest and nonpayment, and agree that their respective liability with
respect to the Obligation (or any part thereof) shall not be affected by any
renewal or extension in the time of payment of the Obligation (or any part
thereof), by any indulgence, or by any release or change in any security for
the payment of the Obligation (or any part thereof).
12.3 PERFORMANCE BY ADMINISTRATIVE AGENT. If any covenant, duty, or
agreement of any Company is not performed in accordance with the terms of the
Loan Documents, while a Default exists, then Administrative Agent may, at its
option (but subject to the approval of Required Lenders), perform or attempt to
perform such covenant, duty, or agreement on behalf of such Company. In such
event, any amount expended by Administrative Agent in such performance or
attempted performance shall be payable by the Obligors, jointly and severally,
to Administrative Agent on demand, shall become part of the Obligation, and
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shall bear interest at the Default Rate from the date of such expenditure by
Administrative Agent until paid. Notwithstanding the foregoing, it is
expressly understood that Administrative Agent does not assume, and shall
never have, except by its express written consent, any liability or
responsibility for the performance of any covenant, duty, or agreement of any
Company.
12.4 DELEGATION OF DUTIES AND RIGHTS. The Credit Parties may perform
any of their duties or exercise any of their Rights under the Loan Documents
by or through their respective Representatives.
12.5 NOT IN CONTROL. Nothing in any Loan Document shall, or shall be
deemed to (a) give any Credit Party the Right to exercise control over the
assets (including real property), affairs, or management of any Company, (b)
preclude or interfere with compliance by any Company with any Law, or (c)
require any act or omission by any Company that may be harmful to Persons or
property. Any "MATERIAL ADVERSE EVENT" or other materiality qualifier in any
representation, warranty, covenant, or other provision of any Loan Document
is included for credit documentation purposes only and shall not, and shall
not be deemed to, mean that any Credit Party acquiesces in any non-compliance
by any Company with any Law or document, or that any Credit Party does not
expect any Company to promptly, diligently, and continuously carry out all
appropriate removal, remediation, and termination activities required or
appropriate in accordance with all Environmental Laws. The Credit Parties
have no fiduciary relationship with or fiduciary duty to any Company arising
out of or in connection with the Loan Documents, and the relationship between
the Credit Parties, on the one hand, and the Companies, on the other hand, in
connection with the Loan Documents is solely that of debtor and creditor. The
power of the Credit Parties under the Loan Documents is limited to the Rights
provided in the Loan Documents, which Rights exist solely to assure payment
and performance of the Obligation and may be exercised in a manner calculated
by the Credit Parties in their respective good faith business judgment.
12.6 COURSE OF DEALING. The acceptance by any Credit Party at any
time and from time to time of partial payment on the Obligation shall not be
deemed to be a waiver of any Default then existing. No waiver by any Credit
Party of any Default shall be deemed to be a waiver of any other
then-existing or subsequent Default. No delay or omission by any Credit
Party in exercising any Right under the Loan Documents shall impair such
Right or be construed as a waiver thereof or any acquiescence therein, nor
shall any single or partial exercise of any such Right preclude other or
further exercise thereof, or the exercise of any other Right under the Loan
Documents or otherwise.
12.7 CUMULATIVE RIGHTS. All Rights available to the Credit Parties
under the Loan Documents are cumulative of and in addition to all other
Rights granted to the Credit Parties at law or in equity, whether or not the
Obligation is due and payable and whether or not the Credit Parties have
instituted any suit for collection, foreclosure, or other action in
connection with the Loan Documents.
12.8 APPLICATION OF PROCEEDS. Any and all proceeds ever received by
any Credit Party from the exercise of any Rights pertaining to the Obligation
shall be applied to the Obligation in the order and manner set forth in
SECTION 3.11.
12.9 CERTAIN PROCEEDINGS. Borrower will promptly execute and deliver,
or cause the execution and delivery of, all applications, certificates,
instruments, registration statements, and all other documents and papers any
Credit Party may reasonably request in connection with the obtaining of any
consent, approval, registration, qualification, permit, license, or
Authorization of any Governmental Authority or other Person necessary or
appropriate for the effective exercise of any Rights under the Loan
Documents. Because
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Borrower agrees that the Credit Parties' remedies at Law for failure of
Borrower to comply with the provisions of this SECTION 12.9 would be
inadequate and that such failure would not be adequately compensable in
damages, Borrower agrees that the covenants of this SECTION 12.9 may be
specifically enforced.
12.10 EXPENDITURES BY LENDERS. Borrower shall promptly pay within
fifteen (15) Business Days after request therefor (a) all reasonable costs,
fees, and expenses paid or incurred by Administrative Agent and Lead
Arranger, incident to any Loan Document (including, but not limited to, the
reasonable fees and expenses of counsel to Administrative Agent and Lead
Arranger in connection with the negotiation, preparation, delivery,
execution, coordination, and administration of the Loan Documents and any
related amendment, waiver, or consent), and (b) all reasonable costs and
expenses of each Credit Party incurred by such Credit Party in connection
with the enforcement of the obligations of any Obligor arising under the Loan
Documents (including, without limitation, costs and expenses incurred in
connection with any workout or bankruptcy) or the exercise of any Rights
arising under the Loan Documents (including, but not limited to, reasonable
attorneys' fees including court costs and other costs of collection), all of
which shall be a part of the Obligation and shall bear interest at the
Default Rate from the date due until the date repaid.
12.11 INDEMNIFICATION. BORROWER SHALL, AND SHALL CAUSE EACH OTHER
COMPANY TO, INDEMNIFY AND HOLD HARMLESS EACH CREDIT PARTY AND EACH OF THEIR
RESPECTIVE AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS, AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") FROM AND
AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS, AND EXPENSES
SUBJECT TO THE LIMITATIONS, IF ANY, SET FORTH IN SECTION 12.10 (INCLUDING,
WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES) THAT MAY BE INCURRED BY OR
ASSERTED OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT
OF OR IN CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN
CONNECTION WITH ANY INVESTIGATION, LITIGATION, OR PROCEEDING OR PREPARATION
OF DEFENSE IN CONNECTION THEREWITH) THE LOAN DOCUMENTS, ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN, OR THE ACTUAL OR PROPOSED USE OF THE
PROCEEDS OF THE BORROWINGS (INCLUDING ANY OF THE FOREGOING ARISING FROM THE
ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY), EXCEPT TO THE EXTENT SUCH
CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE IS FOUND IN A FINAL,
NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED
FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. NO
INDEMNIFIED PARTY MAY SEEK INDEMNIFICATION HEREUNDER FOR LIABILITIES OR
EXPENSES OWED TO ANY COMPANY, TO THE EXTENT SUCH LIABILITIES OR EXPENSES
ARISE OUT OF SUCH INDEMNIFIED PARTY'S BREACH OF THIS AGREEMENT AS DETERMINED
IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION. IN
THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH THE
INDEMNITY IN THIS SECTION 12.11 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE
WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY
BORROWER, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR
ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO.
BORROWER AND EACH OTHER COMPANY AGREE NOT TO ASSERT ANY CLAIM AGAINST ANY
INDEMNIFIED PARTY ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO
THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, OR THE
ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE BORROWINGS. WITHOUT PREJUDICE
TO THE SURVIVAL OF ANY OTHER AGREEMENT OF BORROWER HEREUNDER, THE AGREEMENTS
AND OBLIGATIONS OF BORROWER CONTAINED IN THIS SECTION 12.11 SHALL SURVIVE THE
PAYMENT IN FULL OF THE BORROWINGS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS
AGREEMENT.
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NOTWITHSTANDING THE FOREGOING, BORROWER SHALL HAVE NO OBLIGATION HEREUNDER TO
ANY INDEMNIFIED PARTY WITH RESPECT TO ANY AND ALL CLAIMS, DAMAGES, LOSSES,
LIABILITIES, COSTS, AND EXPENSES THAT ARE ATTRIBUTABLE TO ANY HAZARDOUS
MATERIALS THAT ARE FIRST USED, MANUFACTURED, EMITTED, GENERATED, TREATED,
LOCATED, RELEASED, STORED, OR DISPOSED OF ON ANY REAL PROPERTY OWNED,
OPERATED, OR LEASED BY A COMPANY AND ANY VIOLATION OF ENVIRONMENTAL LAWS,
WHICH IN EITHER CASE, FIRST OCCUR ON OR WITH RESPECT TO SUCH REAL PROPERTY
AFTER THE PROPERTY IS TRANSFERRED TO ANY OF THE INDEMNIFIED PARTIES OR THEIR
SUCCESSORS BY FORECLOSURE SALE, DEED IN LIEU OF FORECLOSURE, OR SIMILAR
TRANSFER, EXCEPT TO THE EXTENT SUCH MANUFACTURE, EMISSION, RELEASE,
GENERATION, TREATMENT, STORAGE, RELEASE, OR DISPOSAL OR VIOLATION IS ACTUALLY
CAUSED BY A COMPANY.
SECTION 13 AGREEMENT AMONG LENDERS.
13.1 ADMINISTRATIVE AGENT.
(a) APPOINTMENT. Each Lender hereby appoints NationsBank (and
NationsBank hereby accepts such appointment) as its nominee and agent, in its
name and on its behalf: (i) to act as nominee for and on behalf of such
Lender in and under all Loan Documents; (ii) to arrange the means whereby the
funds of Lenders are to be made available to Borrower under the Loan
Documents; (iii) to take such action as may be requested by any Lender under
the Loan Documents (when such Lender is entitled to make such request under
the Loan Documents and after such requesting Lender has obtained the
concurrence of such other Lenders as may be required under the Loan
Documents); (iv) to receive all documents and items to be furnished to
Lenders under the Loan Documents; (v) to timely distribute, and
Administrative Agent agrees to so distribute, to each Lender all material
information, requests, documents, and items received from any Company under
the Loan Documents; (vi) to promptly distribute to each Lender its ratable
part of each payment or prepayment (whether voluntary, as proceeds of
collateral upon or after foreclosure, as proceeds of insurance thereon, or
otherwise) in accordance with the terms of the Loan Documents; (vii) to
deliver to the appropriate Persons requests, demands, approvals, and consents
received from Lenders; and (viii) to execute, on behalf of Lenders, such
releases or other documents or instruments as are permitted by the Loan
Documents or as directed by Lenders from time to time; PROVIDED, HOWEVER,
Administrative Agent shall not be required to take any action which exposes
Administrative Agent to personal liability or which is contrary to the Loan
Documents or applicable Law.
(b) SUCCESSOR AGENT. Administrative Agent may resign at any time as
Administrative Agent under the Loan Documents by giving written notice thereof
to Lenders and may be removed as Administrative Agent under the Loan Documents
at any time with cause by Required Lenders. Should the initial or any successor
Administrative Agent ever cease to be a party hereto or should the initial or
any successor Administrative Agent ever resign or be removed as Administrative
Agent, then Required Lenders shall elect the successor Administrative Agent from
among Lenders (other than the resigning Administrative Agent) which successor
Administrative Agent shall, unless a Payment Default exists, be reasonably
acceptable to Borrower. If no successor Administrative Agent shall have been so
appointed by Required Lenders, within thirty (30) days after the retiring
Administrative Agent's giving of notice of resignation or Required Lenders'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of Lenders, appoint a successor Administrative Agent, which
shall be a commercial bank having a combined capital and surplus of at least
$1,000,000,000 and which successor Administrative Agent shall, unless a Payment
Default exists, be reasonably acceptable to Borrower. Upon the acceptance of
any appointment as Administrative Agent under the Loan Documents by a successor
Administrative Agent, such
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successor Administrative Agent shall thereupon succeed to and become vested
with all the Rights of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations of
Administrative Agent under the Loan Documents (PROVIDED, HOWEVER, that when
used in connection with LCs issued and outstanding prior to the appointment
of the successor Administrative Agent, "ADMINISTRATIVE AGENT" shall continue
to refer solely to the bank that issued the outstanding LC; PROVIDED FURTHER
that any LCs issued or renewed after the appointment of any successor
Administrative Agent shall be issued by such successor Administrative Agent),
and each Lender shall execute such documents as any Lender may reasonably
request to reflect such change in and under the Loan Documents. After any
retiring Administrative Agent's resignation or removal as Administrative
Agent under the Loan Documents, the provisions of this SECTION 13 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it
was Administrative Agent under the Loan Documents.
(c) RIGHTS AS LENDER. Administrative Agent, in its capacity as a
Lender, shall have the same Rights under the Loan Documents as any other
Lender and may exercise the same as though it were not acting as
Administrative Agent; the term "LENDER" shall, unless the context otherwise
indicates, include Administrative Agent; and any resignation, or removal of
by Administrative Agent hereunder shall not impair or otherwise affect any
Rights which it has or may have in its capacity as an individual Lender.
Each Lender and Borrower agree that Administrative Agent is not a fiduciary
for Lenders or for Borrower but simply is acting in the capacity described
herein to alleviate administrative burdens for both Borrower and Lenders,
that Administrative Agent has no duties or responsibilities to Lenders or
Borrower except those expressly set forth herein, and that Administrative
Agent in its capacity as a Lender has all Rights of any other Lender.
(d) OTHER ACTIVITIES. Administrative Agent and its Affiliates may
now or hereafter be engaged in one or more loan, letter of credit, leasing,
or other financing transactions with any Company, act as trustee or
depositary for any Company, or otherwise be engaged in other transactions
with any Company (collectively, the "OTHER ACTIVITIES") not the subject of
the Loan Documents. Without limiting the Rights of Lenders specifically set
forth in the Loan Documents, Administrative Agent and its Affiliates shall
not be responsible to account to Lenders for such other activities, and no
Lender shall have any interest in any other activities, any present or future
guaranties by or for the account of any Company which are not contemplated or
included in the Loan Documents, any present or future offset exercised by
Administrative Agent and its Affiliates in respect of such other activities,
any present or future property taken as security for any such other
activities, or any property now or hereafter in the possession or control of
Administrative Agent or its Affiliates which may be or become security for
the obligations of any Company arising under the Loan Documents by reason of
the general description of indebtedness secured or of property contained in
any other agreements, documents or instruments related to any such other
activities; provided that if any payments in respect of such guaranties or
such property or the proceeds thereof shall be applied to reduction of the
obligations of any Obligor arising under the Loan Documents, then each Lender
shall be entitled to share in such application ratably.
13.2 EXPENSES. Upon demand by Administrative Agent, each Lender shall
pay its Pro Rata Part of any reasonable expenses (including, without
limitation, court costs, reasonable attorneys' fees, and other costs of
collection) incurred by Administrative Agent in connection with any of the
Loan Documents if and to the extent Administrative Agent does not receive
reimbursement therefor from other sources within 60 days after incurred
(other than expenses incurred as a result of Administrative Agent's gross
negligence or willful misconduct); PROVIDED THAT each Lender shall be
entitled to receive its Pro Rata Part of any reimbursement for such expenses,
or part thereof, which Administrative Agent subsequently receives from such
other sources.
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13.3 PROPORTIONATE ABSORPTION OF LOSSES. Except as otherwise provided
in the Loan Documents, nothing in the Loan Documents shall be deemed to give
any Lender any advantage over any other Lender insofar as the Obligation
arising under the Loan Documents is concerned, or to relieve any Lender from
absorbing its Pro Rata Part of any losses sustained with respect to the
Obligation (except to the extent such losses result from unilateral actions
or inactions of any Lender that are not made in accordance with the terms and
provisions of the Loan Documents).
13.4 DELEGATION OF DUTIES; RELIANCE. Administrative Agent may perform
any of its duties or exercise any of its Rights under the Loan Documents by
or through its Representatives. Administrative Agent and its Representatives
shall (a) be entitled to rely upon (and shall be protected in relying upon)
any writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telecopy, telegram, telex or teletype message, statement, order,
or other documents or conversation believed by it or them to be genuine and
correct and to have been signed or made by the proper Person and, with
respect to legal matters, upon opinion of counsel selected by Administrative
Agent, (b) be entitled to deem and treat each Lender as the owner and holder
of the Principal Debt owed to such Lender for all purposes until, subject to
SECTION 14.13, written notice of the assignment or transfer thereof shall
have been given to and received by Administrative Agent (and any request,
authorization, consent, or approval of any Lender shall be conclusive and
binding on each subsequent holder, assignee, or transferee of the Principal
Debt owed to such Lender or portion thereof until such notice is given and
received), (c) not be deemed to have notice of the occurrence of a Potential
Default or Default unless a responsible officer of Administrative Agent, who
handles matters associated with the Loan Documents and transactions
thereunder, has received written notice from a Lender or Borrower and stating
that such notice is a "NOTICE OF DEFAULT," and (d) be entitled to consult
with legal counsel (including counsel for Borrower), independent accountants,
and other experts selected by Administrative Agent and shall not be liable
for any action taken or omitted to be taken in good faith by it in accordance
with the advice of such counsel, accountants or experts.
13.5 LIMITATION OF LIABILITY.
(a) EXCULPATION. No Agent nor any of its Representatives shall be
liable for any action taken or omitted to be taken by it or them under the
Loan Documents in good faith and reasonably believed by it or them to be
within the discretion or power conferred upon it or them by the Loan
Documents or be responsible for the consequences of any error of judgment,
except for fraud, gross negligence, or willful misconduct; and no Agent nor
any of its Representatives has a fiduciary relationship with any Lender by
virtue of the Loan Documents (PROVIDED THAT nothing herein shall negate the
obligation of Administrative Agent to account for funds received by it for
the account of any Lender).
(b) INDEMNITY. Unless indemnified to its satisfaction against loss,
cost, liability, and expense, no Agent shall be compelled to do any act under
the Loan Documents or to take any action toward the execution or enforcement
of the powers thereby created or to prosecute or defend any suit in respect
of the Loan Documents. If any Agent requests instructions from Lenders or
Required Lenders, as the case may be, with respect to any act or action
(including, but not limited to, any failure to act) in connection with any
Loan Document, such Agent shall be entitled (but shall not be required) to
refrain (without incurring any liability to any Person by so refraining) from
such act or action unless and until it has received such instructions.
Except where action of Required Lenders or all Lenders is required in the
Loan Documents, each Agent may act hereunder in its own discretion without
requesting instructions. In no event, however, shall any Agent or any of its
Representatives be required to take any action which it or they determine
could incur for it or them
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criminal or onerous civil liability. Without limiting the generality of the
foregoing, no Lender shall have any right of action against any Agent as a
result of such Agent's acting or refraining from acting hereunder in
accordance with the instructions of Required Lenders (or all Lenders if
required in the Loan Documents).
(c) RELIANCE. No Agent shall be responsible in any manner to any
Lender or any Participant for, and each Lender represents and warrants that
it has not relied upon any Agent in respect of, (i) the creditworthiness of
any Company and the risks involved to such Lender, (ii) the effectiveness,
enforceability, genuineness, validity, or the due execution of any Loan
Document, (iii) any representation, warranty, document, certificate, report,
or statement made therein or furnished thereunder or in connection therewith,
(iv) the existence, priority, or perfection of any Lien, if any, now or
hereafter granted or purported to be granted under any Loan Document, or (v)
observation of or compliance with any of the terms, covenants, or conditions
of any Loan Document on the part of any Company. EACH LENDER AGREES TO
INDEMNIFY EACH AGENT AND ITS RESPECTIVE REPRESENTATIVES AND HOLD THEM
HARMLESS FROM AND AGAINST (BUT LIMITED TO SUCH LENDER'S PRO RATA PART OF) ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, REASONABLE EXPENSES, AND REASONABLE DISBURSEMENTS OF
ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, ASSERTED AGAINST, OR
INCURRED BY THEM IN ANY WAY RELATING TO OR ARISING OUT OF THE LOAN DOCUMENTS
OR ANY ACTION TAKEN OR OMITTED BY THEM UNDER THE LOAN DOCUMENTS (INCLUDING
ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF ADMINISTRATIVE AGENT OR
ITS REPRESENTATIVES), TO THE EXTENT ANY AGENT AND ITS RESPECTIVE
REPRESENTATIVES ARE NOT REIMBURSED FOR SUCH AMOUNTS BY ANY COMPANY (PROVIDED
THAT NO AGENT NOR ANY OF ITS REPRESENTATIVES SHALL NOT HAVE THE RIGHT TO BE
INDEMNIFIED HEREUNDER FOR ITS OR THEIR OWN FRAUD, GROSS NEGLIGENCE, OR
WILLFUL MISCONDUCT).
13.6 DEFAULT. Upon the occurrence and continuance of a Default,
Lenders agree to promptly confer in order that Required Lenders or Lenders,
as the case may be, may agree upon a course of action for the enforcement of
the Rights of Lenders; and Administrative Agent shall be entitled to refrain
from taking any action (without incurring any liability to any Person for so
refraining) unless and until Administrative Agent shall have received
instructions from Required Lenders. All rights of action under this
Agreement and the other Loan Documents and all rights to any collateral, if
any, hereunder may be enforced by Administrative Agent and any suit or
proceeding instituted by Administrative Agent in furtherance of such
enforcement shall be brought in their respective names as Administrative
Agent without the necessity of joining as plaintiffs or defendants any other
Credit Party, and the recovery of any judgment shall be for the benefit of
the Credit Parties subject to the expenses of Administrative Agent. In
actions with respect to any property of any Company, Administrative Agent is
acting for the ratable benefit of each Credit Party. Any and all agreements
to subordinate (whether made heretofore or hereafter) other indebtedness or
obligations of any Company to the Obligation shall be construed as being for
the ratable benefit of each Credit Party.
13.7 LIMITATION OF LIABILITY. To the extent permitted by Law, (a) no
Agent (acting in its respective agent capacity) shall incur any liability to
any other Credit Party or Participant except for acts or omissions resulting
from its own fraud, gross negligence or wilful misconduct, and (b) no Credit
Party shall incur any liability to any other Person for any act or omission
of any other Credit Party or any Participant.
13.8 RELATIONSHIP OF LENDERS. Nothing herein shall be construed as
creating a partnership or joint venture among the Credit Parties.
13.9 BENEFITS OF AGREEMENT. Except for the representations and
covenants in SECTIONS 13.1(a), 13.1(b), and 13.1(d) in favor of Borrower,
none of the provisions of this SECTION 13 shall inure to the benefit
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of any Company or any other Person other than the Credit Parties;
consequently, no Company or any other Person shall be entitled to rely upon,
or to raise as a defense, in any manner whatsoever, the failure of any Credit
Party to comply with such provisions.
13.10 AGENTS. No Lender identified in this Agreement as "SYNDICATION
AGENT" or "LEAD ARRANGER" shall have any rights, powers, obligations,
liabilities, responsibilities, or duties under this Agreement other than
those applicable to all Lenders as such. Without limiting the foregoing, no
Lender so identified as a "SYNDICATION AGENT" or "LEAD ARRANGER" shall have
or be deemed to have any fiduciary relationship with any other Credit Party.
13.11 OBLIGATIONS SEVERAL. The obligations of Lenders hereunder are
several, and each Lender hereunder shall not be responsible for the
obligations of the other Lenders hereunder, nor will the failure of one
Lender to perform any of its obligations hereunder relieve the other Lenders
from the performance of their respective obligations hereunder.
SECTION 14 MISCELLANEOUS.
14.1 HEADINGS. The headings, captions, and arrangements used in any
of the Loan Documents are, unless specified otherwise, for convenience only
and shall not be deemed to limit, amplify, or modify the terms of the Loan
Documents, nor affect the meaning thereof.
14.2 NONBUSINESS DAYS. In any case where any payment or action is due
under any Loan Document on a day which is not a Business Day, such payment or
action may be delayed until the next-succeeding Business Day, but interest
and fees shall continue to accrue in respect of any payment to which it is
applicable until such payment is in fact made; PROVIDED THAT if, in the case
of any such payment in respect of a Eurodollar Borrowing, the next-succeeding
Business Day is in the next calendar month, then such payment shall be made
on the next-preceding Business Day.
14.3 COMMUNICATIONS. Unless specifically otherwise provided, whenever
any Loan Document requires or permits any consent, approval, notice, request,
or demand from one party to another, such communication must be in writing
(which may be by telex or telecopy) to be effective and shall be deemed to
have been given (a) if by telex, when transmitted to the telex number, if
any, for such party, and the appropriate answer back is received, (b) if by
telecopy, when transmitted to the telecopy number for such party (and all
such communications sent by telecopy shall be confirmed promptly thereafter
by personal delivery or mailing in accordance with the provisions of this
SECTION 14.3; PROVIDED THAT any requirement in this parenthetical shall not
affect the date on which such telecopy shall be deemed to have been
delivered), (c) if by mail, on the third (3rd) Business Day after it is
enclosed in an envelope, properly addressed to such party, properly stamped,
sealed, and deposited in the appropriate official postal service, or (d) if
by any other means, when actually delivered to such party. Until changed by
notice pursuant hereto, the address (and telex and telecopy numbers, if any)
for Borrower and each Credit Party is set forth on SCHEDULE 2.1.
14.4 FORM AND NUMBER OF DOCUMENTS. Each agreement, document,
instrument, or other writing to be furnished under any provision of this
Agreement must be in form and substance and in such number of counterparts as
may be reasonably satisfactory to Administrative Agent and its counsel.
14.5 CONFIDENTIALITY. Each Credit Party agrees to keep confidential any
information furnished or made available to it by Borrower pursuant to this
Agreement in accordance with its customary procedures
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for handling confidential information of this nature in accordance with safe
and sound banking or investment banking practices; PROVIDED THAT nothing
herein shall prevent any Credit Party from disclosing such information (a) to
any other Credit Party or any Affiliate of any Credit Party, or any officer,
director, employee, agent, or advisor of any Credit Party or Affiliate of any
Credit Party (PROVIDED THAT any such Affiliate shall be deemed to agree to
and shall be bound by the provisions of this SECTION 14.5), (b) to any other
Person if reasonably incidental to the administration of the credit facility
provided herein, (c) as required by any Law, (d) upon the order of any court
or administrative agency, (e) upon the request or demand of any regulatory
agency or authority, (f) that is or becomes available to the public or that
is or becomes available to any Credit Party other than as a result of a
disclosure by any Credit Party prohibited by this Agreement, (g) in
connection with any litigation to which such Credit Party or any of its
Affiliates may be a party, (h) to the extent necessary in connection with the
exercise of any remedy under this Agreement or any other Loan Document, and
(i) subject to provisions substantially similar to those contained in this
SECTION 14.5, to any actual or proposed Participant or assignee.
14.6 SURVIVAL. All covenants, agreements, undertakings,
representations, and warranties made in any of the Loan Documents shall
survive all closings under the Loan Documents and, except as otherwise
indicated, shall not be affected by any investigation made by any party.
Unless otherwise specifically stated, all rights of, and provisions relating
to, reimbursement and indemnification of any Credit Party shall survive
termination of this Agreement and payment in full of the Obligation.
14.7 GOVERNING LAW. THE LAWS OF THE STATE OF TEXAS AND OF THE UNITED
STATES OF AMERICA SHALL GOVERN THE RIGHTS AND DUTIES OF THE PARTIES TO THE
LOAN DOCUMENTS AND THE VALIDITY, CONSTRUCTION, ENFORCEMENT, AND
INTERPRETATION OF THE LOAN DOCUMENTS.
14.8 INVALID PROVISIONS. If any provision in any Loan Document is
held to be illegal, invalid, or unenforceable, then such provision shall be
fully severable; the appropriate Loan Document shall be construed and
enforced as if such provision had never comprised a part thereof; and the
remaining provisions thereof shall remain in full force and effect and shall
not be affected by such provision or by its severance therefrom. Each Credit
Party and each Company party to such Loan Document agree to negotiate, in
good faith, the terms of a replacement provision as similar to the severed
provision as may be possible and be legal, valid, and enforceable.
14.9 ENTIRETY. THE RIGHTS AND OBLIGATIONS OF THE COMPANIES AND THE
CREDIT PARTIES SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS, DOCUMENTS,
AND INSTRUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN SUCH PARTIES ARE
SUPERSEDED BY AND MERGED INTO SUCH WRITINGS. THIS AGREEMENT (AS AMENDED IN
WRITING FROM TIME TO TIME) AND THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED BY
ANY COMPANY AND/OR ANY CREDIT PARTY (TOGETHER WITH ALL COMMITMENT LETTERS AND
FEE LETTERS AS THEY RELATED TO THE PAYMENT OF FEES AFTER THE CLOSING DATE)
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
14.10 JURISDICTION; VENUE; SERVICE OF PROCESS; JURY TRIAL. EACH PARTY
HERETO, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY
(A) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS LOCATED IN DALLAS, TEXAS, AND
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AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL
PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE
OBLIGATION BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW, (B) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN ANY
SUCH COURT, (C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS ADDRESS SET FORTH HEREIN,
(E) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY HERETO
ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION
SHALL BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (F) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. The scope of each of
the foregoing waivers is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter
of this transaction, including, without limitation, contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims.
The Companies and each other party to this Agreement acknowledge that this
waiver is a material inducement to the agreement of each party hereto to
enter into a business relationship, that each has already relied on this
waiver in entering into this Agreement, and each will continue to rely on
each of such waivers in related future dealings. The Companies and each
other party to this Agreement warrant and represent that they have reviewed
these waivers with their legal counsel, and that they knowingly and
voluntarily agree to each such waiver following consultation with legal
counsel. THE WAIVERS IN THIS SECTION 14.10 ARE IRREVOCABLE, MEANING THAT
THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THESE WAIVERS SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND REPLACEMENTS TO OR OF
THIS OR ANY OTHER LOAN DOCUMENT. In the event of Litigation, this Agreement
may be filed as a written consent to a trial by the court.
14.11 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS.
(a) Except as otherwise specifically provided, (i) this Agreement may
only be amended, modified or waived by an instrument in writing executed
jointly by Borrower and Required Lenders, and, in the case of any matter
affecting Administrative Agent (except removal of Administrative Agent as
provided in SECTION 13) by Administrative Agent, and may only be supplemented
by documents delivered or to be delivered in accordance with the express
terms hereof, and (ii) the other Loan Documents may only be the subject of an
amendment, modification, or waiver if Borrower and Required Lenders, and, in
the case of any matter affecting Administrative Agent (except as set forth
above), Administrative Agent, have approved same.
(b) Any amendment to or consent or waiver under this Agreement or any
Loan Document which purports to accomplish any of the following must be by an
instrument in writing executed by Borrower and executed (or approved, as the
case may be) by each Lender affected thereby, and, in the case of any matter
affecting Administrative Agent, by Administrative Agent: (i) extends the due
date or reduces the amount of any scheduled payment of the Obligation or any
scheduled reduction of the Total Commitment beyond the date specified in the
Loan Documents; (ii) reduces the interest rate or decreases the amount of
interest, fees, or other sums payable to the Credit Parties hereunder (except
such reductions as are contemplated by this
59
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Agreement and reductions in the interest rate as a result of the waiver of
the payment of interest at the Default Rate); (iii) changes the definition of
"APPLICABLE MARGIN" (other than changes having the effect of increasing such
Applicable Margin) or "TOTAL COMMITMENT;" or (iv) changes this CLAUSE (b).
Without the consent of such Lender, no Lender's "COMMITTED SUM" may be
increased.
(c) Any amendment to or consent or waiver under this Agreement or any
Loan Document which purports to accomplish any of the following must be by an
instrument in writing executed by Borrower and executed (or approved, as the
case may be) by each Lender, and, in the case of any matter affecting
Administrative Agent, by Administrative Agent: (i) changes the definition of
"PRO RATA," "PRO RATA PART," "REQUIRED LENDERS," or "TERMINATION DATE;" (ii)
except as otherwise permitted by any Loan Document, waives compliance with,
amends, or releases (in whole or in part) any Guaranty or releases (in whole
or in part) or waives the requirement to provide any Guaranty or any
collateral, if any, for the Obligation except to the extent expressly
permitted herein or in any other Loan Document; (iii) changes this CLAUSE (c)
or any other matter specifically requiring the consent of all Lenders
hereunder; or (iv) subordinates any of the Obligation to any other Debt of
the Companies. Without the consent of such Lender, no Lender's "COMMITTED
SUM" may be increased.
(d) Any conflict or ambiguity between the terms and provisions herein
and terms and provisions in any other Loan Document shall be controlled by
the terms and provisions herein.
(e) No course of dealing nor any failure or delay by any Credit Party
or any of its Representatives with respect to exercising any Right of any
Credit Party hereunder shall operate as a waiver thereof. A waiver must be
in writing and signed by Administrative Agent and Required Lenders (or by all
Lenders, if required hereunder) to be effective, and such waiver will be
effective only in the specific instance and for the specific purpose for
which it is given.
(f) Notwithstanding the foregoing, any increase in the interest rate
or amount of interest, fees, or other sums payable to the Credit Parties may
be agreed to by Administrative Agent and Borrower without the prior written
consent of any Lender.
14.12 MULTIPLE COUNTERPARTS. This Agreement may be executed in a
number of identical counterparts, each of which shall be deemed an original
for all purposes and all of which constitute, collectively, one agreement;
but, in making proof of this Agreement, it shall not be necessary to produce
or account for more than one such counterpart. It is not necessary that each
Lender execute the same counterpart so long as identical counterparts are
executed by Borrower, each Lender, and Administrative Agent. This Agreement
shall become effective when counterparts hereof shall have been executed and
delivered to Administrative Agent by each Lender, Administrative Agent, and
Borrower, or, when Administrative Agent shall have received telecopied,
telexed, or other evidence satisfactory to it that such party has executed
and is delivering to Administrative Agent a counterpart hereof.
14.13 SUCCESSORS AND ASSIGNS; ASSIGNMENTS AND PARTICIPATIONS.
(a) This Agreement shall be binding upon, and inure to the benefit of
the parties hereto and their respective successors and assigns, except that
(i) Borrower may not, directly or indirectly, assign or transfer, or attempt to
assign or transfer, any of its Rights, duties or obligations under any Loan
Documents without the express written consent of all Lenders, and (ii) except as
permitted under this SECTION 14.13, no Lender
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may transfer, pledge, assign, sell any participation in, or otherwise
encumber its portion of the Obligation.
(b) Each Lender may assign to one or more Eligible Assignees all or a
portion of its Rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, all or a portion of its Borrowings
and its Notes, if any); PROVIDED, HOWEVER, that:
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender or an
assignment of all of a Lender's Rights and obligations under this
Agreement and the other Loan Documents, any such partial assignment shall
be in an amount at least equal to $5,000,000, but, in no event less than
$1,000,000;
(iii) each such assignment by a Lender shall be of a constant, and
not varying, percentage of all of its Rights and obligations under this
Agreement;
(iv) the parties to such assignment shall execute and deliver to
Administrative Agent for its acceptance (such acceptance not to be
unreasonably withheld) an Assignment and Acceptance Agreement in the form
of EXHIBIT F hereto, together with any Notes subject to such assignment
and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and Acceptance
Agreement, the assignee thereunder shall be a party hereto and, to the extent
of such assignment, have the obligations, Rights, and benefits of a Lender
under the Loan Documents and the assigning Lender shall, to the extent of
such assignment, relinquish its rights and be released from its obligations
under the Loan Documents. Upon the consummation of any assignment pursuant
to this SECTION, but only upon the request of the assignor or assignee made
through Administrative Agent, Borrower shall issue appropriate Notes upon
request to the assignor and the assignee, reflecting such Assignment and
Acceptance. If the assignee is not incorporated under the laws of the United
States of America or a state thereof, then it shall deliver to Borrower and
Administrative Agent certification as to exemption from deduction or
withholding of Taxes in accordance with SECTION 4.6(d).
(c) Administrative Agent shall maintain at its address referred to in
SECTION 14.3 a copy of each Assignment and Acceptance Agreement delivered to
and accepted by it and a register for the recordation of the names and
addresses of Lenders and the Commitment, and principal amount of the
Borrowings owing to, each Lender from time to time (the "REGISTER"). The
entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and Borrower, Administrative Agent and Lenders may
treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of the Loan Documents. The Register shall be
available for inspection by Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice. Upon the consummation of any
assignment in accordance with this SECTION 14.13, SCHEDULE 2.1 shall
automatically be deemed amended (to the extent required) by Administrative
Agent to reflect the name, address, and respective Committed Sums of the
assignor and assignee.
(d) Upon its receipt of an Assignment and Acceptance Agreement executed
by the parties thereto, together with any Notes, if any, subject to such
assignment and payment of the processing fee,
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Administrative Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of EXHIBIT F hereto, (i) accept
such Assignment and Acceptance Agreement, (ii) record the information
contained therein in the Register, and (iii) give prompt notice thereof to
the parties thereto.
(e) Subject to the provisions of this SECTION and in accordance with
applicable Law, any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable Law, at any time sell to
one or more Persons (each a "PARTICIPANT") participating interests in its
portion of the Obligation. In the event of any such sale to a Participant,
(i) such Lender shall remain a "LENDER" under this Agreement and the
Participant shall not constitute a "LENDER" hereunder, (ii) such Lender's
obligations under this Agreement shall remain unchanged, (iii) such Lender
shall remain solely responsible for the performance thereof, (iv) such Lender
shall remain the holder of its share of the Principal Debt for all purposes
under this Agreement, (v) Borrower and Administrative Agent shall continue to
deal solely and directly with such Lender in connection with such Lender's
Rights and obligations under the Loan Documents, and (vi) such Lender shall
be solely responsible for any withholding taxes or any filing or reporting
requirements relating to such participation and shall hold Borrower and
Administrative Agent and their respective successors, permitted assigns,
officers, directors, employees, agents, and representatives harmless against
the same. Participants shall have no Rights under the Loan Documents, other
than certain voting Rights as provided below. Subject to the following, each
Lender shall be entitled to obtain (on behalf of its Participants) the
benefits of SECTION 4 with respect to all participations in its part of the
Obligation outstanding from time to time so long as Borrower shall not be
obligated to pay any amount in excess of the amount that would be due to such
Lender under SECTION 4 calculated as though no participations have been made.
No Lender shall sell any participating interest under which the Participant
shall have any Rights to approve any amendment, modification, or waiver of
any Loan Document, except to the extent such amendment, modification, or
waiver extends the due date for payment of any amount in respect of principal
(other than mandatory prepayments), interest, or fees due under the Loan
Documents, reduces the interest rate or the amount of principal or fees
applicable to the Obligation (except such reductions as are contemplated by
this Agreement), or releases any material Guaranty or all or any substantial
portion of any collateral, if any, for the Obligation under the Loan
Documents (except such releases as are contemplated by this Agreement);
PROVIDED THAT in those cases where a Participant is entitled to the benefits
of SECTION 4 or a Lender grants Rights to its Participants to approve
amendments to or waivers of the Loan Documents respecting the matters
previously described in this sentence, such Lender must include a voting
mechanism in the relevant participation agreement or agreements, as the case
may be, whereby a majority of such Lender's portion of the Obligation
(whether held by such Lender or Participant) shall control the vote for all
of such Lender's portion of the Obligation. Except in the case of the sale
of a participating interest to another Lender, the relevant participation
agreement shall not permit the Participant to transfer, pledge, assign, sell
participations in, or otherwise encumber its portion of the Obligation,
unless the consent of the transferring Lender (which consent will not be
unreasonably withheld) has been obtained.
(f) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time assign and pledge all or any portion of its
Borrowings and any Notes to any Federal Reserve Bank as collateral security
pursuant to REGULATION A and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Lender from its
obligations hereunder.
(g) Any Lender may furnish any information concerning the Companies
in the possession of such Lender from time to time to Eligible Assignees and
Participants (including prospective Eligible Assignees and Participants).
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14.14 DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. The obligations of each Company under the Loan Documents
shall remain in full force and effect until termination of the Total
Commitment and payment in full of the Principal Debt and of all interest,
fees, and other amounts of the Obligation then due and owing, (and
termination of all outstanding LCs with any Lender, if any, UNLESS such
Lender shall otherwise consent) EXCEPT that the indemnification and payment
obligations set forth in SECTIONS 4, 12, and 14, and any other provisions
under the Loan Documents expressly intended to survive by the terms hereof or
by the terms of the applicable Loan Documents, shall survive such
termination. If at any time any payment of the Obligation is rescinded or
must be otherwise restored or returned upon the insolvency, bankruptcy, or
reorganization of any Company or otherwise, then the obligations of each
Company under the Loan Documents with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
14.15 DESIGNATED SENIOR INDEBTEDNESS. Borrower hereby designates the
Obligation (and all Borrowings comprising the Obligation) as "DESIGNATED
SENIOR INDEBTEDNESS" for purposes of the Senior Subordinated Note Indenture.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.]
63
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
EXECUTED as of the day and year first above written.
PROTECTION ONE ALARM MONITORING INC., a
Delaware corporation, as Borrower
By: /s/ Montgomery W. Cornell
----------------------------------
Name: Montgomery W. Cornell
Title: Chief Financial Officer and
Secretary
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
NATIONSBANK, N.A.,
as Adminstrative Agent and a Lender
By: Curtis L. Anderson
----------------------------------
Name: Curtis L. Anderson
Title: Senior Vice President
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
FIRST UNION NATIONAL BANK,
as Syndication Agent and a Lender
By: /s/ Michael J. Kolosowsky
----------------------------------
Name: Michael J. Kolosowsky
Title: Vice President
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
TORONTO DOMINION (TEXAS), INC.,
as Documentation Agent and a Lender
By: /s/ Sonja R. Jordan
----------------------------------
Name: Sonja R. Jordan
Title: Vice President
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
CHASE MANHATTAN BANK,
as a Lender
By: /s/ Paul V. Farrell
----------------------------------
Name: Paul V. Farrell
Title: Vice President
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender
By: /s/ George A. Schanz
----------------------------------
Name: George A. Schanz
Title: First Vice President
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
GUARANTY FEDERAL BANK, F.S.B.,
as a Lender
By: /s/ Robert S. Hays
----------------------------------
Name: Robert S. Hays
Title: Vice President
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
MERITA BANK PLC,
as a Lender
By: /s/ Charles J. Lansdown
----------------------------------
Name: Charles J. Lansdown
Title: Vice President
By: /s/ Frank Maffei
----------------------------------
Name: Frank Maffei
Title: Vice President
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
MORGAN STANLEY SENIOR FUNDING, INC.,
as a Lender
By: /s/ Michael Hart
----------------------------------
Name: Michael Hart
Title: Principal
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
UBS AG, STAMFORD BRANCH,
as a Lender
By: /s/ Paul R. Morrison
----------------------------------
Name: Paul R. Morrison
Title: Director
By: /s/ Andrew N. Taylor
----------------------------------
Name: Andrew N. Taylor
Title: Associate Director
<PAGE>
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH,
as a Lender
By: /s/ Duncan M. Robertson
----------------------------------
Name: Duncan M. Robertson
Title: Vice President
By: /s/ Lisa Walker
----------------------------------
Name: Lisa Walker
Title: Vice President
<PAGE>
FIRST AMENDMENT OF CREDIT AGREEMENT
THIS FIRST AMENDMENT OF CREDIT AGREEMENT (this "AMENDMENT") is entered into
to be effective as of February 26, 1999, between PROTECTION ONE ALARM
MONITORING, INC., a Delaware corporation ("BORROWER"), each of the banks or
other lending institutions which is a signatory to this Amendment (collectively,
"LENDERS"), NATIONSBANK, N.A., a national banking association, as Administrative
Agent for the Lenders (in such capacity, together with its successors in such
capacity, "ADMINISTRATIVE AGENT"), FIRST UNION NATIONAL BANK, a national banking
association, as Syndication Agent (in such capacity, together with its
successors in such capacity, "SYNDICATION AGENT"), and TORONTO DOMINION (TEXAS),
INC., as Documentation Agent (in such capacity, together with its successors in
such capacity, "DOCUMENTATION AGENT").
R E C I T A L S
A. Borrower, Lenders, Administrative Agent, Syndication Agent, and
Documentation Agent are parties to the Credit Agreement dated as of December 21,
1998 (as renewed, extended, modified, and amended from time to time, the "CREDIT
AGREEMENT"), providing for a $500,000,000 line of credit.
B. Capitalized terms used herein shall, unless otherwise indicated, have
the respective meanings set forth in the Credit Agreement.
C. Borrower, Lenders, Administrative Agent, Syndication Agent, and
Documentation Agent desire to modify certain provisions contained in the Credit
Agreement, subject to the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower, Lenders, Administrative
Agent, Syndication Agent, and Documentation Agent agree as follows:
1. AMENDMENTS TO THE CREDIT AGREEMENT.
(a) SECTION 1.1 is hereby amended to add the following definitions:
DOLLAR-EQUIVALENT, at any time, means, (a) any amount denominated in
Dollars, and (b) for any amount denominated in a Foreign Currency, an
amount of Dollars into which Administrative Agent determines that it could
convert the relevant amount of that Foreign Currency by using the
applicable-quoted-spot rate reported on the appropriate page of the Reuters
Screen at 11:00 a.m. (London time) three (3) Business Days before the day
on which the calculation is made.
FOREIGN CURRENCY means any freely-convertible lawful currency
acceptable to Administrative Agent, so long as (a) such currency is dealt
with in the London interbank deposit market, (b) such currency is freely
transferable and convertible into Dollars in the London foreign exchange
market, and (c) no central bank or other governmental authorization in the
country of issue of such currency is required to permit use of such
currency by Administrative Agent for issuing LCs or honoring drafts
presented under LCs in such currency; PROVIDED THAT if, after the issuance
of an LC in a Foreign Currency, the Foreign Currency denominated in such LC
ceases to be lawful currency freely-convertible into Dollars and is
replaced by a European single or common currency (the "EURO"), then
thereafter the Foreign Currency for purposes of such LC shall be the Euro.
<PAGE>
(b) SECTION 1.1 is hereby amended to delete the definition of "LC
Exposure" in its entirety and replace such definition with the following:
LC EXPOSURE means, at any time and without duplication, the SUM
of (a) the Dollar Equivalent of the aggregate undrawn portion of all
uncanceled and unexpired LCs, PLUS (b) the Dollar Equivalent of the
aggregate unpaid reimbursement obligations of Borrower in respect of
drawings of drafts under any LC; PROVIDED THAT LC Exposure shall
exclude the Dollar Equivalent of the aggregate undrawn portion of any
uncanceled or unexpired LCs that have been cash collateralized or for
which back-up letters of credit have been provided pursuant to
SECTION 2.2.
(c) SECTION 2.2 is hereby deleted in its entirety and replaced with the
following:
2.2 LC SUBFACILITY.
(a) CONDITIONS. Subject to the terms and conditions of this
Agreement and applicable Law, Administrative Agent agrees to issue LCs upon
Borrower's application therefor (denominated in Dollars or, upon Borrower's
request and subject to this SECTION 2.2, in a Foreign Currency) by
delivering to Administrative Agent a properly completed Notice of LC and an
LC Agreement with respect thereto no later than 10:00 a.m. Dallas, Texas
time three (3) Business Days before such LC is to be issued; PROVIDED THAT
(i) on any date of determination and after giving effect to any LC to be
issued on such date, the Commitment Usage (calculated at the then-current
Dollar-Equivalent of such amount) shall never exceed the Total Commitment
then in effect, (ii) on any date of determination and after giving effect
to any LC to be issued on such date, the LC Exposure (calculated at the
then-current Dollar-Equivalent of such amount) shall never exceed
$25,000,000, (iii) at the time of issuance of such LC, no Potential Default
or Default shall exist, (iv) each LC requested by Borrower must be in an
amount not less than $1,000,000 (or, in the case of an LC denominated in a
Foreign Currency, the Dollar Equivalent of $1,000,000), and (v) each LC
must expire NO LATER than the EARLIER of the fifteenth (15th) day prior to
the Termination Date or one (1) year from its issuance; PROVIDED THAT any
LC may provide for automatic renewal for successive twelve (12) month
periods (but no renewal period may extend beyond the fifteenth (15th) day
prior to the Termination Date) unless Administrative Agent has given prior
notice to the applicable beneficiary of its election not to extend such LC.
(b) PARTICIPATION. Immediately upon the issuance by Administrative
Agent of any LC, Administrative Agent shall be deemed to have sold and
transferred to each other Lender, and each other such Lender shall be
deemed irrevocably and unconditionally to have purchased and received from
Administrative Agent, without recourse or warranty, an undivided interest
and participation, to the extent of such Lender's Pro Rata Part, in such LC
(calculated from time to time at the Dollar-Equivalent of such LC), and all
Rights of Administrative Agent in respect thereof (OTHER THAN Rights to
receive certain fees provided for in SECTION 2.2(c)). Upon the issuance,
renewal, or extension of an LC, Administrative Agent shall provide copies
of such LC to each other Lender.
(c) REIMBURSEMENT OBLIGATION. In order to induce Administrative
Agent to issue and maintain LCs and Lenders to participate therein,
Borrower agrees to pay or reimburse Administrative Agent (i) on the date on
which Administrative Agent notifies Borrower of the date and amount of any
draft presented under any LC, the amount in Dollars (calculated at the
then-current Dollar-
-2-
<PAGE>
Equivalent of such amount) of any draft paid or to be paid by
Administrative Agent, and (ii) promptly, upon demand, the amount of
any fees (in addition to the fees described in SECTION 5) which
Administrative Agent customarily charges to a Person similarly situated in
the ordinary course of its business for amending LC Agreements, for
honoring drafts, and taking similar action in connection with letters of
credit; PROVIDED THAT (A) if Borrower has not reimbursed Administrative
Agent for any drafts paid or to be paid within twenty-four (24) hours of
demand therefor by Administrative Agent, then Administrative Agent is
hereby irrevocably authorized to fund such reimbursement obligations in
Dollars (calculated at the then-current Dollar-Equivalent of such amount)
as a Borrowing under the Facility to the extent of availability under the
Facility, and the proceeds of such Borrowing under the Facility shall be
advanced directly to Administrative Agent in payment of Borrower's
reimbursement obligation with respect to the draft under the LC, and (B) if
for any reason, funds are not advanced pursuant to the Facility, then
Borrower's reimbursement obligation shall continue to be due and payable.
Borrower's obligations under this SECTION 2.2(c) shall be absolute and
unconditional under any and all circumstances and irrespective of any
setoff, counterclaim, or defense to payment which Borrower may have at any
time against Administrative Agent (except to the extent resulting from the
gross negligence or willful misconduct of Administrative Agent) or any
other Person, and shall be made in accordance with the terms and conditions
of this Agreement under all circumstances, including, without limitation,
any of the following circumstances: (1) any lack of validity or
enforceability of this Agreement or any of the Loan Documents; (2) the
existence of any claim, setoff, defense, or other Right which Borrower may
have at any time against a beneficiary named in a LC, any transferee of any
LC (or any Person for whom any such transferee may be acting), any Credit
Party (except to the extent resulting from the gross negligence or willful
misconduct of such Credit Party), or any other Person, whether in
connection with this Agreement, any LC, the transactions contemplated
herein, or any unrelated transactions (including any underlying transaction
between Borrower and the beneficiary named in any such LC); (3) any draft,
certificate, or any other document presented under the LC proving to be
forged, fraudulent, invalid, or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; and (4) the
occurrence of any Potential Default or Default. To the extent any funding
of a draft has been made by Lenders pursuant to SECTION 2.2(e) or under the
Facility, Administrative Agent shall promptly distribute any such payments
received from Borrower with respect to such draft to all Lenders funding
such draft according to their Pro Rata Part. Interest on any amounts
remaining unpaid by Borrower (and unfunded by a Borrowing under the
Facility) under this CLAUSE at any time from and after the date such
amounts become payable until paid in full shall be payable by Borrower to
Administrative Agent at the Default Rate. In the event any payment by
Borrower received by Administrative Agent with respect to an LC and
distributed to Lenders on account of their participations therein is
thereafter set aside, avoided, or recovered from Administrative Agent in
connection with any receivership, liquidation, or bankruptcy proceeding,
each Lender which received such distribution shall, upon demand by
Administrative Agent, contribute to Administrative Agent such Lender's
ratable portion of the amount (calculated at the then-current
Dollar-Equivalent of such amount) set aside, avoided, or recovered,
together with interest at the rate required to be paid by Administrative
Agent upon the amount required to be repaid by it.
(d) GENERAL. If any draft shall be presented for honor under any
LC, then Administrative Agent shall promptly notify Borrower of the date
and amount (calculated at the then-current Dollar-Equivalent of such
amount) of such draft; PROVIDED THAT failure to give any such notice shall
not affect the obligations of Borrower hereunder. Administrative Agent
shall make payment upon presentment of a draft for honor unless it appears
that presentment on its face does not comply
-3-
<PAGE>
with the terms of such LC, regardless of whether (i) any default or
potential default under any other agreement has occurred, and
(ii) the obligations under any other agreement have been performed
by the beneficiary or any other Person (and Administrative Agent
shall not be liable for any obligation of any Person thereunder).
The Credit Parties shall not be responsible for, and Borrower's
reimbursement obligations for honored drafts shall not be affected
by, any matter or event whatsoever (including, without limitation,
the validity or genuineness of documents or of any endorsements thereof,
even if such documents should in fact prove to be in any respect invalid,
fraudulent, or forged), or any dispute among any Company, the beneficiary
of any LC, or any other Person to whom any LC may be transferred, or any
claims whatsoever of any Company against any beneficiary of any LC or any
such transferee; PROVIDED THAT nothing in this Agreement shall constitute a
waiver of Borrower's Rights to assert any claim based upon the gross
negligence or wilful misconduct of any Credit Party.
(e) OBLIGATION OF LENDERS. If Borrower fails to reimburse
Administrative Agent as provided in SECTION 2.2(c) within twenty-four
(24) hours after receiving notice of a draft pursuant to SECTION 2.2(d),
then Administrative Agent shall promptly notify each Lender of such
failure, of the date and amount (calculated at the then-current
Dollar-Equivalent of such amount) of the draft paid, and of such Lender's
Pro Rata Part thereof. Each Lender shall promptly and unconditionally make
available to Administrative Agent in immediately available funds such
Lender's Pro Rata Part of such unpaid reimbursement obligation (calculated
at the then-current Dollar-Equivalent of such amount), which funds shall be
paid to Administrative Agent on or before the close of business on the
Business Day on which such notice was given by Administrative Agent (if
given at or prior to 1:00 p.m., Dallas, Texas time) or on the next
succeeding Business Day (if notice was given after 1:00 p.m., Dallas, Texas
time). All such amounts payable by any such Lender shall include interest
thereon accruing at the Federal Funds Rate from the day the applicable
draft is paid by Administrative Agent to (but not including) the date such
amount is paid by such Lender to Administrative Agent. The obligations of
Lenders to make payments to Administrative Agent with respect to LCs shall
be irrevocable and are not subject to any qualification or exception
whatsoever (other than the gross negligence or wilful misconduct of
Administrative Agent) and shall be made in accordance with the terms and
conditions of this Agreement under all circumstances, including, without
limitation, any of the following circumstances: (i) any lack of validity or
enforceability of this Agreement or any of the Loan Documents; (ii) the
existence of any claim, setoff, defense, or other Right which Borrower may
have at any time against a beneficiary named in a LC, any transferee of any
LC (or any Person for whom any such transferee may be acting), any Credit
Party, or any other Person, whether in connection with this Agreement, any
LC, the transactions contemplated herein, or any unrelated transactions
(including any underlying transaction between Borrower and the beneficiary
named in any such LC); (iii) any draft, certificate, or any other document
presented under the LC proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; and (iv) the occurrence of any Potential Default
or Default.
(f) DELIVERY AND CANCELLATION. Borrower acknowledges that each LC
will be deemed issued upon delivery to its beneficiary or Borrower. If
Borrower requests any LC be delivered to Borrower rather than the
beneficiary, and Borrower subsequently cancels such LC, then Borrower
agrees to return it to Administrative Agent together with Borrower's
written certification that it has never been delivered to such beneficiary.
If any LC is delivered to its beneficiary pursuant to Borrower's
instructions, then no cancellation thereof by Borrower shall be effective
without written consent of such beneficiary to Administrative Agent and the
return of such LC to Administrative
-4-
<PAGE>
Agent. Borrower hereby agrees that if Administrative Agent becomes
involved in any dispute as a result of Borrower's cancellation of any LC,
then it shall indemnify the Credit Parties for all losses, costs,
damages, expenses, and reasonable attorneys' fees suffered or incurred
by the Credit Parties as a direct result thereof.
(g) DUTIES OF ADMINISTRATIVE AGENT. Administrative Agent agrees
with each Lender that it will exercise and give the same care and attention
to each LC as it gives to its other letters of credit, and Administrative
Agent's sole liability to each Lender with respect to such LCs (OTHER THAN
liability arising from the gross negligence or willful misconduct of
Administrative Agent) shall be to distribute promptly to each Lender who
has acquired a participating interest therein such Lender's ratable portion
of any payments made to Administrative Agent by Borrower pursuant to
SECTION 2.2(c). Each Lender and Borrower agree that, in paying any draw
under any LC, Administrative Agent shall not have any responsibility to
obtain any document (OTHER THAN any documents required by the respective
LC) or to ascertain or inquire as to the validity or accuracy of any such
document or the authority of the Person delivering any such document. The
Credit Parties and their respective Representatives shall not be liable to
any other Credit Party or any Obligor for the use which may be made of any
LC or for any acts or omissions of any beneficiary thereof in connection
therewith. Any action, inaction, error, delay, or omission taken or
suffered by Administrative Agent or any of its Representatives under or in
connection with any LC, the draws, drafts, or documents relating thereto,
or the transmission, dispatch, or delivery of any message or advice related
thereto, if in good faith and in conformity with such Laws as
Administrative Agent or any of its Representatives may deem applicable and
in accordance with the standards of care specified in the UNIFORM CUSTOMS
AND PRACTICE FOR DOCUMENTARY CREDITS issued by the International Chamber of
Commerce, as in effect on the date of issue of such LC, shall be binding
upon Obligors and the Credit Parties and shall not place Administrative
Agent or any of its Representatives under any resulting liability to any
Credit Party or any Obligor. Any action taken or omitted to be taken by
Administrative Agent under or in connection with any LC if taken or omitted
in the absence of gross negligence or wilful misconduct shall not create
for Administrative Agent any resulting liability to any Credit Party or any
Obligor.
(h) CASH COLLATERAL. On the Termination Date or upon any demand
from time to time by Administrative Agent or the Required Lenders at any
time while a Default exists, Borrower shall provide to Administrative
Agent, for the benefit of Lenders, either (i) cash collateral, or
(ii) back-up letters of credit reasonably acceptable to Administrative
Agent, in an aggregate amount equal to one hundred percent (100%) of the LC
Exposure (calculated at the then-current Dollar-Equivalent of such amount)
existing on the date of such demand. Such cash (and all interest thereon)
and letters of credit shall constitute collateral for all LCs. Any cash
collateral deposited, and all interest earned thereon, shall be held by
Administrative Agent and invested and reinvested at the expense and the
written direction of Borrower, in United States Treasury Bills with
maturities of no more than ninety (90) days from the date of investment.
In the absence of any such direction from Borrower, Administrative Agent
shall invest the funds held in the cash collateral account (so long as the
aggregate amount of such funds exceeds any relevant minimum investment
requirement) in one or more types of investments with such maturities as
Administrative Agent may specify, pending application of such funds on
account of any other Obligation, as the case may be. All such investments
shall be made in Administrative Agent's name for the account of the Credit
Parties, subject to the ownership interest therein of Borrower.
Administrative Agent may liquidate any investment held in the cash
collateral account in order to apply the proceeds of such investment on
account of any of the Obligation if such Obligation is then due and payable
without regard to whether
-5-
<PAGE>
such investment has matured and without liability for any penalty or other
fee incurred (with respect to which Borrower hereby agrees to reimburse
Administrative Agent) as a result of such application.
(i) INDEMNIFICATION. IN ADDITION TO AMOUNTS PAYABLE AS ELSEWHERE
PROVIDED IN THIS AGREEMENT, BORROWER HEREBY AGREES TO PROTECT, INDEMNIFY,
PAY, AND SAVE EACH CREDIT PARTY HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, DEMANDS, LIABILITIES, DAMAGES, OR LOSSES OF, OR OWED TO THIRD
PARTIES, AND ANY AND ALL RELATED COSTS, CHARGES, AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES), WHICH ANY CREDIT PARTY MAY INCUR OR BE SUBJECT
TO AS A CONSEQUENCE, DIRECT OR INDIRECT, OF (A) THE ISSUANCE OF ANY LC, OR
(B) THE FAILURE OF ADMINISTRATIVE AGENT TO HONOR A DRAFT UNDER SUCH LC AS A
RESULT OF ANY ACT OR OMISSION, WHETHER RIGHTFUL OR WRONGFUL, OF ANY PRESENT
OR FUTURE GOVERNMENTAL AUTHORITY; PROVIDED THAT BORROWER SHALL HAVE NO
LIABILITY TO INDEMNIFY ANY CREDIT PARTY IN RESPECT OF ANY LIABILITY ARISING
OUT OF THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH PARTY OR ANY
REPRESENTATIVES OF SUCH PARTY. THE PROVISIONS OF AND UNDERTAKINGS AND
INDEMNIFICATIONS SET FORTH IN THIS SECTION 2.2(i) SHALL SURVIVE THE
SATISFACTION AND PAYMENT OF THE OBLIGATION AND TERMINATION OF THIS
AGREEMENT.
(j) LC AGREEMENTS. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not in any
manner incorporated herein. Drafts under any LC shall be deemed part of
the Obligation. In the event of any conflict or inconsistency between the
terms of this Agreement and any LC Agreement, the terms of this Agreement
shall be controlling.
2. AMENDMENT OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS.
(a) All references in the Loan Documents to the Credit Agreement shall
henceforth include references to the Credit Agreement as modified and amended by
this Amendment, and as may, from time to time, be further modified, amended,
restated, extended, renewed, and/or increased.
(b) Any and all of the terms and provisions of the Loan Documents are
hereby amended and modified wherever necessary, even though not specifically
addressed herein, so as to conform to the amendments and modifications set forth
herein.
3. RATIFICATIONS. Borrower (a) ratifies and confirms all provisions of
the Loan Documents as amended by this Amendment, (b) ratifies and confirms that
all guaranties, assurances, and Liens, if any, granted, conveyed, or assigned to
the Credit Parties under the Loan Documents are not released, reduced, or
otherwise adversely affected by this Amendment and continue to guarantee,
assure, and secure full payment and performance of the present and future
Obligation, and (c) agrees to perform such acts and duly authorize, execute,
acknowledge, deliver, file, and record such additional documents, and
certificates as the Credit Parties may reasonably request in order to create,
perfect, preserve, and protect those guaranties, assurances, and Liens.
4. REPRESENTATIONS. Borrower represents and warrants to the Credit
Parties that as of the date of this Amendment: (a) this Amendment and the other
documents executed in connection therewith (collectively, the "AMENDMENT
DOCUMENTS") have been duly authorized, executed, and delivered by Borrower and
each of the other Obligors that are parties to the Amendment Documents; (b) no
action of, or filing with, any Governmental Authority is required to authorize,
or is otherwise required in connection with, the execution, delivery, and
performance by Borrower or any other Obligor of the Amendment Documents;
-6-
<PAGE>
(c) the Loan Documents, as amended by the Amendment Documents, are valid and
binding upon Borrower and the other Obligors and are enforceable against
Borrower and the other Obligors in accordance with their respective terms,
except as limited by Debtor Relief Laws and general principles of equity; (d)
the execution, delivery, and performance by Borrower and the other Obligors
of the Amendment Documents do not require the consent of any other Person and
do not and will not constitute a violation of any Governmental Requirement,
order of any Governmental Authority, or material agreements to which Borrower
or any other Obligor is a party thereto or by which Borrower or any other
Obligor is bound; (e) all representations and warranties in the Loan
Documents are true and correct in all material respects on and as of the date
of this Amendment, except to the extent that (i) any of them speak to a
different specific date, or (ii) the facts on which any of them were based
have been changed by transactions contemplated or permitted by the Credit
Agreement; and (f) both before and after giving effect to the Amendment
Documents, no Potential Default or Default exists.
5. CONDITIONS. This Amendment and the other Amendment Documents shall
not be effective unless and until:
(a) the Credit Parties shall have received the Amendment Documents, in
form and substance acceptable to Administrative Agent;
(b) the representations and warranties in this Amendment are true and
correct in all material respects on and as of the date of this Amendment, except
to the extent that (i) any of them speak to a different specific date, or (ii)
the facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement; and
(c) both before and after giving effect to this Amendment, no Potential
Default or Default exists.
6. CONTINUED EFFECT. Except to the extent amended hereby or by any
documents executed in connection herewith, all terms, provisions, and conditions
of the Credit Agreement and the other Loan Documents, and all documents executed
in connection therewith, shall continue in full force and effect and shall
remain enforceable and binding in accordance with their respective terms.
7. MISCELLANEOUS. Unless stated otherwise (a) the singular number
includes the plural and VICE VERSA and words of any gender include each other
gender, in each case, as appropriate, (b) headings and captions may not be
construed in interpreting provisions, (c) this Amendment shall be construed --
and its performance enforced -- under Texas law, (d) if any part of this
Amendment is for any reason found to be unenforceable, all other portions of it
nevertheless remain enforceable, and (e) this Amendment may be executed in any
number of counterparts with the same effect as if all signatories had signed the
same document, and all of those counterparts must be construed together to
constitute the same document.
8. PARTIES. This Amendment binds and inures to Borrower and the Credit
Parties and their respective successors and permitted assigns.
9. ENTIRETIES. THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS
AMENDED BY THIS AMENDMENT AND THE OTHER AMENDMENT DOCUMENTS, REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF THE CREDIT AGREEMENT
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
-7-
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGES TO FOLLOW.]
-8-
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
EXECUTED as of the day and year first above written.
PROTECTION ONE ALARM MONITORING INC., a Delaware
corporation, as Borrower
By: /s/ John E. Mackett
-------------------------------------------
Name: John E. Mackett
-------------------------------------
Title: Executive Vice President
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
NATIONSBANK, N.A.,
as Administrative Agent and a Lender
By: /s/ Curtis E. Anderson
-------------------------------------------
Name: Curtis E. Anderson
-------------------------------------
Title: Senior Vice President
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
FIRST UNION NATIONAL BANK,
as Syndication Agent and a Lender
By: /s/ Michael J. Kolosowsky
---------------------------------------
Name: Michael J. Kolosowsky
------------------------------------
Title: Vice President
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
TORONTO DOMINION (TEXAS) INC.,
as Documentation Agent and a Lender
By: /s/ Sonja R. Jordan
---------------------------------------
Name: Sonja R. Jordan
------------------------------------
Title: Vice President
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
MORGAN STANLEY SENIOR FUNDING, INC.,
as a Lender
By: /s/ Michael Hart
-----------------------------------------
Name: Michael Hart
------------------------------------
Title: Principal
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
CHASE MANHATTAN BANK,
as a Lender
By: /s/ Paul V. Farrell
-----------------------------------------
Name: Paul V. Farrell
------------------------------------
Title: Vice President
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH,
as a Lender
By: /s/ Walter T. Puffy III
-----------------------------------------
Name: Walter T. Puffy III
------------------------------------
Title: Associate
------------------------------------
By: /s/ Lisa Walker
-----------------------------------------
Name: Lisa Walker
------------------------------------
Title: Vice President
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender
By: /s/ Madeleine N. Pember
-----------------------------------------
Name: Madeleine N. Pember
------------------------------------
Title: Assistant Vice President
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
UBS AG, STAMFORD BRANCH,
as a Lender
By: /s/ Paul R. Morrison
-----------------------------------------
Name: Paul R. Morrison
------------------------------------
Title: Director
------------------------------------
By: /s/ Andrew N. Taylor
-----------------------------------------
Name: Andrew N. Taylor
------------------------------------
Title: Associate Director
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
MERITA BANK PLC,
as a Lender
By: /s/ Charles L. Lansdown
-----------------------------------------
Name: Charles L. Lansdown
------------------------------------
Title: Vice President
------------------------------------
By: /s/ Andrew J. Ragusa
-----------------------------------------
Name: Andrew J. Ragusa
------------------------------------
Title: Assistant Vice President
------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT OF
CREDIT AGREEMENT AMONG
PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
THE SYNDICATION AGENT DEFINED THEREIN,
THE DOCUMENTATION AGENT DEFINED THEREIN,
AND
THE LENDERS NAMED HEREIN
GUARANTY FEDERAL BANK, F.S.B.,
as a Lender
By: /s/ Robert S. Hays
-----------------------------------------
Name: Robert S. Hays
------------------------------------
Title: Vice President
------------------------------------
<PAGE>
To induce the Credit Parties to enter into this Amendment, each of the
undersigned (a) consents and agrees to the Amendment Documents' execution and
delivery, (b) ratifies and confirms that all guaranties, assurances, and
Liens, if any, granted, conveyed, or assigned to the Credit Parties under the
Loan Documents are not released, diminished, impaired, reduced, or otherwise
adversely affected by the Amendment Documents and continue to guarantee,
assure, and secure the full payment and performance of all present and future
Obligation (except to the extent specifically limited by the terms of such
guaranties, assurances, or Liens), (c) agrees to perform such acts and duly
authorize, execute, acknowledge, deliver, file, and record such additional
guaranties, assignments, security agreements, deeds of trust, mortgages, and
other agreements, documents, instruments, and certificates as the Credit
Parties may reasonably deem necessary or appropriate in order to create,
perfect, preserve, and protect those guaranties, assurances, and Liens, and
(d) waives notice of acceptance of this consent and agreement, which consent
and agreement binds the undersigned and its successors and permitted assigns
and inures to the Credit Parties and their respective successors and
permitted assigns.
PROTECTION ONE, INC., a Delaware corporation
By: /s/ John E. Mack III
-----------------------------------------
Name: John E. Mack III
------------------------------------
Title: Executive Vice President
------------------------------------
COMSEC/NARRAGANSETT SECURITY, INC., a
Delaware corporation
By: /s/ John E. Mack III
-----------------------------------------
Name: John E. Mack III
------------------------------------
Title: Vice President
------------------------------------
NETWORK MULTI-FAMILY SECURITY CORPORATION, a
Delaware corporation
By: /s/ John E. Mack III
-----------------------------------------
Name: John E. Mack III
------------------------------------
Title: Vice President
------------------------------------
<PAGE>
PROTECTION ONE INTERNATIONAL, INC., a
Delaware corporation
By: /s/ John E. Mack III
-----------------------------------------
Name: John E. Mack III
------------------------------------
Title: President
------------------------------------
PROTECTION ONE INVESTMENTS, INC., a Delaware
corporation
By: /s/ John E. Mack III
-----------------------------------------
Name: John E. Mack III
------------------------------------
Title: President
------------------------------------
DSC ENTERPRISES, INC., a Maryland corporation
By: /s/ John E. Mack III
-----------------------------------------
Name: John E. Mack III
------------------------------------
Title: President
------------------------------------
<PAGE>
EXHIBIT 12.1
PROTECTION ONE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR PROTECTION ONE
52 weeks 52 weeks 52 weeks Year Year Year
ended ended ended Ended Ended Ended
December December December December December December
20, 1994 20, 1995 20, 1996 31, 1996 31, 1997 31, 1998
-------- -------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income (loss).................. $ (1,764) $ (5,923) $ (4,860) $ (656) $ (42,728) $ (2,463)
Adjustments
Extraordinary gain............... -- -- -- -- -- (1,591)
Consolidated provision for
income taxes.................... (1,081) (3,630) (2,978) (310) 28,628 (4,791)
Fixed charges less
interest income................. 13,467 12,159 10,879 15 33,483 56,129
-------- -------- --------- -------- ---------- ----------
Earnings as adjusted (A)........... $ 10,622 $ 2,606 $ 3,041 $ (951) $ 19,383 $ 47,284
-------- -------- --------- -------- ---------- ----------
-------- -------- --------- -------- ---------- ----------
Fixed Charges:
Interest on debt and capitalized
leases............................ 13,467 12,159 10,879 15 33,483 55,990
Amortization of deferred
financing costs................... -- -- -- -- -- 139
-------- -------- --------- -------- ---------- ----------
Fixed charges (B).................... $ 13,467 $ 12,159 $ 10,879 $ 15 $ 33,483 $56,129
-------- -------- --------- -------- ---------- ----------
-------- -------- --------- -------- ---------- ----------
Ratio of earnings to fixed
charges(A) divided by (B).......... -- -- -- -- --
Deficiency of earnings to
fixed charges...................... $ 2,845 $ 9,553 $ 7,838 $ 966 $ 14,100 8,845
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES
------------
Entity Jurisdiction
- --------------------------------------------------- ------------
Protection One Alarm Monitoring, Inc. Delaware
Sentry Protective Alarms, Inc. (CA) California
Network MultiFamily Security Corporation Delaware
Protection One Alarm Monitoring of Mass., Inc. Delaware
Security Monitoring Services, Inc. Florida
ComSec Narragansett Security, Inc. Delaware
ComSec Systems, Inc. Delaware
ComSec Systems of Eastern Mass., Inc. Delaware
ComSec Systems of Mass., Inc. Delaware
Protection One International, Inc. Delaware
Protection One Canada, Inc. Ontario
Canguard, Inc. Ontario
Protection One France, EURL France
Compagnie Europeenne de Telesecurite France
Actar France
Aldus France
Surveillance Electronique de France France
CET Benelux, S.A. Belgium
CET Swisse Switzerland
CET Technishe Sicherheirsdienste GbmH Germany
Croise Laroch France
E.S. Beveiliging Belgium
Eurocontact France
Europ Telesecurite France
France Reseau Telesecurite France
Protection One U.K., Inc. United Kingdom
Protection One Investments, Inc. Delaware
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Protection One, Inc:
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Numbers 033-83494, 033-99220, 033-95702, 033-97542,
333-02828, 333-02892, 333-20245, 333-24493, 333-50383, 333-64021.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000916310
<NAME> PROTECTION ONE ALARM MONITORING, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,025
<SECURITIES> 17,770
<RECEIVABLES> 78,255
<ALLOWANCES> 16,993
<INVENTORY> 7,895
<CURRENT-ASSETS> 187,840
<PP&E> 61,059
<DEPRECIATION> 14,100
<TOTAL-ASSETS> 2,511,319
<CURRENT-LIABILITIES> 235,991
<BONDS> 829,090
0
0
<COMMON> 1,268
<OTHER-SE> 1,343,851
<TOTAL-LIABILITY-AND-EQUITY> 2,511,319
<SALES> 421,095
<TOTAL-REVENUES> 421,095
<CGS> 131,791
<TOTAL-COSTS> 131,791
<OTHER-EXPENSES> (20,570)
<LOSS-PROVISION> 10,567
<INTEREST-EXPENSE> 55,990
<INCOME-PRETAX> 737
<INCOME-TAX> (4,791)
<INCOME-CONTINUING> (4,054)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,591
<CHANGES> 0
<NET-INCOME> (2,463)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
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<PAGE>
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REGISTRATION RIGHTS AGREEMENT
Dated December 21, 1998
among
PROTECTION ONE ALARM MONITORING, INC.,
AND
THE GUARANTORS NAMED ON THE SIGNATURE PAGES HERETO.
and
MORGAN STANLEY & CO. INCORPORATED,
CHASE SECURITIES INC.,
FIRST UNION CAPITAL MARKETS, a division of
WHEAT FIRST SECURITIES, INC.,
NATIONSBANC MONTGOMERY SECURITIES LLC,
TD SECURITIES (USA) INC.
- -------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into December 21, 1998, among PROTECTION ONE ALARM MONITORING, INC., a
Delaware corporation (the "Company"), the Guarantors listed on Exhibit A hereto
(the "Guarantors") and MORGAN STANLEY & CO. INCORPORATED, CHASE SECURITIES INC.,
FIRST UNION CAPITAL MARKETS, a division of WHEAT FIRST SECURITIES, INC.,
NATIONSBANC MONTGOMERY SECURITIES LLC, and TD SECURITIES (USA) INC. (the
"Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated
December 16, 1998, among the Company, the Guarantors and the Placement Agents
(the "Placement Agreement"), which provides for the sale by the Company to
the Placement Agents of an aggregate of $350,000,000 principal amount of the
Company's 8 1/8% Senior Subordinated Notes due 2009 (the "Securities"). In
order to induce the Placement Agents to enter into the Placement Agreement,
the Company and the Guarantors have agreed to provide to the Placement Agents
and their direct and indirect transferees the registration rights set forth
in this Agreement. The execution of this Agreement is a condition to the
closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"CLOSING DATE" shall mean the Closing Date as defined in the Placement
Agreement.
"COMPANY" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
<PAGE>
2
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"EXCHANGE SECURITIES" shall mean securities issued by the Company
under the Indenture containing terms identical to the Securities (except
that the Exchange Securities will not contain restrictions on transfer) and
to be offered to Holders of Securities in exchange for Securities pursuant
to the Exchange Offer.
"HOLDER" shall mean the Placement Agents, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable
Securities under the Indenture; PROVIDED that for purposes of Sections 4
and 5 of this Agreement, the term "Holder" shall include Participating
Broker-Dealers (as defined in Section 4(a)).
"INDENTURE" shall mean the Indenture relating to the Securities dated
as of December 21, 1998 among the Company, the Guarantors and The Bank of
New York, as trustee, and as the same may be amended from time to time in
accordance with the terms thereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; PROVIDED
that whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Company or any of its affiliates (as such term is defined in
Rule 405 under the 1933 Act) (other than the Placement Agents or subsequent
Holders of Registrable Securities if such subsequent holders are deemed to
be such affiliates solely by reason of their holding of such Registrable
Securities) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage or amount.
"PERSON" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
"PLACEMENT AGENTS" shall have the meaning set forth in the preamble.
<PAGE>
3
"PLACEMENT AGREEMENT" shall have the meaning set forth in the
preamble.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"REGISTRABLE SECURITIES" shall mean the Securities; PROVIDED, HOWEVER,
that the Securities shall cease to be Registrable Securities (i) when a
Registration Statement with respect to such Securities shall have been
declared effective under the 1933 Act and such Securities shall have been
disposed of pursuant to such Registration Statement, (ii) when such
Securities have been sold to the public pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the 1933 Act, or
such Securities are eligible to be sold pursuant to paragraph (k) of Rule
144, or (iii) when such Securities shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company and the Guarantors with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. registration and filing
fees, (ii) all fees and expenses incurred in connection with compliance
with state securities or blue sky laws , (iii) all expenses of any Persons
in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales
agreements and other documents relating to the performance of and
compliance with this Agreement, (iv) all rating agency fees, (v) all fees
and disbursements relating to the qualification of the Indenture under
applicable securities laws, (vi) the fees and disbursements of the Trustee
and its counsel, (vii) the fees and disbursements of counsel for the
Company and the Guarantors and (viii) the fees and disbursements of the
independent public accountants of the Company and the Guarantors, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, but excluding fees and
expenses of counsel to the underwriters or the Holders and underwriting
discounts and commissions and transfer taxes, if any, relating to the sale
or disposition of Registrable Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments
and supplements to any such
<PAGE>
4
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Securities (but no other
securities unless approved by the Holders whose Registrable Securities are
covered by such Shelf Registration Statement) on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TRUSTEE" shall mean the trustee with respect to the Securities under
the Indenture.
"UNDERWRITER" shall have the meaning set forth in Section 3 hereof.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall mean a
registration in which Registrable Securities are sold to an Underwriter for
reoffering to the public.
2. REGISTRATION UNDER THE 1933 ACT.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company and the Guarantors shall use
their reasonable best efforts to cause to be filed an Exchange Offer
Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Securities for Exchange Securities and to have
such Registration Statement remain effective until the closing of the Exchange
Offer. The Company shall commence the Exchange Offer promptly after the
Exchange Offer Registration Statement has been declared effective by the SEC and
use its best efforts to have the Exchange Offer consummated not later than 60
days after such effective date. The Company shall commence the Exchange Offer
by mailing the related exchange offer Prospectus and accompanying documents to
each Holder stating, in addition to such other disclosures as are required by
applicable law:
<PAGE>
5
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any rights
under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal, to
the institution and at the address (located in the Borough of Manhattan,
The City of New York) specified in the notice prior to the close of
business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address (located in the Borough of Manhattan,
The City of New York) specified in the notice a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Registrable Securities delivered for exchange and a statement
that such Holder is withdrawing his election to have such Securities
exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted for
exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
The Company and the Guarantors shall use their reasonable best efforts to
complete the Exchange Offer as provided above and shall comply with the
applicable requirements of the 1933 Act, the 1934 Act and other applicable laws
and regulations in connection with the Exchange Offer. The Exchange Offer shall
not be subject to any conditions, other than that
<PAGE>
6
the Exchange Offer does not violate applicable law or any applicable
interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Placement Agents shall have the right,
subject to applicable law, to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer. Each Holder who
participates in the Exchange Offer will be required to represent that any
Exchange Securities received by it will be acquired in the ordinary course of
its business, that at the time of the consummation of the Exchange Offer such
Holder will have no arrangement or understanding with any person to
participate in the distribution of the Exchange Securities, and that such
Holder is not an affiliate of the Company within the meaning of Rule 405
promulgated under the 1933 Act or if it is such an affiliate, that it will
comply with the registration and prospectus delivery requirements of the 1933
Act, to the extent applicable.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
June 21, 1999 or (iii) any Holder of Registrable Securities shall provide the
Company prior to the 20th day following the consummation of the Exchange Offer
an opinion of counsel that (A) such Holder is prohibited by applicable law or
applicable interpretation of the Staff of the SEC from participating in the
Exchange Offer, or (B) such Holder may not resell the Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder, the Company and the
Guarantors shall use their reasonable best efforts to cause to be filed as soon
as practicable after such determination, date or notice of such opinion of
counsel is given to the Company, as the case may be, a Shelf Registration
Statement providing for the sale by the Holders of all of the Registrable
Securities and to have such Shelf Registration Statement declared effective by
the SEC. In the event the Company is required to file a Shelf Registration
Statement solely as a result of the matters referred to in clause (iii) of the
preceding sentence, the Company and the Guarantors shall use their reasonable
best efforts to file and have declared effective by the SEC both an Exchange
Offer Registration Statement pursuant to Section 2(a) with respect to all
Registrable Securities and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Securities held by the Placement
Agents after completion of the Exchange Offer. The Company and the Guarantors
agree to use their reasonable best efforts to keep the Shelf Registration
Statement continuously effective until the expiration of the period referred to
in Rule 144(k) with respect to the Registrable Securities or such shorter period
that will terminate when all of the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company and the Guarantors further agree to supplement or amend
the Shelf Registration
<PAGE>
7
Statement if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration
Statement or by the 1933 Act or by any other rules and regulations thereunder
for shelf registration or if reasonably requested by a Holder with respect to
information relating to such Holder, and to use its best efforts to cause any
such amendment to become effective and such Shelf Registration Statement to
become usable as soon as thereafter practicable. The Company and the
Guarantors agree to furnish to the Holders of Registrable Securities copies
of any such supplement or amendment promptly after its being used or filed
with the SEC.
(c) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) or Section 2(b). Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; PROVIDED, HOWEVER, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume.
(e) Without limiting the remedies available to the Placement
Agents and the Holders, the Company and the Guarantors acknowledge that any
failure by the Company and the Guarantors to comply with their obligations under
Section 2(a) and Section 2(b) hereof may result in material irreparable injury
to the Placement Agents or the Holders for which there is no adequate remedy at
law, that it will not be possible to measure damages for such injuries precisely
and that, in the event of any such failure, the Placement Agents or any Holder
may obtain such relief as may be required to specifically enforce the
obligations of the Company and the Guarantors under Section 2(a) and
Section 2(b) hereof.
(f) As provided for in the Indenture, in the event the Exchange
Offer is not consummated and the Shelf Registration Statement is not declared
effective (or not deemed to have become effective pursuant to clause (d) above)
on or prior to June 21, 1999, the interest rate on the Securities will be
increased by 0.5% per annum until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective by the SEC.
<PAGE>
8
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company and the Guarantors
with respect to the Registration Statements pursuant to Section 2(a) and
Section 2(b) hereof, the Company and the Guarantors shall as expeditiously as
reasonably possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (z) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and use their reasonable best
efforts to cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period and cause each Prospectus to be supplemented by any required
prospectus supplement and, as so supplemented, to be filed pursuant to
Rule 424 under the 1933 Act; to keep each Prospectus current during the
period described under Section 4(3) and Rule 174 under the 1933 Act that
is applicable to transactions by brokers or dealers with respect to the
Registrable Securities or Exchange Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, to counsel for
the Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and the Company and the
Guarantors consent to the use of such Prospectus and any amendment or
supplement thereto in accordance with applicable law by each of the selling
Holders of Registrable Securities and any such Underwriters in connection
with the offering and sale of the Registrable Securities covered by and in
the manner described in such Prospectus or any amendment or supplement
thereto in accordance with applicable law;
(d) use their reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky"
laws of such jurisdictions as any Holder of Registrable Securities covered
by a Registration Statement shall reasonably request in writing by the time
the applicable Registration Statement is
<PAGE>
9
declared effective by the SEC, to cooperate with such Holders in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc. and do any and all other acts and things which may
be reasonably necessary or advisable to enable such Holder to consummate
the disposition in each such jurisdiction of such Registrable Securities
owned by such Holder; PROVIDED, HOWEVER, that neither the Company nor any
Guarantor shall be required to (i) qualify as a foreign corporation or as
a dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any general
consent to service of process or (iii) subject itself to taxation in any
such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Placement Agents promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Registration Statement has become
effective and when any post-effective amendment thereto has been filed and
becomes effective, (ii) of any request by the SEC or any state securities
authority for amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company or any Guarantor contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in
all material respects or if the Company or any Guarantor receives any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of
any proceeding for such purpose, (v) of the happening of any event during
the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related Prospectus
untrue in any material respect or which requires the making of any changes
in such Registration Statement or Prospectus in order to make the
statements therein not misleading and (vi) of any determination by the
Company that a post-effective amendment to a Registration Statement would
be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide immediate notice to each Holder of the
withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement
<PAGE>
10
and any post-effective amendment thereto (without documents incorporated
therein by reference or exhibits thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and enable
such Registrable Securities to be in such denominations (consistent with
the provisions of the Indenture) and registered in such names as the
selling Holders may reasonably request at least one business day prior to
the closing of any sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of
any event contemplated by Section 3(e)(v) hereof, use their reasonable best
efforts to prepare and file with the SEC a supplement or post-effective
amendment to a Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The Company and the Guarantors agree to notify
the Holders to suspend use of the Prospectus as promptly as practicable
after the occurrence of such an event, and the Holders hereby agree to
suspend use of the Prospectus until the Company and the Guarantors have
amended or supplemented the Prospectus to correct such misstatement or
omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Placement Agents and their counsel (and, in the case of a
Shelf Registration Statement, the Holders and their counsel) and make such
of the representatives of the Company and the Guarantors as shall be
reasonably requested by the Placement Agents or their counsel (and, in the
case of a Shelf Registration Statement, the Holders or their counsel)
available for discussion of such document, and shall not at any time file
or make any amendment to the Registration Statement, any Prospectus or any
amendment of or supplement to a Registration Statement or a Prospectus or
any document which is to be incorporated by reference into a Registration
Statement or a Prospectus, of which the Placement Agents and their counsel
(and, in the case of a Shelf Registration Statement, the Holders and their
counsel) shall not have previously been advised and furnished a copy or to
which the
<PAGE>
11
Placement Agents or their counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) shall reasonably object;
(k) obtain a CUSIP number for all Exchange Securities or
Registrable Securities, as the case may be, not later than the effective
date of a Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of
the Exchange Securities or Registrable Securities, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its reasonable
best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes and all other forms and documents required
to be filed with the SEC to enable the Indenture to be so qualified in a
timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant to
such Shelf Registration Statement, and attorneys and accountants designated
by the Holders, at reasonable times and in a reasonable manner, all
financial and other records, pertinent documents and properties of the
Company, and cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement; PROVIDED, HOWEVER, that any information, that
is designated in writing by the Company, in good faith, as confidential at
the time of delivery of such information shall be kept confidential by such
representative, any Holders or any such Underwriter, attorney or
accountant, unless such disclosure is made in connection with a court
proceeding or required by law, or such information becomes available to the
public generally or through a third party without an accompanying
obligation of confidentiality;
(n) use its reasonable best efforts to cause the Exchange
Securities or Registrable Securities, as the case may be, to be rated by
two nationally recognized statistical rating organizations (as such term is
defined in Rule 436(g)(2) under the 1933 Act), if such Exchange Securities
or Registrable Securities are not already so rated;
(o) if requested by any Holder of Registrable Securities covered
by a Registration Statement, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information with respect to
such Holder and the terms of such sale of Registrable Securities as is
required by the applicable rules and regulations of the SEC and (ii) make
all required filings of such Prospectus supplement or such
<PAGE>
12
post-effective amendment as soon as the Company has received notification
of the matters to be incorporated in such filing; and
(q) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible,
make such representations and warranties to the Holders and any
Underwriters of such Registrable Securities with respect to the business of
the Company, the Guarantors and their subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference, if any, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested, (ii) obtain opinions
of counsel to the Company and the Guarantors (which counsel and opinions,
in form, scope and substance, shall be reasonably satisfactory to the
Holders and such Underwriters and their respective counsel) addressed to
each selling Holder and Underwriter of Registrable Securities, covering the
matters customarily covered in opinions requested in underwritten
offerings, (iii) obtain "cold comfort" letters from the independent
certified public accountants of the Company and the Guarantors (and, if
necessary, any other certified public accountant of any subsidiary of the
Company or any Guarantor, or of any business acquired by the Company or any
Guarantor for which financial statements and financial data are or are
required to be included in the Registration Statement) addressed to each
selling Holder and Underwriter of Registrable Securities, such letters to
be in customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with underwritten offerings, and
(iv) deliver such documents and certificates as may be reasonably requested
by the Holders of a majority in principal amount of the Registrable
Securities being sold or the Underwriters, and which are customarily
delivered in underwritten offerings, to evidence the continued validity of
the representations and warranties of the Company and the Guarantors made
pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company or the
Guarantors may require each Holder of Registrable Securities to furnish to the
Company and the Guarantors such information regarding the Holder and the
proposed distribution by such Holder of such Registrable Securities as the
Company or the Guarantors may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in
<PAGE>
13
Section 3(e)(v) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to a Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(i) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at its expense) all copies in its
possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice. If the Company shall give any such
notice to suspend the disposition of Registrable Securities pursuant to a
Registration Statement, the Company shall extend the period during which the
Registration Statement shall be maintained effective pursuant to this
Agreement by the number of days during the period from and including the date
of the giving of such notice to and including the date when the Holders shall
have received copies of the supplemented or amended Prospectus necessary to
resume such dispositions. Any such suspensions may not exceed 60 days in the
aggregate during any 365 day period.
The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within
the meaning of the 1933 Act and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of such Exchange
Securities.
The Company and the Guarantors understand that it is the Staff's
position that if the Prospectus contained in the Exchange Offer Registration
Statement includes a plan of distribution containing a statement to the above
effect and the means by which Participating Broker-Dealers may resell the
Exchange Securities, without naming the Participating Broker-Dealers or
specifying the amount of Exchange Securities owned by them, such Prospectus may
be delivered by Participating Broker-Dealers to satisfy their prospectus
delivery obligation under the 1933 Act in connection with resales of Exchange
Securities for their own accounts, so long as the Prospectus otherwise meets the
requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company and the Guarantors agree that the provisions of this
Agreement as they relate to a Shelf Registration shall also apply to an Exchange
Offer Registration to the
<PAGE>
14
extent, and with such reasonable modifications thereto as may be, reasonably
requested by the Placement Agents or by one or more Participating
Broker-Dealers, in each case as provided in clause (ii) below, in order to
expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff
recited in Section 4(a) above; PROVIDED that:
(i) the Company and the Guarantors shall not be required to amend
or supplement the Prospectus contained in the Exchange Offer Registration
Statement, as would otherwise be contemplated by Section 3(i), for a period
exceeding 180 days after the last Exchange Date (as such period may be
extended pursuant to the penultimate paragraph of Section 3 of this
Agreement) and Participating Broker-Dealers shall not be authorized by the
Company or the Guarantors to deliver and shall not deliver such Prospectus
after such period in connection with the resales contemplated by this
Section 4; and
(ii) the application of the Shelf Registration procedures set forth
in Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the Company by the Placement Agents or with the
reasonable request in writing to the Company by one or more broker-dealers
who certify to the Placement Agents and the Company in writing that they
anticipate that they will be Participating Broker-Dealers; and PROVIDED
FURTHER that, in connection with such application of the Shelf Registration
procedures set forth in Section 3 to an Exchange Offer Registration, the
Company and the Guarantors shall be obligated to deal only with one entity
representing the Participating Broker-Dealers, which shall be Morgan
Stanley & Co. Incorporated unless it elects not to act as such
representative.
(c) The Placement Agents shall have no liability to the Company,
the Guarantors or any Holder with respect to any request that it may make
pursuant to Section 4(b) above.
(d) Each Holder who wishes to exchange Securities for Exchange
Securities in the Exchange Offer and who is not a Broker-Dealer shall represent
that it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Securities.
(e) Each Holder who wishes to exchange Securities for Exchange
Securities in the Exchange Offer and who is a Broker-Dealer that will receive
Exchange Securities for its own account in exchange for Securities that were
acquired as a result of market-making activities or other trading activities
shall acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Securities.
<PAGE>
15
5. INDEMNIFICATION AND CONTRIBUTION.
(a) Each of the Company and the Guarantors, jointly and severally,
agrees to indemnify and hold harmless the Placement Agents, each Holder and each
Person, if any, who controls any Placement Agent or any Holder within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, or
is under common control with, or is controlled by, any Placement Agent or any
Holder, from and against all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred by the
Placement Agent, any Holder or any such controlling or affiliated Person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment thereto) pursuant to which Exchange
Securities or Registrable Securities were registered under the 1933 Act,
including all documents incorporated therein by reference, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Placement Agents or any Holder
furnished to the Company in writing by Morgan Stanley & Co. Incorporated or any
selling Holder expressly for use therein PROVIDED, HOWEVER, that, in the case of
a Shelf Registration, the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any indemnified party
from whom the person asserting any such losses, claims, damages or liabilities
purchased Securities or of any person controlling such indemnified party, if a
copy of the final prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was provided to such
indemnified party by the Company but was not sent or given by or on behalf of
such indemnified party to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Securities
to such person, and if the final prospectus (as amended or supplemented) would
have cured the defect giving rise to such losses, claims, damages or
liabilities. In connection with any Underwritten Offering permitted by Section
3, each of the Company and the Guarantors will also indemnify the Underwriters,
if any, selling brokers, dealers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of the 1933 Act and the 1934 Act)
to the same extent as provided above with respect to the indemnification of the
Holders, if requested in connection with any Registration Statement.
<PAGE>
16
(b) Each Holder agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Guarantors, the Placement Agents and the
other selling Holders, and each of their respective directors, officers who sign
the Registration Statement and each Person, if any, who controls the Company,
any Guarantor, any Placement Agent and any other selling Holder within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act to
the same extent as the foregoing indemnity from the Company and the Guarantors
to the Placement Agents and the Holders, but only with reference to information
relating to such Holder furnished to the Company in writing by such Holder
expressly for use in any Registration Statement (or any amendment thereto) or
any Prospectus (or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agents and all
Persons, if any, who control any Placement Agent within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, the Guarantors and their directors and officers who sign the
Registration Statement and each Person, if any, who controls the Company or any
Guarantor within the meaning of either such Section and (c) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Holders and all Persons, if any, who control any Holders within the meaning
of either such Section, and that all such fees and expenses shall be reimbursed
as they are incurred. In such case involving the Placement Agents and Persons
who control the Placement Agents, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In such case involving the Holders and such
Persons who control Holders, such firm shall be designated in writing by the
Majority Holders. In all other cases, such firm shall be designated by the
Company. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its
<PAGE>
17
written consent but, if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such indemnifying party of
the aforesaid request, (ii) the indemnifying party has been provided with a
copy of the proposed terms of the settlement at least 30 days prior to such
settlement being entered into, and (iii) such indemnifying party shall not
have reimbursed the indemnified party for such fees and expenses of counsel
in accordance with such request prior to the date of such settlement;
provided that the indemnifying party shall not be required to reimburse such
amounts pursuant to a settlement effected without its consent pursuant to
this sentence during the period that such indemnifying party is contesting
such reimbursement obligation in good faith by appropriate proceedings. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which such indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Guarantors and the Holders shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Guarantors or by the Holders and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Holders' respective
obligations to contribute pursuant to this Section 5(d) are several in
proportion to the respective principal amount of Registrable Securities of such
Holder that were registered pursuant to a Registration Statement.
<PAGE>
18
(e) The Company, each Guarantor and each Holder agree that it
would not be just or equitable if contribution pursuant to this Section 5 were
determined by PRO RATA allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in paragraph (d) above shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at which
Registrable Securities were sold by such Holder exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 5 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section 5
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Placement Agents, any Holder or any Person controlling any Placement Agent
or any Holder, or by or on behalf of the Company, the Guarantors, their officers
or directors or any Person controlling the Company or any Guarantor,
(iii) acceptance of any of the Exchange Securities and (iv) any sale of
Registrable Securities pursuant to a Shelf Registration Statement.
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company and the Guarantors
have not entered into, and on or after the date of this Agreement will not enter
into, any agreement which is inconsistent with the rights granted to the Holders
of Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of the Company's other issued and outstanding securities under any such
agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Guarantors have obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment,
<PAGE>
19
modification, supplement, waiver or consent; PROVIDED, HOWEVER, that no
amendment, modification, supplement, waiver or consent to any departure from
the provisions of Section 5 hereof shall be effective as against any Holder
of Registrable Securities unless consented to in writing by such Holder.
(c) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in accordance with the provisions
of this Section 6(c), which address initially is, with respect to the
Placement Agents, the address set forth in the Placement Agreement; and (ii)
if to the Company and the Guarantors, initially at the Company's address set
forth in the Placement Agreement and thereafter at such other address, notice
of which is given in accordance with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; PROVIDED that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Placement Agreement. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof. The
Placement Agents (in their capacity as Placement Agents) shall have no liability
or obligation to the Company or any Guarantor with respect to any failure by a
Holder to comply with, or any breach by any Holder of, any of the obligations of
such Holder under this Agreement.
<PAGE>
20
(e) PURCHASES AND SALES OF SECURITIES. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405 under
the 1933 Act) not to, purchase and then resell or otherwise transfer any
Securities.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Placement Agents, on the other hand, and
shall have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by the laws
of the State of New York.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PROTECTION ONE ALARM MONITORING, INC.
By /s/ John W. Hesse
------------------------------------
Name: John W. Hesse
Title: Executive Vice President
PROTECTION ONE, INC.
By /s/ John W. Hesse
------------------------------------
Name: John W. Hesse
Title: Executive Vice President
PROTECTION ONE INTERNATIONAL, INC.
By /s/ Montgomery W. Cornell
------------------------------------
Name: Montgomery W. Cornell
Title: vice President
PROTECTION ONE INVESTMENTS, INC.
By /s/ Montgomery W. Cornell
------------------------------------
Name: Montgomery W. Cornell
Title: Vice President
DSC ENTERPRISES, INC.
By /s/ Montgomery W. Cornell
------------------------------------
Name: Montgomery W. Cornell
Title: Vice President
<PAGE>
22
NETWORK MULTI-FAMILY SECURITY CORPORATION
By /s/ Pat McColpin
------------------------------------
Name: Pat McColpin
Title: Vice President and
Chief Financial Officer
COMSEC NARRAGANSETT SECURITY, INC.
By /s/ Montgomery W. Cornell
------------------------------------
Name: Montgomery W. Cornell
Title: Vice President
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES, INC.
FIRST UNION CAPITAL MARKETS,
a division of WHEAT FIRST SECURITIES, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
TD SECURITIES (USA) INC.
By: MORGAN STANLEY & CO. INCORPORATED
By /s/ Bryan W. Andrzejewski
----------------------------------
Name: Bryan W. Andrzejewski
Title: Vice President
<PAGE>
EXHIBIT A - GUARANTORS
PROTECTION ONE, INC.
PROTECTION ONE INTERNATIONAL, INC.
PROTECTION ONE INVESTMENTS, INC.
DSC ENTERPRISES, INC.
NETWORK MULTI-FAMILY SECURITY CORPORATION
COMSEC NARRAGANSETT SECURITY, INC.
Exhibit A Page 1
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROTECTION ONE ALARM MONITORING, INC.
AND
THE GUARANTORS NAMED ON THE SIGNATURE PAGES HERETO
---------------------------------------------------------
$350,000,000
8 1/8% Senior Subordinated Notes due 2009
---------------------------------------------------------
--------------
PLACEMENT AGREEMENT
Dated December 16, 1998
--------------
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
FIRST UNION CAPITAL MARKETS, a division of Wheat First Securities, Inc.
NATIONSBANC MONTGOMERY SECURITIES LLC
TD SECURITIES (USA) INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PROTECTION ONE ALARM MONITORING, INC.
$350,000,000 Principal Amount of
8 1/8% Senior Subordinated Notes due 2009
PLACEMENT AGREEMENT
December 16, 1998
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC
FIRST UNION CAPITAL MARKETS,
a division of Wheat First Securities, Inc.
NATIONSBANC MONTGOMERY SECURITIES LLC
TD SECURITIES (USA) INC.
c\o Morgan Stanley & Co. Incorporated.
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Protection One Alarm Monitoring, Inc. (the "Company") proposes to
issue and sell to Morgan Stanley & Co. Incorporated, Chase Securities Inc.,
First Union Capital Markets, a division of Wheat First Securities, Inc.,
Nationsbanc Montgomery Securities LLC and TD Securities (USA) Inc.
(collectively, the "Placement Agents") an aggregate of $350,000,000 in
aggregate principal amount of 8 1/8% Senior Subordinated Notes due 2009 (the
"Initial Notes"), subject to the terms and conditions set forth herein. The
Initial Notes will be issued pursuant to an Indenture (the "Indenture"), to
be dated the Closing Date (as defined), among the Company, the Guarantors (as
defined) and The Bank of New York, as trustee (the "Trustee"). The Notes (as
defined) will be fully and unconditionally guaranteed (the "Guarantees") as
to payment of principal, interest, and premium, if any, on an unsecured
senior subordinated basis, jointly and severally, by each entity listed on
Exhibit A hereto (collectively, the "Guarantors"). Capitalized terms used
herein and not otherwise defined shall have the meanings assigned to such
terms in the Indenture.
1
<PAGE>
The net proceeds to the Company from the sale to the Placement
Agents of the Initial Notes (the "Proceeds") will be used by the Company: (i)
to repay a portion of the Senior Credit Facility (as defined) and (ii) for
general purposes and working capital.
1. ISSUANCE OF SECURITIES. The Company proposes, upon the terms
and subject to the conditions set forth herein, to issue and sell to the
Placement Agents an aggregate of $350,000,000 in aggregate principal amount
of Initial Notes. The Initial Notes and the Exchange Notes (as defined)
issuable in exchange therefor are collectively referred to herein as the
"Notes."
Upon original issuance thereof, and until such time as the same is
no longer required under the applicable requirements of the Securities Act of
1933, as amended (the "Act"), the Initial Notes (and all securities issued in
exchange therefor or in substitution thereof) shall bear the following legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE
144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS
NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TOT HE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
2
<PAGE>
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED
TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND
THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER
OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
2. OFFERING. The Initial Notes will be offered and sold to the
Placement Agents pursuant to an exemption from the registration requirements
under the Act. The Company has prepared a preliminary offering memorandum,
dated December 10, 1998 (the "Preliminary Offering Memorandum"), and a final
offering memorandum, dated December 16, 1998 (the "Offering Memorandum"),
relating to the Company, the Guarantors and their respective subsidiaries and
the Initial Notes.
The Placement Agents have advised the Company that the Placement
Agents will make offers (the "Exempt Resales") of the Initial Notes on the
terms set forth in the Offering Memorandum, as amended or supplemented,
solely to persons whom the Placement Agents reasonably believe to be (i) in
the case of offers inside the United States, "qualified institutional
buyers," as defined in Rule 144A under the Act ("QIBs") and (ii) in the case
of offers outside the United States, to persons other than U.S. persons
("foreign purchasers," which term shall include dealers or other professional
fiduciaries in the United States acting on a discretionary basis for foreign
beneficial owners (other than an estate or trust)) in reliance upon
Regulation S under the Securities Act that, in each case, in purchasing such
Initial Notes are deemed to have represented and agreed as provided in the
Offering Memorandum under the caption "Transfer Restrictions". The QIBs and
the foreign purchasers are referred to herein as the "Eligible Purchasers."
The Placement Agents will offer the Initial Notes to such Eligible Purchasers
initially at a price equal to 100% of the principal amount thereof. Such
price may be changed at any time without notice.
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Holders (including subsequent transferees) of Initial Notes will
have the registration rights set forth in the registration rights agreement
relating thereto (the "Registration Rights Agreement"), to be dated the
Closing Date. Pursuant to the Registration Rights Agreement, the Company and
the Guarantors will agree to file with the Securities and Exchange Commission
(the "Commission"), under circumstances set forth therein, (i) a registration
statement under the Act (the "Exchange Offer Registration Statement"),
relating to the 8 1/8% Exchange Senior Subordinated Notes due 2009 (the
"Exchange Notes") to be offered in exchange for the Initial Notes (the
"Exchange Offer") or (ii) a shelf registration statement pursuant to Rule 415
under the Act (each of the "Shelf Registration Statement" and the Exchange
Offer Registration Statement, being referred to as a "Registration
Statement"), relating to the resale by certain holders of the Initial Notes,
and to use their best efforts to cause such Registration Statements to be
declared effective and to consummate the Exchange Offer. This Agreement, the
Notes, the Guarantees, the Indenture and the Registration Rights Agreement
are hereinafter referred to collectively as the "Operative Documents."
3. DELIVERY AND PAYMENT. On the basis of the representations,
warranties and covenants contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell to the Placement
Agents, and each Placement Agent agrees, severally and not jointly, to
purchase from the Company, the principal amount of Initial Notes set forth
opposite its name on Schedule I hereto. The purchase price for the Initial
Notes will be $980 per $1,000 principal amount of Initial Note.
Delivery of the Initial Notes shall be made, against payment of the
purchase therefor, at the offices of Weil, Gotshal & Manges, 100 Crescent
Court, Suite 1300, Dallas, Texas or such other location as may be mutually
acceptable. Such delivery and payment shall be made at 9:00 a.m., Dallas time
or 10:00 a.m. New York City time on December 21, 1998 or at such other time
as shall be agreed upon by the Placement Agents and the Company. The time and
date of such delivery and payment are herein called the "Closing Date."
On the Closing Date, one or more Initial Notes in definitive form,
registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), having an aggregate amount corresponding to the aggregate
amount of the Initial Notes sold pursuant to the Exempt Resales to Eligible
Purchasers (the "Global Notes") shall be delivered by the Company to the
Placement Agents (or as the Placement Agents may direct), against payment by
the Placement Agents of the purchase price therefor, by wire transfer of same
day funds, to an account designated by the Company; provided, however, that
the Company shall give at least two business days' prior written notice to
the Placement Agents of the information required to effect such wire
transfer. The Global Notes shall be made available to the Placement Agents
for inspection not later than 10:00 a.m., New York City time, on the business
day immediately preceding the Closing Date.
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4. CERTAIN COVENANTS OF THE COMPANY AND THE GUARANTORS. Each of
the Company and the Guarantors, jointly and severally, covenants and agrees:
(a) To advise the Placement Agents promptly and, if requested
by the Placement Agents, confirm such advice in writing, (i) of the issuance
by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Notes for offering or
sale in any jurisdiction, or the initiation of any proceeding for such
purpose by any state securities commission or other regulatory authority and
(ii) of the happening of any event known to the Company or the Guarantors on
or before the Closing Date which in the judgement of the Company and the
Guarantors would require the making of any change in the Offering Memorandum
or in the information incorporated by reference therein so that as therefore
delivered to purchasers the Offering Memorandum will not include any untrue
statement of material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, and on request to prepare and furnish to
the Placement Agents and to dealers and other persons designated by the
Placement Agents such amendments or supplements (including appropriate
filings under the Exchange Act) to the Offering Memorandum as may be
necessary to any such change, provided that the Company shall be so obligated
subsequent to the time of purchase only so long as the Company is notified of
unsold allotments (failure by the Placement Agents to so notify the Company
cancels the Company's obligation under this Section 4(a)). The Company and
the Guarantors shall use their respective reasonable best efforts to prevent
the issuance of any stop order or order suspending the qualification or
exemption of any Notes under any state securities or Blue Sky laws and, if at
any time any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption of any Notes or the
Guarantees under any state securities or Blue Sky laws, the Company and the
Guarantors shall use their respective reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(b) To as soon as practicable, make generally available to
its security holders an earnings statement (as contemplated by Rule 158 under
the Act) covering a period of twelve months after the effective date (as the
term "effective date" is defined in Rule 158) of the Offering Memorandum.
(c) To furnish such proper information as may be required and
otherwise to cooperate in qualifying the Initial Notes for sale under the
laws of such jurisdictions as the Placement Agents may designate and in
determining their eligibility for investment under the laws of such
jurisdiction; provided that the Company and the Guarantors shall not hereby
be required to qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction.
(d) To deliver to the Placement Agents without charge as soon as
practicable after the execution and delivery of this Agreement and thereafter to
furnish to the
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Placement Agents, without charge, as many copies of the Offering Memorandum
in final form and any documents incorporated by reference therein at or after
the date thereof, as the Placement Agents may reasonably request from time to
time in connection with Exempt Resales.
(e) To pay the reasonable fees and expenses of counsel for
the Placement Agents, and to reimburse the Placement Agents for their
reasonable out-of-pocket expenses incurred in contemplation of the
performance of this Agreement, in the event that the Initial Notes are not
delivered to and taken up and paid for by the Placement Agents hereunder for
any reason whatsoever except the failure or refusal of any Placement Agent to
take up and pay for the Initial Notes (i) pursuant to the terms of Section
6(b) or (ii) for some reason not permitted by the terms of this Agreement,
the Placement Agents agreeing to pay the fees and expenses of counsel for the
Placement Agents in any other event. Whether or not the transactions
contemplated in this Agreement are consummated or this Agreement is
terminated, to pay or cause to be paid all expenses incident to the
performance of its obligations under this Agreement (other than transfer
taxes payable on resale of the Initial Notes by the Placement Agents and fees
and disbursements of counsel for the Placement Agents, except as set forth in
the preceding sentence), including: (i) the fees, disbursements and expenses
of the counsel and accountants for the Company and each of the Guarantors in
connection with the issuance and sale of the Notes and all other fees or
expenses in connection with the preparation of the Preliminary Offering
Memorandum and the Offering Memorandum and all amendments and supplements
thereto, including all printing costs associated therewith, and the
delivering of copies thereof to the Placement Agents, in the quantities
herein above specified, (ii) all costs and expenses related to the transfer
and delivery of the Initial Notes to the Placement Agents, including any
transfer or other taxes payable thereon, (iii) the cost of printing or
producing any Blue Sky or legal investment memorandum in connection with the
offer and sale of the Initial Notes under state securities laws and all
expenses in connection with the qualification of the Initial Notes for offer
and sale under state securities laws as provided in Section 4( c) hereof,
including filing fees and the reasonable fees and disbursements of counsel
for the Placement Agents (not to exceed $3,000) in connection with such
qualification and in connection with the Blue Sky or legal investment
memorandum, (iv) any fees charged by rating agencies for the rating of the
Notes, (v) all document production charges and expenses of counsel to the
Placement Agents (but not including their fees for professional services) in
connection with the preparation of this Agreement, (vi) the fees and
expenses, if any, incurred in connection with the admission of the Initial
Notes for trading in PORTAL or any appropriate market system, (vii) the costs
and charges of the trustee and any transfer agent, registrar or depositary,
(viii) the cost of the preparation, issuance and delivery of the Initial
Notes, (ix) the costs and expense of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing
of the offering of the Initial Notes, including, without limitation, expenses
associated with the production of road show slides and graphics, fees and
expenses of any consultants engaged in connection with
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the road show presentations with the prior approval of the Company, travel
and lodging expenses of the representatives and officers of the Company and
any such consultants, and one-half of the cost of any aircraft chartered in
connection with the road show with the prior approval of the Company, and (x)
all other costs and expenses incident to the performance of the obligations
of the Company and the Guarantors hereunder for which provision is not
otherwise made in this Section.
(f) To use the proceeds from the sale of the Initial Notes in
the manner described in the Offering Memorandum under the caption "Use of
Proceeds."
(g) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Initial Notes in a manner that would
require the registration under the Act of the sale to the Placement Agents
or the Eligible Purchasers of the Initial Notes or to take any other action
that would result in the Exempt Resales not being exempt from registration
under the Act.
(h) For so long as any of the Notes remain outstanding and
during any period in which the Company and the Guarantors are not subject to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to make available to any holder or beneficial owner of
Initial Notes in connection with any sale thereof and any prospective
purchaser of such Notes from such holder or beneficial owner, upon request of
such holder, the information required by Rule 144A(d) (4) under the Act.
(i) To furnish to the Placement Agents, at or before the time
of filing with the Commission subsequent to the date hereof and up to and
including the Closing Date, a copy of any document proposed to be filed by
the Company or any Guarantor pursuant to Section 13(a), 13(d), 14 or 15(d) of
the Exchange Act.
(j) Not to take, directly or indirectly, any action designed
to, or that might reasonably be expected to, cause or result in stabilization
or manipulation of the price of any security of the Company or any of the
Guarantors to facilitate the sale or resale of the Notes. Except as permitted
by the Act, none of the Company or the Guarantors will distribute any (i)
preliminary offering memorandum, including, without limitation, the
Preliminary Offering Memorandum, (ii) offering memorandum, including, without
limitation, the Offering Memorandum, or (iii) other offering material in
connection with the offering and sale of the Notes.
(k) Not to solicit any offer to buy or offer or sell the
Initial Notes by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Act.
(l) To use its reasonable best efforts to permit the Initial
Notes to be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in the PORTAL market.
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(m) In connection with offers and sales to foreign purchasers
in accordance with Regulation S, none of the Company, the Guarantors, their
Affiliates or any person acting on any of their behalf (other than the
Placement Agents) will engage in any directed selling efforts (as that term
is defined in Regulation S) with respect to the Initial Notes, and the
Company, the Guarantors, their Affiliates and each person acting on any of
their behalf (other than the Placement Agents) will comply with the offering
restrictions requirement of Regulation S.
(m) During the period of two years after the Closing Date,
the Company will not, and will not permit any of its affiliates (as defined
in Rule 144 under the Securities Act) to resell any of the Securities which
constitute "restricted securities" under Rule 144 that have been reacquired
by any of them.
5. CONDITIONS OF PLACEMENT AGENTS' OBLIGATIONS. The several
obligations of the Placement Agents to purchase and pay for the Initial
Notes, as provided herein, shall be subject to the following conditions:
(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date:
(i) there shall have not occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of Protection One or the Company's securities by any
"nationally recognized statistical rating organization," as such
term is defined for purposes of Rule 436(g)(2) under the Act; and
(ii) there shall not have occurred any change, or any
development reasonably likely to result in a change, in the
condition, financial or otherwise, or in the earnings, business
or operations of the Company and the Guarantors, taken as a
whole, from that set forth in the Offering Memorandum (exclusive
of any amendments or supplements thereto subsequent to the date
of this Agreement) that, in the Placement Agents' judgment, is
material and adverse and that makes it, in the Placement Agents'
judgment, impracticable to market the Initial Notes on the terms
and in the manner contemplated in the Offering Memorandum.
(b) The Placement Agents shall have received on the Closing
Date certificates from each of the Company and Protection One, as the case
may be, to the effect set forth in Section 5(a)(i) and to the effect that the
representations and warranties of the Company and the Guarantors contained in
this Agreement are true and correct as of the Closing Date and
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the Company and the Guarantors have complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Placement Agents shall have received on the Closing
Date an opinion, dated the Closing Date, in form and substance reasonably
satisfactory to the Placement Agents and counsel for the Placement Agents, of
Weil, Gotshal & Manges LLP, counsel for the Company and the Guarantors, to
the effect set forth in Exhibit B hereto.
(d) The Placement Agents shall have received on the Closing
Date an opinion, dated on the Closing Date, in form and substances reasonably
satisfactory to the Placement Agents and counsel for the Placement Agents, of
Renee T. Kingsley, Vice President-Legal Services and Chief Counsel for the
Company and the Guarantors, to the effect set forth in Exhibit C hereto.
(e) The Placement Agents shall have received an opinion,
dated the Closing Date, in form and substance reasonably satisfactory to the
Placement Agents, of Shearman & Sterling, counsel for the Placement Agents,
covering such matters as are customarily covered in such opinions.
(f) At the time this Agreement is executed and at the Closing
Date, the Placement Agents shall have received from Arthur Andersen LLP,
independent public accountants, dated as of the date of this Agreement and as
of the Closing Date, customary comfort letters addressed to the Placement
Agents and in form and substance reasonably satisfactory to the Placement
Agents and counsel for the Placement Agents with respect to the financial
statements and certain financial information of the Company, the Guarantors
and their respective subsidiaries contained or incorporated by reference in
the Offering Memorandum.
(g) Shearman & Sterling shall have been furnished with such
documents, in addition to those set forth above, as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Section 5 and in order to evidence the accuracy,
completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained.
(h) The Company, the Guarantors and the Trustee shall have
entered into the Indenture, which shall be in full force and effect on the
Closing Date.
(i) The Company and the Guarantors shall have entered into
the Registration Rights Agreement, which shall be in full force and effect on
the Closing Date.
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6. TERMINATION OF AGREEMENT.
This Agreement shall be subject to termination by notice given
by the Placement Agents to the Company and Protection One, if (a) after the
execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on or by,
as the case may be, any of the New York Stock Exchange or the National
Association of Securities Dealers, Inc., (ii) trading of any securities of
the Company or Protection One shall have been suspended on any exchange or in
any over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or
escalation of hostilities or any change in financial markets or any calamity
or crisis that, in the Placement Agents' judgment, is material and adverse
and (b) in the case of any of the events specified in clauses 6(a)(i) through
6(a)(iv), such event, singly or together with any other such event, makes it,
in the Placement Agents' judgment, impracticable to market the Notes on the
terms and in the manner contemplated in the Offering Memorandum.
7. WARRANTIES AND REPRESENTATIONS OF THE COMPANY AND THE
GUARANTORS. Each of the Company and the Guarantors, severally and jointly,
represent and warrant to, and agree with the Placement Agents that:
(a) (i) Each document, if any, filed or to be filed pursuant
to the Exchange Act and incorporated by reference in the Preliminary Offering
Memorandum or the Offering Memorandum complied or will comply when so filed
in all material respects with the Exchange Act and the applicable rules and
regulations of the Commission thereunder and (ii) the Preliminary Offering
Memorandum does not contain and the Offering Memorandum, in the form used by
the Placement Agents to confirm sales prior to and on the Closing Date (as
defined in Section 4), will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph do not apply to statements or omissions in the Preliminary
Memorandum or the Offering Memorandum based upon information relating to any
Placement Agent furnished to the Company in writing by such Placement Agent
expressly for use therein.
(b) Each subsidiary of Protection One, Inc. that has executed
the Senior Credit Facility (as defined in the Offering Memorandum), the
Discount Notes Indenture (as defined in the Offering Memorandum), the Senior
Notes Indenture (as defined in the Offering Memorandum, the Convertible Notes
Indenture (as defined in the Offering Memorandum), or will, prior to the
Closing Date, execute the New Senior Credit Facility (as defined in the
Offering Memorandum), in the capacity as guarantor is listed on Exhibit A
hereto.
(c) Neither the Company nor, to the Company's knowledge, any
affiliate (as defined in Rule 501(b) of Regulation D under the Act, an
"Affiliate") of the Company has directly, or through any agent, (i) sold,
offered for sale, solicited offers to buy or otherwise
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negotiated in respect of, any security (as defined in the Act) which is or
will be integrated with the sale of the Initial Notes in a manner that would
require the registration under the Act of the Initial Notes or (ii) engaged
in any form of general solicitation or general advertising in connection with
the offering of the Notes (as those terms are used in Regulation D under the
Act), or in any manner involving a public offering within the meaning of
Section 4(2) of the Act.
(d) The Initial Notes satisfy the requirements set forth in
Rule 144A(d)(3) under the Act.
(e) No form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) was used by the Company,
the Guarantors, their Affiliates or any of their respective representatives
(other than the Placement Agents, as to whom the Company and the Guarantors
make no representation) in connection with the offer and sale of the Initial
Notes contemplated hereby, including, but not limited to, articles, notices
or other communications, published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Initial Notes have been
issued and sold by the Company within the six-month period immediately prior
to the date hereof.
(f) Assuming the accuracy of the Placement Agents'
representations and warranties and compliance by the Placement Agents with
their agreements contained in Section 8 hereof, it is not necessary in
connection with the offer, sale and delivery of the Initial Notes to the
Placement Agents and to Eligible Purchasers in the manner contemplated by
this Agreement and the Offering Memorandum to register the Initial Notes
under the Act or to qualify the Indenture under the TIA.
(g) In connection with offers and sales to foreign purchasers
in accordance with Regulation S, none of the Company, the Guarantors, their
Affiliates or any person acting on any of their behalf has engaged or will
engage in any directed selling efforts (within the meaning of Regulation S)
with respect to the Initial Notes and the Company, the Guarantors, their
Affiliates and any person acting on any of their behalf have complied and
will comply with the offering restrictions requirement of Regulation S.
(h) Each of the Company and Protection One has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Offering Memorandum and is
duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and the Guarantors, taken as a whole.
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(i) This Agreement has been duly authorized, executed and
delivered by the Company and each Guarantor.
(j) The Notes have been duly authorized and, when executed
and authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Placement Agents in accordance with the
terms of this Agreement, will be valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to applicable
bankruptcy, fraudulent conveyance, insolvency or similar laws affecting
creditors' rights generally and general principles of equity, and will be
entitled to the benefits of the Indenture and the Registration Rights
Agreement.
(k) Each Guarantee has been duly authorized by each Guarantor
and, upon execution and delivery of the Indenture by each Guarantor and,
assuming due execution and authentication of the Notes in accordance with the
Indenture and delivery and payment for the Notes by the Placement Agents in
accordance with the terms of this Agreement, will (x) be a valid and binding
obligation of each Guarantor enforceable in accordance with its terms subject
to applicable bankruptcy, fraudulent conveyance, insolvency or similar laws
affecting creditors' rights generally and general principles of equity.
(l) The Indenture has been duly authorized and, when executed
and delivered by the Company, each Guarantor and the Trustee, will be a valid
and binding agreement of each Company and each Guarantor, enforceable in
accordance with its terms, subject to applicable bankruptcy, fraudulent
conveyance, insolvency or similar laws affecting creditors' rights generally
and general principles of equity and, insofar as the same contains a waiver
of usury laws, as to enforceability.
(m) The Registration Rights Agreement has been duly
authorized and, when executed and delivered by the Company and each
Guarantor, will be a valid and binding agreement of the Company and each
Guarantor, enforceable in accordance with its terms, subject to applicable
bankruptcy, fraudulent conveyance, insolvency or similar laws affecting
creditors' rights generally and general principles of equity and except as
rights to indemnification and contribution under the Registration Rights
Agreement may be limited under applicable law.
(n) The execution and delivery by the Company and each
Guarantor of, and the performance by the Company and each Guarantor of its
obligations under, this Agreement, the Indenture, the Registration Rights
Agreement, the Notes (in the case of the Company) and the Guarantees (in the
case of the Guarantors), and the issuance, sale and delivery of the Initial
Notes will not contravene (i) any provision of applicable law or the
certificate of incorporation or bylaws of the Company or each Guarantor or
(ii) any agreement or other instrument binding upon the Company or each
Guarantor or any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Company or any Guarantor, in each case
in this clause (ii) that is material to the Company and the Guarantors,
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taken as a whole, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company and each Guarantor of its respective obligations
under this Agreement, the Indenture, the Registration Rights Agreement, the
Notes (in the case of the Company) or the Guarantees (in the case of the
Guarantors), except those already obtained and those that are not material to
the Company and the Guarantors, taken as a whole, and such as may be required
by the securities or Blue Sky laws of the various states in connection with
the offer and sale of the Initial Notes and by Federal and state securities
laws with respect to the Company's obligations under the Registration Rights
Agreement.
(o) There has not occurred any material adverse change, or
any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or operations
of the Company and the Guarantors, taken as a whole, from that set forth in
the Final Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement).
(p) DSC Enterprises, Inc. is not a "Significant Subsidiary"
(as the term is defined in Section 1-02(v) of Regulation S-X).
Each of the Company and the Guarantors understand that the
Placement Agents and, for purposes of the opinions to be delivered to the
Placement Agents pursuant to Section 5 hereof, counsels to the Company and
Guarantors, and counsel to the Placement Agents will rely upon the accuracy
and truth of the foregoing representations and hereby consents to such
reliance.
8. WARRANTIES AND REPRESENTATIONS OF THE PLACEMENT AGENTS. Each
of the Placement Agents, severally and not jointly, represents, warrants and
covenants to the Company and agrees that:
(a) Such Placement Agent is a QIB, with such knowledge and
experience in financial and business matters as are necessary in order to
evaluate the merits and risks of an investment in the Initial Notes.
(b) Such Placement Agent is not acquiring the Initial Notes
with a view to any distribution thereof that would violate the Act or the
securities laws of any state of the United States or any other applicable
jurisdiction.
(c) No form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) has been or will be used
by such Placement Agent or any of its representatives in connection with the
offer and sale of any of the Initial Notes, including, but not limited to,
articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
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(d) Each of the Placement Agents agrees that, in connection
with the Exempt Resales, it will solicit offers to buy the Initial Notes only
from, and will offer to sell the Initial Notes only to, persons that it
reasonably believes to be Eligible Purchasers. Each of the Placement Agents
further (A) agrees that it will offer to sell the Initial Notes only to, and
will solicit offers to buy the Initial Notes only from, persons that it
reasonably believes to be Eligible Purchasers, (B) acknowledges and agrees
that, in the case of such Eligible Purchasers, such Initial Notes will not
have been registered under the Act and, if such Eligible Purchaser is a
person other than a foreign purchaser outside the United States, may be
resold, pledged or otherwise transferred by such Eligible Purchasers only (i)
to the Company or any subsidiary thereof, (ii) to a QIB in compliance with
Rule 144A, (iii) inside the United States to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Act
("Accredited Investor") that, prior to such transfer, furnishes to the
Trustee a signed letter containing representations and agreements relating to
the restrictions on transfer of the Initial Notes (the form of which letter
can be obtained from the Trustee) and, if such transfer is in respect of an
aggregate principal amount of Initial Notes of less than $100,000, an opinion
of counsel acceptable to the Company that such transfer is in compliance with
the Act, (iv) outside the United States in compliance with Rule 904 under the
Act, (v) pursuant to the exemption from registration provided by Rule 144
under the Act (if available) or (vi) pursuant to an effective registration
statement under the Act and in accordance with any applicable security laws
of any state of the United States or any other applicable jurisdiction and
(C) acknowledges that it will, and each subsequent holder is required to,
notify any purchaser of the security evidenced thereby of the resale
restrictions forth in (B) above.
(e) Each Placement Agent, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales outside the
United States that:
(i) such Placement Agent understands that no action has
been or will be taken in any jurisdiction by the Company that
would permit a public offering of the Initial Notes, or
possession or distribution of the Preliminary Offering Memorandum
or the Offering Memorandum or any other offering or publicity
material relating to the Initial Notes, in any country or
jurisdiction where action for that purpose is required;
(ii) such Placement Agent will comply with all applicable
laws and regulations in each jurisdiction in which it acquires,
offers, sells or delivers Initial Notes or has in its possession
or distributes the Preliminary Offering Memorandum or the
Offering Memorandum or any such other material, in all cases at
its own expense;
(iii) the Initial Notes have not been registered under the
Act and may not be offered or sold within the United States or
to, or for the account or benefit of, U.S. persons except in
accordance with Rule 144A or Regulation S under the Act or
pursuant to another exemption from the
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registration requirements of the Act and in accordance with
any applicable securities laws of any State in the United
States or any other applicable U.S. jurisdiction;
(iv) such Placement Agent has offered the Initial Notes
and will offer and sell the Initial Notes (A) as part of their
distribution at any time and (B) otherwise until 40 days after
the later of the commencement of the offering and the Closing
Date only in accordance with Rule 903 of Regulation S or as
otherwise permitted in Section 8(d); accordingly, neither such
Placement Agent, its Affiliates nor any persons acting on its or
their behalf have engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the
Initial Notes, and any such Placement Agent, its Affiliates and
any such persons have complied and will comply with the offering
restrictions requirement of Regulation S;
(v) such Placement Agent has (A) not offered or sold and,
prior to the date six months after the Closing Date, will not
offer or sell any Initial Notes to persons in the United Kingdom
except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (B) complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations
with respect to anything done by it in relation to the Initial
Notes in, from or otherwise involving the United Kingdom, and (C)
only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issue of the Initial Notes to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on;
(vi) such Placement Agent understands that the Initial
Notes have not been and will not be registered under the
Securities and Exchange Law of Japan, and represents that it has
not offered or sold, and agrees not to offer or sell, directly or
indirectly, any Initial Notes in Japan or for the account of any
resident thereof except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of
Japan and otherwise in compliance with applicable provisions of
Japanese law; and
15
<PAGE>
(vii) such Placement Agent agrees that, at or prior to
confirmation of sales of the Initial Notes, it will have sent to
each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases Initial
Notes from it during the restricted period a confirmation or
notice to substantially the following effect:
"The Notes covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered and
sold within the United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution at any time or (ii) otherwise
until 40 days after the later of the commencement of the offering and the
closing date of the offering, except in either case in accordance with
Regulation S (or Rule 144A if available) under the Securities Act. Terms
used above have the meaning given to them by Regulation S."
Terms used in this Section 8(e) and not defined have the
meanings given to them by Regulation S.
The Placement Agents acknowledge that the Company and, for
purposes of the opinions to be delivered to the Placement Agents pursuant to
Section 5 hereof, counsel for the Company and the Guarantors and counsel for
the Placement Agents will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and each Guarantor, jointly and severally,
agree to indemnify and hold harmless each Placement Agent and each person, if
any, who controls any Placement Agent within the meaning of either Section 15
of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum (as amended or supplemented if
the Company and the Guarantors shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in the light
of the circumstances under which they were made not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Placement Agent furnished to the Company in
writing by such Placement Agent expressly for use therein.
(b) Each Placement Agent agrees, severally and not jointly,
to indemnify and hold harmless the Company and the Guarantors and their
respective, directors, officers and each person, if any, who controls the
Company or any such Guarantor within the
16
<PAGE>
meaning of either Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Placement
Agent, but only with reference to information relating to such Placement
Agent furnished to the Company in writing by such Placement Agent expressly
for use in the Preliminary Offering Memorandum or the Offering Memorandum or
any amendments or supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 9(a) or 9(b), such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the reasonable fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying
party shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
firm (in addition to any local counsel) for all such indemnified parties and
that all such fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated, in the case of parties indemnified pursuant to Section 9(a),
and by the Company, in the case of parties indemnified pursuant to Section
9(b). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and
expenses of counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request, (ii) the indemnifying party has
been provided with a copy of the proposed terms of the settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement; provided that the indemnifying
party shall not be required to reimburse such amounts pursuant to a
settlement effected without its consent pursuant to this sentence during the
period that such indemnifying party is contesting such reimbursement
obligation in good faith by appropriate proceedings. No indemnifying party
shall, without the prior written
17
<PAGE>
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
(d) To the extent the indemnification provided for in Section
9(a) or 9(b) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein,
then each indemnifying party under such paragraph, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by such indemnifying party from the offering of
the Initial Notes or (ii) if the allocation provided by clause 9(d)(i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 9(d)(i) above
but also the relative fault of such indemnifying party in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Guarantors, on the one
hand, and the Placement Agents, on the other hand, in connection with the
offering of such Initial Notes shall be deemed to be in the same respective
proportions as the net proceeds from the offering of such Initial Notes
(before deducting expenses) received by the Company and the total discounts
and commissions received by the Placement Agents in respect thereof, bear to
the aggregate offering price of such Initial Notes. The relative fault of the
Company and the Guarantors, on the one hand, and of the Placement Agents, on
the other hand, shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Guarantors or by the Placement Agents and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Placement Agents'
respective obligations to contribute pursuant to this Section 9 are several
in proportion to the respective principal amount of Initial Notes they have
purchased hereunder, and not joint.
(e) The Company, the Guarantors and the Placement Agents
agree that it would not be just or equitable if contribution pursuant to this
Section 9 were determined by PRO RATA allocation (even if the Placement
Agents were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 9(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to
in Section 9(d) shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, no
Placement Agent shall be required to contribute any amount in excess of the
amount by which the total price at which the Initial Notes resold by it in
the initial placement of such Initial Notes were offered to
18
<PAGE>
investors exceeds the amount of any damages that such Placement Agent has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 9
are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in
this Section 9 and the representations, warranties and other statements of
the Company and the Guarantors contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of
this Agreement, (ii) any investigation made by or on behalf of any Placement
Agent or any person controlling any Placement Agent or by or on behalf of the
Company or any Guarantor or any of their respective officers or directors or
controlling persons and (iii) acceptance of and payment for any of the
Initial Notes.
10. NOTICES. All statements, requests, notices and agreements
shall be in writing or by telegram or facsimile and, if to the Placement
Agents, shall be sufficient in all respects if delivered or sent by
registered mail to Morgan Stanley & Co. Incorporated, 1585 Broadway, New
York, New York 10036, Attention: High Yield New Issues Group, and, if to the
Company or the Guarantors shall be sufficient in all respects if delivered or
sent by registered mail to the Company at 6011 Bristol Parkway, Culver City,
California 90230, Attention: President.
11. CONSTRUCTION. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York.
The section headings in this Agreement have been inserted as a matter of
convenience of reference and are not a part of this Agreement.
12. PARTIES IN INTEREST. The Agreement herein set forth has been
and is made solely for the benefit of the Placement Agents and the Company
and the Guarantors, and the controlling persons, directors and officers
referred to in Section 9 hereof, and their respective successors, assigns,
executors and administrators, and no other person shall acquire or have any
right under or by virtue of this Agreement. Nothing in this Agreement is
intended or shall be construed to give to any other person, firm or
corporation (including, without limitation, any purchaser of the Initial
Notes from a Placement Agent or any subsequent holder thereof) any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained.
The term "successor" as used in this Agreement shall not include
any purchaser, as such purchaser, of any Initial Notes from any Placement
Agent or any subsequent holder thereof or any purchaser, as such purchaser,
of any Notes or any subsequent holder thereof.
19
<PAGE>
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts which, taken together, shall constitute one and the same
instrument.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicate hereof,
whereupon it will become a binding agreement between the Company, the
Guarantors and the Placement Agents in accordance with its terms.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
FIRST UNION CAPITAL MARKETS,
a division of WHEAT FIRST SECURITIES, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
TD SECURITIES (USA) INC.
Acting severally on behalf of themselves and the
several Placement Agents named in Schedule I hereto.
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/ Bryan W. Andrzejewski
-----------------------------------
Name: Bryan W. Andrzejewski
Title: Vice President
20
<PAGE>
The foregoing Placement Agreement is hereby confirmed as of the date first above
written.
PROTECTION ONE ALARM MONITORING, INC.
By: /s/ John W. Hesse
---------------------------------
Name: John W. Hesse
Title: Executive Vice President
PROTECTION ONE, INC.
By: /s/ Montgomery W. Cornell
-------------------------------
Name: Montgomery W. Cornell
Title: Vice President
PROTECTION ONE INTERNATIONAL, INC.
By: /s/ Montgomery W. Cornell
-------------------------------
Name: Montgomery W. Cornell
Title: Vice President
PROTECTION ONE INVESTMENTS, INC.
By: /s/ Montgomery W. Cornell
-------------------------------
Name: Montgomery W. Cornell
Title: Vice President
(SIGNATURES CONTINUED ON NEXT PAGE)
<PAGE>
DSC ENTERPRISES, INC.
By: /s/ Montgomery W. Cornell
-------------------------------
Name: Montgomery W. Cornell
Title: Vice President
NETWORK MULTI-FAMILY SECURITY CORPORATION
By: /s/ Pat McColpin
-------------------------------
Name: Pat McColpin
Title: Vice President and
Chief Financial Officer
COMSEC NARRAGANSETT SECURITY, INC.
By: /s/ Montgomery W. Cornell
-------------------------------
Name: Montgomery W. Cornell
Title: Vice President
22
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NAME OF PLACEMENT AGENT AMOUNT
<S> <C>
Morgan Stanley & Co. Incorporated $154,000,000
Chase Securities Inc. 70,000,000
First Union Capital Markets, a division of 42,000,000
Wheat First Securities, Inc.
Nationsbanc Montgomery Securities, LLC 42,000,000
TD Securities (USA) Inc. 42,000,000
------------
Total $350,000,000
------------
------------
</TABLE>
23
<PAGE>
EXHIBIT A
SUBSIDIARIES OF PROTECTION ONE, INC.
Protection One International, Inc., a Delaware corporation
Protection One Investments, Inc., a Delaware corporation
DSC Enterprises, Inc., a Maryland corporation
Network Multi-Family Security Corporation, a Delaware corporation
Protection One Alarm Monitoring, Inc., a Delaware corporation
Comsec Narragansett Security, Inc., a Delaware corporation
<PAGE>
EXHIBIT B
OPINION OF COUNSEL FOR THE COMPANY
The opinion of the counsel for the Company to be delivered pursuant
to Section 5(c) of the Placement Agreement shall be to the effect that:
A. The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and
to conduct its business as now being conducted.
B. Each of Protection One, Protection One International, Inc.,
Protection One Investments, Inc., Network Multi-Family Security Corporation
and Comsec/Narragansett Security, Inc. (the "Delaware Guarantors")) has been
duly incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the corporate
power and authority to own its property and to conduct its business as now
being conducted
C. The Placement Agreement has been duly authorized, executed and
delivered by the Company, the Delaware Guarantors and DSC Enterprises, Inc.
(the "Other Guarantor" and, collectively with the Delaware Guarantors, the
"Guarantors").
D. The Notes have been duly authorized by the Company and, when
executed and authenticated in accordance with the provisions of the Indenture
and delivered to and paid for by the Placement Agents in accordance with the
terms of the Placement Agreement, will be valid and binding obligations of
the Company, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity, and will be entitled to the
benefits of the Indenture and the Registration Rights Agreement.
E. The Guarantees have been duly authorized by the Guarantors
and, upon execution and delivery of the Indenture by each Guarantor and,
assuming due execution and authentication of the Notes in accordance with the
Indenture, will be valid and binding obligations of the Guarantors,
enforceable in accordance with their terms, subject to applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally and general
principles of equity, and will be entitled to the benefits of the Indenture
and the Registration Rights Agreement.
F. Each of the Indenture and the Registration Rights Agreement has
been duly authorized, executed and delivered by, and (assuming the due
authorization, execution and delivery of the Indenture by the trustee and the
Registration Rights Agreement by the Placementt Agents) is a valid and
binding agreement of, the Company and each Guarantor, enforceable in
<PAGE>
B-2
accordance with its terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and general principles of
equity and except as rights to indemnification and contribution under the
Registration Rights Agreement may be limited under applicable law.
G. The execution and delivery by the Company and each Delaware
Guarantor of, and the performance by the Company and each Delaware Guarantor
of their obligations under, the Placement Agreement, the Indenture, the
Registration Rights Agreement, the Notes (in the case of the Company) and the
Guarantees (in the case of the Delaware Guarantors) will not contravene any
provision of applicable New York, Delaware corporate or federal law
(excluding federal securities laws, as to which no opinion is expressed in
this paragraph G, and state securities or blue sky laws, as to which we
express no opinion) or the certificate of incorporation or by-laws of the
Company or any Delaware Guarantor or, to the best of such counsel's
knowledge, any material agreement or other instrument binding upon the
Company or any Delaware Guarantor, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any Delaware Guarantor, and no
consent, approval, authorization or order of, or qualification with, any New
York, Delaware corporate or federal governmental body or agency is required
for the performance by the Company and each Delaware Guarantor of their
obligations under the Placement Agreement, the Indenture, the Registration
Rights Agreement, the Notes (in the case of the Company) or the Guarantees
(in the case of the Guarantors), except such as may be required by the
Federal securities laws (as to which we express no opinion in this paragraph
G) and securities or Blue Sky laws of the various states in connection with
the offer and sale of the Notes and by Federal and state securities laws with
respect to the obligations of the Company and the Delaware Guarantors under
the Registration Rights Agreement.
H. Neither the Company nor Protection One is, or after giving effect
to the offering and sale of the Notes and the application of the proceeds
thereof as described in the Offering Memorandum, will be, an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
I. The Indenture, the Notes, the Guarantees and the Registration
Rights Agreement conform in all material respects as to legal matters to
their respective descriptions contained under the caption "Description of the
Notes."
J. The statements in the Offering Memorandum under the caption
"Certain U.S. Federal Income Tax Considerations," insofar as such statements
constitute matters of law or legal conclusions, are accurate in all material
respects.
K. Such counsel (i) is of the opinion that each document incorporated by
reference in the Offering Memorandum (except for financial statements and
schedules and notes thereto
<PAGE>
B-3
and other financial and statistical data included therein as to which such
counsel need not express any opinion), complied as to form when filed with
the Commission in all material respects with the Exchange Act and the rules
and regulations of the Commission thereunder and (ii) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not express any
belief) the Offering Memorandum when issued contained, or as of the date such
opinion is delivered contains, any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
L. Assuming the representations and warranties of the Company, the
Guarantors and the Placement Agents in the Placement Agreement are true,
correct and complete and assuming compliance by the Company, the Guarantors
and the Placement Agents with the covenants set forth in the Placement
Agreement, it is not necessary in connection with the offer, sale and
delivery of the Notes to the Placement Agents under the Placement Agreement
or in connection with the initial resale of such Notes by the Placement
Agents in accordance with the Placement Agreement to register the Notes or
the Guarantees under the Securities Act of 1933 or to qualify the Indenture
under the Trust Indenture Act of 1939, it being understood that no opinion is
expressed as to any subsequent resale of any Note.
With respect to paragraph K above, counsel may state that his or her
opinion and belief are based upon his or her participation in the preparation
of the Offering Memorandum (and any amendments or supplements thereto) and
review and discussion of the contents thereof [and review of the documents
incorporated by reference therein], but are without independent check or
verification except with respect to paragraphs I and J.
<PAGE>
EXHIBIT C
Form of Opinion of Vice President-Legal Services and Chief Counsel of
the Company
The opinion of the Vice President-Legal Services and chief Counsel of
the Company to be delivered pursuant to Section 5(d) of the Placement
Agreement shall be to the effect that:
(A) After due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any
Guarantor is a party or to which any of the properties of the Company or
any Guarantor is subject other than proceedings fairly summarized in all
material respects in the Offering Memorandum and proceedings which such
counsel believes are not likely to have a material adverse effect on
Protection One and the Subsidiaries, taken as a whole, or on the power or
ability of the Company or any Guarantor to perform its obligations under
the Placement Agreement, the Indenture, the Registration Rights Agreement,
the Notes (in the case of the Company) or the Guarantees (in the case of
the Guarantors) or to consummate the transactions contemplated by the
Offering Memorandum.
