CONTRIBUTION AGREEMENT
Between
WESTERN RESOURCES, INC.
and
PROTECTION ONE, INC.
Dated as of July 30, 1997
TABLE OF CONTENTS
Page
RECITALS......................................................................1
ARTICLE I
The Share Issuance; Closing
1.1. The Share Issuance......................................................3
1.2. Legends.................................................................4
ARTICLE II
Representations and Warranties
2.1. Representations and Warranties of Western...............................4
(a) Organization, Good Standing and Qualification....................5
(b) Capitalization...................................................6
(c) Corporate Authority and Approval.................................7
(d) Governmental Filings; No Violations..............................7
(e) Financial Statements.............................................9
(f) Absence of Certain Changes.......................................9
(g) Litigation and Liabilities......................................10
(h) Employee Benefits...............................................10
(i) Compliance with Laws; Permits...................................13
(j) Environmental Matters...........................................14
(k) Tax Matters.....................................................15
(l) Taxes...........................................................15
(m) Labor Matters...................................................16
(n) Insurance.......................................................16
(o) Intellectual Property...........................................17
(p) Brokers and Finders.............................................18
(q) Real Property...................................................19
(r) Security Systems Business.......................................20
(s) Westinghouse Acquisition Agreement .............................20
2.2. Representations and Warranties of Protection One.......................21
(a) Organization, Good Standing and Qualification...................21
(b) Capitalization..................................................22
(c) Corporate Authority and Approval................................24
(d) Governmental Filings; No Violations.............................24
(e) Protection One Reports; Financial Statements ...................26
(f) Absence of Certain Changes......................................26
(g) Litigation and Liabilities......................................27
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(h) Employee Benefits...............................................28
(i) Compliance with Laws; Permits...................................30
(j) Takeover Statutes...............................................31
(k) Environmental Matters...........................................31
(l) Tax Matters.....................................................32
(m) Taxes...........................................................32
(n) Labor Matters...................................................33
(o) Insurance.......................................................33
(p) Intellectual Property...........................................33
(q) Brokers and Finders.............................................35
(r) Real Property...................................................35
(s) Opinion of Financial Advisor....................................36
ARTICLE III
Covenants
3.1. Interim Operations.....................................................37
3.2. Acquisition Proposals..................................................40
3.3. Information Supplied...................................................42
3.4. Stockholders Meeting...................................................43
3.5. Filings; Other Actions; Notification...................................43
3.6. Taxation...............................................................46
3.7. Access.................................................................46
3.8. Nasdaq Listing.........................................................47
3.9. Publicity..............................................................47
3.10. Election to Protection One's Board of Directors........................47
3.11. Expenses...............................................................48
3.12. Takeover Statute.......................................................48
3.13. Indemnification; Directors' and Officers' Insurance....................49
3.14. Headquarters...........................................................51
3.15. Post-Closing Actions; Security Systems Business........................51
3.16. Indemnification. .....................................................52
3.17. Dividend...............................................................53
3.18. Standstill.............................................................54
3.19. New Option Plan .......................................................55
3.20. Closing Schedule ......................................................56
ARTICLE IV
Conditions
4.1. Conditions to Each Party's Obligation to Effect the
Share Issuance.......................................................57
(a) Stockholder Approval............................................57
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(b) Nasdaq Quotation................................................57
(c) Regulatory Consents.............................................57
(d) Litigation......................................................57
4.2. Conditions to Obligations of Protection One............................58
(a) Representations and Warranties..................................58
(b) Performance of Obligations of Western...........................58
(c) Consents Under Agreements.......................................58
(d) Cash Amount.....................................................58
(e) Transferred Subsidiary Shares...................................59
(f) No Transferred Subsidiary Material Adverse Effect...............59
4.3. Conditions to Obligation of Western....................................59
(a) Representations and Warranties..................................59
(b) Performance of Obligations of Protection One....................60
(c) Consents Under Agreements.......................................60
(d) Tax Opinion.....................................................60
(e) Employment and Non-Compete Agreements...........................60
(f) Acquired Shares.................................................60
(g) No Protection One Material Adverse Effect.......................61
ARTICLE V
Termination
5.1. Termination by Mutual Consent..........................................61
5.2. Termination by Either Protection One or Western........................61
5.3. Termination by Western.................................................61
5.4. Termination by Protection One..........................................62
5.5. Effect of Termination and Abandonment..................................62
ARTICLE VI
Miscellaneous and General
6.1. Survival...............................................................63
6.2. Modificaion or Amendment...............................................63
6.3. Waiver of Conditions...................................................64
6.4. Counterparts...........................................................64
6.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL..........................64
6.6. Notices................................................................65
6.7. Entire Agreement; No Other Representations.............................66
6.8. No Third Party Beneficiaries...........................................67
6.9. Obligations of Protection One and of Western...........................67
6.10. Severability...........................................................67
6.11. Interpretation.........................................................67
6.12. Assignment.............................................................67
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CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT (hereinafter called this "Agreement"), dated as
of July 30, 1997, among Western Resources, Inc., a Kansas corporation
("Western") and Protection One, Inc., a Delaware corporation ("Protection One").
RECITALS
WHEREAS, the respective boards of directors of each of Protection One
and Western have each approved the issuance (the "Protection One Share
Issuance") by Protection One to Western as of the Closing (as defined below) of
that number of shares of Common Stock, par value $0.01 per share, of Protection
One ("Common Stock") equal to the product of (i) .801 and (ii) the sum of (x)
the aggregate number of shares of Common Stock outstanding as of the Closing
(including, for purposes of calculating the outstanding number of shares of
Common Stock, the shares of Common Stock to be issued pursuant to this Agreement
but excluding any shares of Common Stock issued pursuant to the Stock Option
Agreement (as defined below) at or prior to the Closing) and (y) the aggregate
number of shares of Common Stock issuable as of the Closing pursuant to
outstanding Options and Warrants (each as defined in Section 2.2(b) below) after
giving effect to the distributions referred to in Section 3.17 (the "Acquired
Shares") upon the terms and subject to the conditions set forth herein;
WHEREAS, the board of directors of Protection One has determined (i) to
declare and pay a dividend of $7.00 on each share of Common Stock held by each
Holder of Record (as defined in Section 3.17 below) and (ii) to distribute (as a
cash bonus, in the case of Holders of Record of Options or Warrants who are
directors, officers or employees of Protection One or any of its Subsidiaries,
or as an antidilution cash payment, in the case of Holders of Record of Warrants
who are entitled, pursuant to the terms governing such Warrants, to elect such a
cash payment) $7.00 with respect to each share of Common Stock issuable upon
exercise of Options or Warrants held by each Holder of Record or, in accordance
with the agreements and other documents governing such Options and Warrants, to
reduce the exercise price of, and/or increase the number of shares of
Common Stock issuable upon exercise of, such Options and Warrants;
WHEREAS, the respective boards of directors of each of Protection One
and Western have each approved the Protection One Share Issuance in
consideration of the contribution (together with the Protection One Share
Issuance, the "Share Issuance") to Protection One by Western of (i) all of the
issued and outstanding common stock, no par value, of WestSec, Inc., a Kansas
corporation ("WestSec") and all of the issued and outstanding common stock, no
par value, of Westar Security, Inc., a Kansas corporation ("Westar Security")
(all issued and outstanding shares of such common stock of WestSec and Westar
Security being hereinafter referred to as the "Subsidiary Shares") and (ii)
$250,000,000 in cash and certain publicly traded securities plus $7.00
multiplied by the aggregate number of shares of Common Stock of Protection One
outstanding or issuable upon exercise of Options and Warrants outstanding as of
the Closing (the "Cash Amount") upon the terms and subject to the conditions set
forth herein;
WHEREAS, the respective boards of directors of each of Protection One
and Western have determined that the Share Issuance is fair to and in the best
interests of it and its shareholders;
WHEREAS, it is intended that, for federal income tax purposes, the
contribution of the Subsidiary Shares and the Investment Shares (as defined in
Section 1.1 below) shall qualify as a contribution to a controlled corporation
under the provisions of Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder;
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to Western's willingness to enter into this
Agreement, (i) Protection One and Western have entered into a Stock Option
Agreement dated as of the date of this Agreement and attached hereto as Exhibit
A (the "Stock Option Agreement"), pursuant to which Protection One has granted
to Western an option to purchase shares of Common Stock of Protection One equal
to up to 19.9% of the outstanding number of shares of Common Stock under certain
circumstances and (ii) Western and certain stockholders of Protection One have
entered into an Option and Voting Agreement dated as of the date of this
Agreement(the "Option and Voting Agreement"), pursuant to
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which such stockholders have agreed, among other things, to vote their shares of
Common Stock of Protection One in favor of the amendment (the "Charter
Amendment") to the certificate of incorporation of Protection One increasing the
number of authorized shares of Common Stock of Protection One to 100,000,000 and
the Share Issuance and have granted to Western an option to purchase their
respective shares of Common Stock of Protection One under certain circumstances;
and
WHEREAS, Western and Protection One desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Share Issuance; Closing
1.1. The Share Issuance. Upon the terms and subject to the conditions
set forth herein, in the Share Issuance (i) Protection One shall issue and
transfer to Western the Acquired Shares and (ii) in consideration therefor,
Western shall contribute to Protection One the Subsidiary Shares and the Cash
Amount. Without limiting the generality of the foregoing, Protection One and
Western acknowledge and agree that up to $10 million of the Cash Amount may be
contributed in the form of securities (the "Investment Shares") issued by one or
more entities engaged in the business of selling and servicing residential or
commercial monitoring and response security systems which securities are listed
for trading on a national securities exchange or quoted on an interdealer
quotation system. Each such Investment Share so contributed by Western shall be
valued at the higher of (i) the closing sale price thereof on a national
securities exchange or interdealer quotation system two business days prior to
the Closing Date and (ii) the historical price at which Western or one of its
Subsidiaries purchased such Investment Share. Except for any Investment Shares
contributed by Western in accordance with this Section 1.1, the Cash Amount
shall be contributed entirely in cash. The closing of the Share Issuance (the
"Closing") shall take place as promptly as practicable after the satisfaction or
waiver of the conditions set forth in
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Article IV. At the Closing, (i) Protection One shall deliver to Western a
certificate representing the Acquired Shares issued in the name of Western or
its designee and bearing the legends set forth in Section 1.2 and (ii) Western
shall deliver to Protection One (A) certificates representing the Subsidiary
Shares and the Investment Shares, duly endorsed in blank or accompanied by stock
powers in blank with all necessary transfer stamps affixed thereto (at the
expense of Western), and such other instruments or documents as are necessary to
transfer the Subsidiary Shares and Investment Shares to Protection One free and
clear of all liens, claims, pledges, charges, security interests, limitations,
encumbrances and restrictions whatsoever of any kind ("Liens"), and (B) the cash
portion of the Cash Amount by wire transfer in immediately available funds to
such bank account designated by Protection One pursuant to written instructions
delivered by Protection One to Western not fewer than two business days prior to
the Closing Date.
1.2. Legends. The certificate representing the Acquired Shares
delivered pursuant to Section 1.1 and each certificate issued upon the
registration of the transfer to Protection One of the Subsidiary Shares
delivered pursuant to Section 1.1 shall bear a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
ARTICLE II
Representations and Warranties
2.1. Representations and Warranties of Western. Except as set forth in
the corresponding sections or subsections of the disclosure letter delivered to
Protection One by Western on or prior to entering into this Agreement (the
"Western Disclosure Letter"), Western hereby represents and warrants to
Protection One that:
(a) Organization, Good Standing and Qualification. Western and each of
the Transferred Subsidiaries (as defined below) is a corporation duly organized,
validly
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existing and in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority and
all necessary governmental approvals to own and operate its properties and
assets and to carry on its business as presently conducted and is qualified to
do business and is in good standing as a foreign corporation in each juris-
diction where the ownership or operation of its properties or conduct of its
business requires such qualification, except where the failure to be so
qualified or in good standing, when taken together with all other such failures,
is not reasonably likely to have a Transferred Subsidiary Material Adverse
Effect (as defined below). Western has made available to Protection One a
complete and correct copy of Western's and each Transferred Subsidiary's
certificates of incorporation and by-laws (or similar organizational documents),
each as amended to date. Western's and each Transferred Subsidiary's
certificates of incorporation and by-laws (or similar organizational documents)
so delivered are in full force and effect, and neither Western nor any
Transferred Subsidiary is in violation of any provision of its certificate of
incorporation or by-laws (or similar organizational documents).
As used in this Agreement, the term (i) "Subsidiary" means, with
respect to any party, as the case may be, any entity, whether incorporated or
unincorporated, of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or
indirectly owned or controlled by such party or by one or more of its respective
Subsidiaries or by such party and any one or more of its respective
Subsidiaries, (ii) "Transferred Subsidiaries" means WestSec, Westar Security and
each of their respective Subsidiaries that are engaged in the sale and service
of residential and commercial monitoring and response security systems, and
(iii) "Transferred Subsidiary Material Adverse Effect" means any change or
effect that is materially adverse to the financial condition, properties,
business or results of operations of the Transferred Subsidiaries, taken as a
whole; provided, however, that any such effect resulting from any change (i) in
law, rule, or regulation that applies to both Protection One and the Transferred
Subsidiaries or (ii) in economic or business conditions generally or in the
security monitoring industry specifically shall not be considered when
determining if a Transferred Subsidiary Material Adverse Effect has occurred.
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(b) Capitalization. The authorized capital stock of WestSec consists of
1,000 shares of common stock, no par value, all of which are issued and
outstanding. The authorized capital stock of Westar Security consists of 1000
shares of common stock, no par value, all of which are issued and outstanding.
All of the outstanding shares of Common Stock of WestSec and Westar Security
have been duly authorized and are validly issued, fully paid and nonassessable.
There are no preemptive or other outstanding rights, options, warrants,
conversion rights, convertible securities, stock appreciation rights, redemption
rights, repurchase rights, agreements, arrangements or commitments to issue or
to sell any shares of capital stock or other securities of WestSec or Westar
Security or any of the other Transferred Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of WestSec or Westar
Security or any of the other Transferred Subsidiaries, and no securities or
obligation evidencing such rights are authorized, issued or outstanding. There
are no outstanding contractual obligations of any of the Transferred
Subsidiaries to repurchase, redeem or otherwise acquire any capital stock of any
Transferred Subsidiary or to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in any such Transferred
Subsidiary or any other entity. All of the outstanding shares of Capital Stock
of WestSec and Westar Security are owned beneficially by Western and all of the
shares of capital stock of the other Transferred Subsidiaries are owned
beneficially and of record by WestSec, Westar Security or another Transferred
Subsidiary, in each case free and clear of all Liens. None of WestSec, Westar
Security or any of the other Transferred Subsidiaries has outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or convertible into or exercisable for securities having the right to
vote) with the stockholders of Western on any matter ("Western Voting Debt"). A
true and complete list of all of the Transferred Subsidiaries, together with the
jurisdiction of incorporation of each such Transferred Subsidiary and the
percentage of each Transferred Subsidiary's outstanding capital stock owned by
WestSec, Westar Security or another Transferred Subsidiary, or by Western or any
of its Subsidiaries, is set forth in Section 2.1(b) of the Western Disclosure
Letter. There are no voting trusts, shareholder agreements, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
any shares of capital stock of any
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Transferred Subsidiary. The stock register of each Transferred Subsidiary
accurately records (i) the name and address of each person owning shares of
capital stock of such Transferred Subsidiary and (ii) the certificate number of
each certificate evidencing shares of capital stock issued by such Transferred
Subsidiary, the number of shares evidenced by each such certificate, the date of
issuance thereof and, in the case of cancellation, the date of cancellation.
(c) Corporate Authority and Approval. (i) No vote of holders of capital
stock of Western is necessary to approve this Agreement and the Share Issuance
and the other transactions contemplated hereby. Western has all requisite
corporate power and authority and has taken all corporate action necessary in
order to execute, deliver and perform its obligations under this Agreement and
the Stock Option Agreement, as the case may be, and to consummate the Share
Issuance and the other transactions contemplated hereby and thereby. This
Agreement and the Stock Option Agreement are legal, valid and binding agreements
of Western, enforceable against Western in accordance with their terms.
(ii) The board of directors of Western has approved this Agreement and
the Stock Option Agreement and the consummation of the Share Issuance and the
other transactions contemplated hereby and thereby.
(d) Governmental Filings; No Violations. (i) Other than the filings
and/or notices (A) under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the Exchange Act and the Securities Act of
1933, as amended (the "Securities Act"), (B) to comply with state securities or
"blue-sky" laws, and (C) other filings listed in the Western Disclosure Letter,
no notices, reports or other filings are required to be made by Western or any
Transferred Subsidiary with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by Western or any Transferred
Subsidiary from, any domestic governmental or regulatory authority, agency,
commission, body or other governmental entity ("Governmental Entity"), in
connection with the execution and delivery of this Agreement and the Stock
Option Agreement by Western and the consummation by Western of the Share
Issuance and the other transactions contemplated hereby and thereby, except
those that the failure to make or obtain are not, individually or in the
aggregate, reasonably likely to have a Transferred
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Subsidiary Material Adverse Effect or prevent, materially delay or materially
impair the ability of Western to consummate the transactions contemplated by
this Agreement.
(ii) Subject to the approvals, amendments, filings, notices, reports,
consents and authorizations referred to in paragraph (i) of this Section 2.1(d),
the execution, delivery and performance of this Agreement, the Stock Option
Agreement and the Option and Voting Agreement by Western does not, and the
consummation by Western of the Share Issuance and the other transactions
contemplated hereby and thereby will not, constitute or result in (A) a breach
or violation of, or a default under, the certificate of incorporation or by-laws
(or similar organizational documents) of Western or any Transferred Subsidiary,
(B) breach or violation of any law, rule, regulation, order, judgment or decree
applicable to Western or any Transferred Subsidiary or by which any of their
respective properties or assets is bound or affected, or (C) breach or violation
of, or a default under, result in the loss of any material benefit under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a Lien on the assets of Western or any
Transferred Subsidiary (with or without notice, lapse of time or both) pursuant
to, any agreement, lease, contract, note, mortgage, indenture, arrangement or
other obligation (collectively, "Contracts") to which Western or any Transferred
Subsidiary is a party or by which Western or any Transferred Subsidiary or any
of their respective properties or assets is bound or affected, except, in the
case of clause (B) or (C) above, for any breach, violation, default,
acceleration, creation or change that, individually or in the aggregate, is not
reasonably likely to have a Transferred Subsidiary Material Adverse Effect or
prevent, materially delay or materially impair the ability of Western to
consummate the transactions contemplated by this Agreement. Section 2.1(d) of
the Western Disclosure Letter sets forth a correct and complete list of
Contracts of Western and the Transferred Subsidiaries pursuant to which consents
or waivers are or may be required prior to consummation of the transactions
contemplated by this Agreement (subject to the exception set forth with respect
to clauses (B) and (C) above).
(e) Financial Statements. The balance sheets (including the related
notes and schedules) set forth in Section 2.1(e) of the Western Disclosure
Letter fairly present the financial position of the Transferred
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Subsidiaries as of their respective dates and the statements of income and of
changes in financial position (including any related notes and schedules) set
forth in Section 2.1(e) of the Western Disclosure Letter fairly present the
results of operations, retained earnings and changes in financial position, as
the case may be, of the Transferred Subsidiaries for the periods set forth
therein (subject, to notes and normal and recurring year-end audit adjustments
that will not be material in amount or effect), and were prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
during the periods involved, except as may be noted therein.
(f) Absence of Certain Changes. Since December 31, 1996 the Transferred
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than according to, the ordinary and
usual course of such businesses and there has not been (i) any change in the
financial condition, properties, business or results of operations of any
Transferred Subsidiary or any development or combination of developments that,
individually or in the aggregate, has had or is reasonably likely to have a
Transferred Subsidiary Material Adverse Effect; (ii) any material damage,
destruction or other casualty loss with respect to any material asset or
property owned, leased or otherwise used by any Transferred Subsidiary, whether
or not covered by insurance; (iii) any declaration, setting aside or payment of
any dividend or other distribution in respect of the capital stock of WestSec
or Westar Security or any redemption, purchase or other acquisition of their
respective securities; or (iv) any change by any Transferred Subsidiary in
accounting principles, practices or methods. Since December 31, 1996, except as
provided for herein, there has not been any increase in the compensation payable
or that could become payable by any Transferred Subsidiary to officers or key
employees or any amendment of any of the Compensation and Benefit Plans other
than increases or amendments in the ordinary course of business consistent with
past practice.
(g) Litigation and Liabilities. (i) There are no civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
(collectively, "Actions") pending or, to the knowledge of Western, threatened
against any Transferred Subsidiary except for those that are not, individually
or in the aggregate, reasonably likely to have a Transferred Subsidiary Material
Adverse Effect and could not reasonably be expected to adversely
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affect the legality, validity or enforceability of this Agreement or the
consummation of the transactions contemplated hereby.
(ii) There are no obligations or liabilities, whether or not accrued,
contingent or otherwise and whether or not required to be disclosed, including
those relating to matters involving any Environmental Law (as defined in Section
2.1(j)), or any other facts or circumstances that could result in any claims
against, obligations or liabilities of, or Liens on any assets or properties
of, any Transferred Subsidiary except for (A) obligations or liabilities under
the SAMCO Agreements (as defined in the Westinghouse Acquisition Agreement), and
(B) obligations and liabilities other than for borrowed money (1) adequately
reflected or reserved against on the balance sheets for the Transferred
Subsidiaries set forth in Section 2.1(e) of the Western Disclosure Letter, (2)
incurred since December 31, 1996 in the ordinary course of business consistent
with past practice of the Transferred Subsidiaries or (3) that are not
reasonably likely, individually or in the aggregate, to have a Transferred
Subsidiary Material Adverse Effect.
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health, incentive compensation, disability, retiree
medical, life insurance, fringe benefits or other plan, agreement, policy or
arrangement established or administered by any of the Transferred Subsidiaries
that covers employees, directors, former employees or former directors of any
Transferred Subsidiary (the "Compensation and Benefit Plans") and any (i) trust
agreement or insurance contract forming a part of such Compensation and Benefit
Plans (ii) the most recent annual report on Form 5500 (and related schedules and
financial statements or opinions required in connection therewith, (iii) the
most recent actuarial report and financial statements with respect to each
Compensation and Benefit Plan, if applicable, (iv) the most recent summary plan
description required to be provided to plan participants, and (v) the most
recent IRS determination letter, if any, has been made available to Protection
One prior to the date hereof. The Compensation and Benefit
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Plans are listed in Section 2.1(h) of the Western Disclosure Letter.
(ii) Except for instances of non-compliance which would not be
material, all Compensation and Benefit Plans are, and have been operated, in
compliance with all applicable law, including the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each Compensation
and Benefit Plan that is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA (a "Pension Plan") and that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service (the "IRS") that the Pension Plan and related
trusts are qualified and exempt from federal income taxes under Sections 401(a)
and 501(a), respectively, of the Code, and, there are no circumstances
reasonably likely to result in revocation of any such favorable determination
letter. No event has occurred and no circumstances exist that have adversely
affected or could reasonably be expected to adversely affect the tax
qualification of such Pension Plans. As of the date hereof, there is no pending
or, to the knowledge of Western, threatened material litigation, investigations,
terminations, proceedings or other claims (except for benefit claims payable in
the normal operation of the Compensation and Benefit Plans) relating to the
Compensation and Benefit Plans or any plan maintained by any other person or
entity that, together with Western and the Transferred Subsidiaries, is treated
as a single employer under Section 414(b), (c), (m) or (0) of the Code (an
"ERISA Affiliate"), and no event has occurred and no circumstances exist that
have given rise to or could reasonably be expected to give rise to any material
liability in the event of any such investigation, claim or proceeding. Neither
Western nor any Transferred Subsidiary with respect to any Compensation and
Benefit Plan has engaged in a "prohibited transaction" (as such term is defined
in Section 406 of ERISA or 4975 of the Code) or any other breach of fiduciary
duty that, assuming the taxable period of such transaction expired as of the
date hereof, would subject Western or any Transferred Subsidiary to a material
tax or penalty imposed by either Section 4975 of the Code or Section 502 of
ERISA.
(iii) As of the date hereof, no liability under Title IV of ERISA has
been or is expected to be incurred by any Transferred Subsidiary or any ERISA
Affiliate thereof with respect to any ongoing, frozen or terminated
"single-
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employer plan", within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by it. No Transferred Subsidiary nor any ERISA Affiliate
thereof has incurred nor expects to incur any withdrawal liability with respect
to a multiemployer plan under Subtitle E to Title IV of ERISA. No Transferred
Subsidiary has contributed, or been obligated to contribute, to a multiemployer
plan under Subtitle E of Title IV of ERISA at any time since September 26, 1980.
No notice of a "reportable event", within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any Pension Plan or by any ERISA Affiliate within the
30-month period ending on the date hereof or will be required to be filed in
connection with the transactions contemplated by this Agreement.
(iv) All contributions and payments required to be made under the terms
of any Compensation and Benefit Plan as of the date hereof have been timely made
or have been reflected on the most recent balance sheet of the relevant
Transferred Subsidiary. Neither any Pension Plan nor any single-employer plan of
an ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA.
No Transferred Subsidiary has provided, nor is required to provide, security to
any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code; none of the assets of Western or any
Transferred Subsidiary is the subject of any lien arising under Section 302 of
ERISA or Section 412(n) of the Code; and no fact or circumstance exists which
could give rise to any such lien requirement to post any such security.
(v) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Pension Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such Pension
Plan, and there has been no material change in the financial condition of such
Pension Plan since the last day of the most recent plan year.
(vi) No Transferred Subsidiary has any obligations for retiree health
and life benefits under any
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Compensation and Benefit Plan, except as set forth in the Western Disclosure
Letter. Each Transferred Subsidiary may amend or terminate any such plan under
the terms of such plan at any time without incurring any material liability
thereunder.
(vii) The consummation of the Share Issuance and the other transactions
contemplated by this Agreement, the Stock Option Agreement and the Option and
Voting Agreement will not (x) entitle any employees of any Transferred
Subsidiary to severance pay, (y) accelerate the time of payment or vesting or
trigger any payment of compensation or benefits under, increase the amount
payable or trigger any other material obligation pursuant to, any of the
Compensation and Benefit Plans or (z) result in any breach or violation of, or a
default under, any of the Compensation and Benefit Plans. No Compensation and
Benefit Plan exists which could result in the payment to any Transferred
Subsidiary employee that would constitute an excess parachute payment within the
meaning of Code Section 280G.
(viii) No Transferred Subsidiary has incurred any liability under, and
each Transferred Subsidiary has complied in all respects with, the Worker
Adjustment Retraining Notification Act ("WARN Act") and the rules and
regulations promulgated thereunder, and no Transferred Subsidiary reasonably
expects to incur any such liability prior to the Closing.
(i) Compliance with Laws; Permits. The businesses of the Transferred
Subsidiaries have not been, and are not being, conducted in violation of any
federal, state, local or foreign law, statute, ordinance, rule, regulation,
judgment, order, injunction, decree, arbitration award, agency requirement,
license or permit of any Governmental Entity (collectively, "Laws"), except for
violations or possible violations that, individually or in the aggregate,
are not reasonably likely to have a Transferred Subsidiary Material Adverse
Effect or prevent or materially burden or materially impair the ability of
Western to consummate the transactions contemplated by this Agreement. No
investigation or review by any Governmental Entity with respect to any
Transferred Subsidiary is pending or, to the knowledge of Western, threatened,
nor has any Governmental Entity indicated an intention to conduct the same,
except for those the outcome of which are not, individually or in the aggregate,
reasonably likely to have a Transferred Subsidiary Material Adverse Effect or
prevent or materially
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burden or materially impair the ability of Western to consummate the
transactions contemplated by this Agreement. No material change is required in
any Transferred Subsidiary's processes, properties or procedures in connection
with any such Laws, and no Transferred Subsidiary has received any notice or
communication of any material noncompliance with any such Laws that has not been
cured. Each Transferred Subsidiary has all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct its business as presently conducted except
those the absence of which are not, individually or in the aggregate, reasonably
likely to have a Transferred Subsidiary Material Adverse Effect or prevent or
materially burden or materially impair the ability of Western to consummate the
Share Issuance and the other transactions contemplated by this Agreement.
(j) Environmental Matters. Except for such matters that, alone or in
the aggregate, are not reasonably likely to have a Transferred Subsidiary
Material Adverse Effect: (i) each Transferred Subsidiary is currently in
compliance with and has complied with all applicable Environmental Laws; (ii)
the properties currently owned or operated by the Transferred Subsidiaries
(including soils, groundwater, surface water, buildings or other structures) are
not contaminated with any Hazardous Substances; (iii) no Transferred Subsidiary
is subject to liability for any Hazardous Substance disposal or contamination on
any third party property; (iv) no Transferred Subsidiary has been associated
with any release or threat of release of any Hazardous Substance; (v) no
Transferred Subsidiary has received any notice, demand, letter, claim or request
for information alleging that may be in violation of or liable under any
Environmental Law; (vi) no Transferred Subsidiary is subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity and is
not subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances; and
(vii) there are no circumstances or conditions involving any Transferred
Subsidiary that could reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use, or transfer of any
property of any Transferred Subsidiary pursuant to any Environmental Law.
As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, statute,
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ordinance, regulation, judgment, order, decree, arbitration award, agency
requirement, license, permit, authorization or opinion, relating to: (A) the
protection, investigation or restoration of the environment, health and safety,
or natural resources, (B) the handling, use, presence, transportation, disposal,
release or threatened release of any Hazardous Substance or (C) noise, odor,
wetlands, pollution, contamination or any injury or threat of injury to persons
or property.
As used herein, the term "Hazardous Substance" means any substance that
is: (A) defined, listed, classified or regulated pursuant to any Environmental
Law; (B) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (C) any other substance, pollutant or contaminant which
may be the subject of regulatory action by any Governmental Entity pursuant to
any Environmental Law.
(k) Tax Matters. Neither Western nor any Transferred Subsidiary has
taken or agreed to take any action that would prevent the contribution of the
Subsidiary Shares and the Investment Shares from qualifying as a contribution to
a controlled corporation within the meaning of Section 351 of the Code.
(l) Taxes. Solely as to the operations of the Transferred Subsidiaries,
Western and each of its Subsidiaries (i) have prepared in good faith and duly
and timely filed (taking into account any extension of time within which to
file) all Tax Returns (as defined below) required to be filed by any of them;
(ii) have paid all Taxes (as defined below) that are shown as due on such filed
Tax Returns or that Western or any of its Subsidiaries are obligated to withhold
from amounts owing to any employee, creditor or third party, except with respect
to matters contested in good faith; and (iii) have not waived any statute of
limitations with respect to Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency. Solely as to the operations of the
Transferred Subsidiaries, as of the date hereof, there are not pending or, to
the knowledge of Western threatened, any audits, examinations, investigations or
other proceedings in respect of Taxes or Tax matters with respect to any of the
Transferred Subsidiaries. Western has made available to Protection One true and
correct copies of any tax sharing
-15-
agreement between or among Western and/or any of the Transferred Subsidiaries.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes", and "Taxable") includes all federal,
state, local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severances, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions, and (ii) the term "Tax Return" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
(m) Labor Matters. No Transferred Subsidiary is a party to or otherwise
bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is any Transferred
Subsidiary the subject of any material proceeding asserting that such
Transferred Subsidiary has committed an unfair labor practice or is seeking to
compel it to bargain with any labor union or labor organization nor is there
pending or, to the knowledge of Western, threatened, nor is there existing any
labor strike, dispute, walk-out, work stoppage, slow-down or lockout involving
any Transferred Subsidiary.
(n) Insurance. All material fire and casualty, general liability,
business interruption, product liability, sprinkler and water damage and errors
and omissions insurance policies maintained by or for the benefit of any
Transferred Subsidiary are with reputable insurance carriers, provide full and
adequate coverage for all normal risks incident to the business of such
Transferred Subsidiary and its properties and assets, and are in character and
amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Transferred Subsidiary Material
Adverse Effect.
-16-
(o) Intellectual Property.
(i) The Transferred Subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, technology, know-how,
computer software programs or applications, and tangible or intangible
proprietary information or materials (collectively, "Intellectual Property")
that are used or held for use in the businesses of the Transferred Subsidiaries
as currently conducted, except for any such failures to own, be licensed or
possess that, individually or in the aggregate, are not reasonably likely to
have a Transferred Subsidiary Material Adverse Effect, and all such patents,
trademarks, trade names, service marks and copyrights held by any Transferred
Subsidiary are valid and subsisting.
(ii) Except as is not reasonably likely to have a Transferred
Subsidiary Material Adverse Effect:
(A) no Transferred Subsidiary is, nor will it be as a result of the
execution and delivery by Western of this Agreement, the Stock Option
Agreement or the Option and Voting Agreement, in violation of any licenses,
sublicenses and other agreements as to which such Transferred Subsidiary is
a party and pursuant to which any Transferred Subsidiary is authorized to
use any third-party patents, trademarks, service marks, and copyrights
("Third-Party Intellectual Property Rights");
(B) no claims with respect to (I) the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefor owned by any Transferred Subsidiary
(the "Transferred Subsidiary Intellectual Property Rights"); (II) any trade
secret material to the Transferred Subsidiaries, taken as a whole; or (III)
Third-Party Intellectual Property Rights are currently pending or
threatened by any Person (meaning any individual, corporation (including
not-for-profit), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, Governmental
Entity (as defined in Section 2.1(d)) or other entity of any kind or
nature);
-17-
(C) there exist no valid grounds for any bona fide claims (I) to the
effect that the manufacture, sale, licensing or use of any product as now
used, sold or licensed or proposed for use, sale or license by any
Transferred Subsidiary, infringes on any copyright, patent, trademark,
service xxxx or trade secret; (II) against the use by any Transferred
Subsidiary, of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and
applications used in the business of any Transferred Subsidiary as
currently conducted or as proposed to be conducted; (III) challenging the
ownership, validity or effectiveness of any Transferred Subsidiary
Intellectual Property Rights or other trade secret material to the
Transferred Subsidiaries, taken as a whole; or (IV) challenging the license
or legally enforceable right to use of the Third-Party Intellectual
Property Rights by any Transferred Subsidiary; and
(D) there is no unauthorized use, infringement or misappropriation of
any Transferred Subsidiary Intellectual Property Rights by any third party,
including any employee or former employee of any Transferred Subsidiary.
(p) Brokers and Finders. Neither Western nor any of its Subsidiaries
nor any of their respective officers, directors or employees has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finders fees in connection with the Share Issuance or the other transactions
contemplated by this Agreement, the Stock Option Agreement or the Option and
Voting Agreement, except that Western has employed Bear Xxxxxxx & Co. Inc.
("Bear Xxxxxxx") and Xxxxxx Associates ("Xxxxxx Associates") as its financial
advisors.
(q) Real Property. (i) Section 2.1(q)(i) of the Western Disclosure
Letter contains a true, complete and correct list of the street address of each
parcel of Western Owned Real Property; (ii) Section 2.1(q)(ii) of the Western
Disclosure Letter contains a true, complete and correct list of the street
address of each parcel of Western Leased Real Property; (iii) the Transferred
Subsidiaries have sufficient title to or leasehold interests in all the Western
Real Property to conduct their respective businesses as currently conducted or
as contemplated to be conducted, with only such exceptions as, individually or
in the aggregate, would not have a Transferred Subsidiary Material Adverse
Effect; (iv)
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each parcel of Western Real Property (A) is owned or leased free and clear of
all Liens, other than (1) Liens for current taxes and assessments not yet past
due, (2) inchoate mechanics' and materialmen's Liens for construction in
progress, (3) workmen's, repairmen's, warehousemen's and carriers' Liens arising
in the ordinary course of business of the Transferred Subsidiaries consistent
with past practice, and (4) all matters of record, Liens and other imperfections
of title and encumbrances which, individually or in the aggregate, would not
have a Transferred Subsidiary Material Adverse Effect (collectively, "Western
Permitted Liens"), and (B) is neither subject to any governmental decree or
order to be sold nor is being condemned, expropriated or otherwise taken by any
public authority with or without payment of compensation therefor, nor has any
such condemnation, expropriation or taking been proposed; (v) all leases of real
property leased for the use or benefit of any Transferred Subsidiary or to which
any Transferred Subsidiary is a party requiring rental payments in excess of
$25,000 per year during the period of the lease, and all amendments and
modifications thereto, are in full force and effect and there exists no default
under any such lease by any Transferred Subsidiary, nor any event which with
notice or lapse of time or both would constitute a default thereunder by any
Transferred Subsidiary, except as, individually or in the aggregate, would not
have a Transferred Subsidiary Material Adverse Effect; and (vi) as used herein,
(A) "Western Leased Real Property" shall mean all real property leased by any
Transferred Subsidiary, as tenant, together with, to the extent leased by any
such Transferred Subsidiary, all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of any such Transferred Subsidiary
attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing; (B) "Western Owned Real Property" shall
mean all real property owned by any Transferred Subsidiary, together with all
buildings and other structures, facilities or improvements currently or
hereafter located thereon, all fixtures, systems, equipment and items of
personal property of any such Transferred Subsidiary attached or appurtenant
thereto and all easements, licenses, rights and appurtenances relating to the
foregoing; and (C) "Western Real Property" shall mean the Western Leased Real
Property and the Western Owned Real Property.
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(r) Security Systems Business. Except as set forth on Section 2.1(r) of
the Western Disclosure Schedule, the Transferred Subsidiaries own, lease or have
the legal right to use all of the properties and assets that are used or held
for use in connection with, necessary for, or otherwise material to the conduct
of, the business and operations of Western relating to the sale and service of
residential and commercial monitoring and response security systems (the
"Monitoring Business"), and neither Western, directly, nor any other Subsidiary
of Western, directly or indirectly, owns, leases or has the legal right to use
any properties or assets that are used or held for use in connection with,
necessary for, or otherwise material to the Monitoring Business. The Transferred
Subsidiaries do not hold any properties or assets that are unrelated to the
Business and are not subject to any obligations or liabilities other than those
related to the Monitoring Business. For purposes of this Section 2.1(r), the
parties agree and acknowledge that Western's beneficial ownership for investment
purposes of shares of Common Stock of Tyco International, Inc. shall not be
deemed part of the Monitoring Business and will not be contributed to Protection
One in connection with the consummation of the Share Issuance.
(s) Westinghouse Acquisition Agreement. The asset purchase agreement,
dated as of December 16, 1996 (as amended, and together with any other document,
instrument, contract, agreement or arrangement between or among the parties
thereto in connection therewith, the "Westinghouse Acquisition Agreement"),
among Westinghouse Electric Corporation, a Pennsylvania corporation
("Westinghouse"), Western and WestSec (i) is valid and binding on the respective
parties thereto and is in full force and effect and (ii) upon consummation of
the Share Issuance and the other transactions contemplated by this Agreement,
will continue in full force and effect without penalty or other adverse
consequence. From and after the Closing, except as provided in Section 3.16
hereof, Western shall not exercise any rights it may retain under the
Westinghouse Acquisition Agreement unless and until WestSec shall have exercised
in full its rights thereunder. Neither Western nor any Subsidiary thereof is in
material breach of or default under the Westinghouse Acquisition Agreement.
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2.2. Representations and Warranties of Protection One. Except as set
forth in the corresponding sections or subsections of the disclosure letter
delivered to Western by Protection One on or prior to entering into this
Agreement (the "Protection One Disclosure Letter"), Protection One hereby
represents and warrants to Western that:
(a) Organization, Good Standing and Qualification. Each of Protection
One and its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of organization
and has all requisite corporate or similar power and authority and all necessary
governmental approvals to own and operate its properties and assets and to carry
on its business as presently conducted and is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the ownership
or operation of its properties or conduct of its business requires such quali
fication, except where the failure to have such approvals or to be so qualified
or in such good standing, when taken together with all other such failures, is
not reasonably likely to have a Protection One Material Adverse Effect (as
defined below). Protection One has made available to Western a complete and
correct copy of Protection One's and its Subsidiaries' certificates of
incorporation and by-laws (or similar organizational documents), each as amended
to the date hereof. Protection One's and its Subsidiaries' certificates of
incorporation and by-laws (or similar organizational documents) so delivered are
in full force and effect and neither Protection One nor any of its Subsidiaries
is in violation of any provision of its certificate of incorporation or by-laws
(or similar organizational documents).
As used in this Agreement, the term "Protection One Material Adverse
Effect" means any change or effect that is materially adverse to the financial
condition, properties, business or results of operations of Protection One and
its Subsidiaries taken as a whole; provided, however, that any such effect
resulting from any change (i) in law, rule or regulation that applies to both
Protection One and the Transferred Subsidiaries or (ii) in economic or business
conditions generally or in the security monitoring industry specifically shall
not be considered when determining if a Protection One Material Adverse Effect
has occurred.
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(b) Capitalization. The authorized capital stock of Protection One
consists of 40,000,000 shares of Common Stock, par value $0.01 per share, of
which 13,820,290 shares were outstanding as of the close of business on July 29,
1997. All of the outstanding shares of Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable. Protection One has no
Common Stock reserved for issuance, except for the numbers of shares set forth
in the Protection One Disclosure Letter as reserved for issuance pursuant to (i)
the Protection One 1994 Stock Option Plan, as amended, and the Protection One
1996 NonQualified Stock Option Plan (together, the "Protection One Stock Option
Plans"), the Protection One Employee Stock Purchase Plan (the "ESPP"), the
profit-sharing plan maintained by Protection One and its Subsidiaries (the
"Protection One 401k Plan"), (ii) the option issued by Protection One to Xxxxx
Xxxxxx & Company (the "Xxxxxx Option" and, together with the Protection One
Stock Option Plans, the "Options"), (iii) the warrants issued by Protection One
pursuant to the Warrant Agreement, dated as of May 17, 1995, between Protection
One and State Bank and Trust Company, as Warrant Agent (the "1995 Protection One
Warrants"), (iv) the warrants issued by Protection One pursuant to the Warrant
Agreement, dated as of November 3, 0000, xxxxxxx Xxxxxxxxxx Xxx xxx Xxxxxx
Xxxxxx Trust Company of New York, as Warrant Agent (the "1993 Protection One
Warrants"), (v) the Amended and Restated Stock Purchase Warrant, dated September
16, 1991, issued by Protection One to Kansallis-Osake-Pankii (the "KOP
Warrant"), (vi) the Stock Purchase Warrant, dated December 31, 1992, issued by
Protection One to Chemical Bank (the "Chemical Warrant"), (vii) the Common Stock
Performance Warrants, dated September 16, 1991 (the "Performance Warrants" and,
together with the 1995 Protection One Warrants, the 1993 Protection One
Warrants, the KOP Warrant and the Chemical Warrant the "Warrants"), and (viii)
the 6 3/4% convertible senior subordinated notes due 2003 issued by Protection
One Monitoring Services, Inc. and guaranteed by Protection One (the "Protection
One Convertible Notes"). Except as set forth on Section 2.2(b) of the Protection
One Disclosure Letter, there are no preemptive or other outstanding rights,
options, warrants, conversion rights, convertible securities, stock appreciation
rights, redemption rights, repurchase rights, agreements, arrangements or
commitments to issue or to sell any shares of capital stock or other securities
of Protection One or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any Person a
right to
-22-
subscribe for or acquire, any securities of Protection One or any of its
Subsidiaries, and no securities or obligation evidencing such rights are
authorized, issued or outstanding. There are no outstanding contractual
obligations of Protection One to repurchase, redeem or otherwise acquire any
capital stock of Protection One or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in Protection One or
any other entity. Each of the outstanding shares of capital stock of each of
Protection One's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and owned by a direct or indirect wholly-owned subsidiary of
Protection One, free and clear of any Lien. Except for the Protection One
Convertible Notes, Protection One does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or convertible into or exercisable for securities having the right to
vote) with the stockholders of Protection One on any matter ("Protection One
Voting Debt"). A true and complete list of all of Protection One's Subsidiaries,
together with the jurisdiction of incorporation of each such Subsidiary and the
percentage of such Subsidiary's outstanding capital stock owned by Protection
One or one of its Subsidiaries, is set forth in Section 2.2(b) of the Protection
One Disclosure Letter. There are no voting trusts, shareholder agreements,
proxies or other agreements or understandings in effect with respect to the
voting or transfer of any shares of capital stock of Protection One. The stock
register of Protection One accurately records (i) the name and address of each
person owning shares of capital stock of Protection One and (ii) the certificate
number of each certificate evidencing shares of capital stock issued by
Protection One, the number of shares evidenced by each such certificate, the
date of issuance thereof and, in the case of cancellation, the date of
cancellation.
(c) Corporate Authority and Approval. (i) Subject only to any
stockholder approval necessary to authorize the Charter Amendment and the New
Option Plan (as defined in Section 3.19 hereof) and to permit the issuance of
the shares of Common Stock required to be issued pursuant to Section 1.1 hereof
(the "Protection One Requisite Vote") Protection One has all requisite corporate
power and authority and has taken all corporate action necessary in order to
execute, deliver and perform its obligations under this Agreement and the Stock
Option Agreement, as the case may be, and to consummate, the Share Issuance and
the other
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transactions contemplated hereby and thereby. This Agreement and the Stock
Option Agreement are legal, valid and binding agreements of Protection One,
enforceable against Protection One, in accordance with their respective terms.
(ii) Prior to the Closing, assuming Protection One stockholder approval
of the Charter Amendment and the Share Issuance, Protection One will have taken
all necessary corporate action to permit it to issue the number of shares of
Common Stock required to be issued pursuant to Section 1.1 hereof and to effect
the payment of the dividend and other distributions permitted by Section 3.17
hereof. The Common Stock, when issued, will be validly issued, fully paid and
nonassessable, and no stockholder of Protection One will have any preemptive
right of subscription or purchase in respect thereof.
(d) Governmental Filings; No Violations. (i) Other than the filings
and/or notices (A) under the HSR Act, the Securities Act and the Exchange Act,
(B) to comply with state securities or "blue sky" laws, (C) required to be made
with Nasdaq and (D) other filings listed in the Protection One Disclosure
Letter, no notices, reports or other filings are required to be made by
Protection One with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Protection One from, any Governmental
Entity, in connection with the execution and delivery of this Agreement and the
Stock Option Agreement by Protection One and the consummation by Protection One
of the Share Issuance and the other transactions contemplated hereby and
thereby, except those that the failure to make or obtain are not, individually
or in the aggregate, reasonably likely to have a Protection One Material Adverse
Effect or prevent, materially delay or materially impair the ability of
Protection One to consummate the Share Issuance or the other transactions
contemplated by this Agreement and the Stock Option Agreement.
(ii) Subject to the approvals, amendments, filings, notices, reports,
consents and authorizations referred to in Section 2.2(c) and paragraph (i) of
this Section 2.2(d), the execution, delivery and performance of this Agreement
and the Stock Option Agreement by Protection One does not, and the consummation
by Protection One of the Share Issuance and the other transactions contemplated
hereby and thereby will not, constitute or result in (A) a
-24-
breach or violation of, or a default under, the certificate of incorporation or
by-laws of Protection One or the comparable governing instruments of any of its
Subsidiaries, (B) a breach or violation of any law, rule, regulation, order,
judgement or decree applicable to Protection One or any of its Subsidiaries or
by which any of their respective properties or assets is bound or affected, or
(C) a breach or violation of, or a default under, result in the loss of any
material benefit under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on the
assets of Protection One or any of its Subsidiaries (with or without notice,
lapse of time or both) pursuant to, any Contracts to which Protection One or any
of its Subsidiaries is a party or by which Protection One or any of its
Subsidiaries or any of their respective properties or assets is bound or
affected, except, in the case of clause (B) or (C) above, for breach, violation,
default, acceleration, creation or change that, individually or in the
aggregate, is not reasonably likely to have a Protection One Material Adverse
Effect or prevent, materially delay or materially impair the ability of
Protection One to consummate the Share Issuance or the other transactions
contemplated by this Agreement or the Stock Option Agreement. Section 2.1(d) of
the Protection One Disclosure Letter sets forth a correct and complete list of
Contracts of Protection One and the Subsidiaries pursuant to which consents or
waivers are or may be required prior to consummation of the transactions
contemplated by this Agreement (subject to the exemption set forth with respect
to clauses (B) and (C) above).
(e) Protection One Reports; Financial Statements. Protection One has
delivered or otherwise made available to Western each registration statement,
report, proxy statement or information statement prepared by it under the
Securities Act or the Exchange Act since December 31, 1994, including (i)
Protection One's Annual Reports on Form 10-K for the years ended September 30,
1994, 1995 and 1996 and (ii) Protection One's Quarterly Report on Form 10-Q for
the periods ended December 31, 1996 and March 31, 1997, each in the form
(including exhibits, annexes and any amendments thereto) filed with the SEC
(collectively, including any such reports filed subsequent to the date hereof,
the "Protection One Reports"). As of their respective dates, the Protection One
Reports (i) complied in all material respects with the applicable requirements
of the Securities Act and the Exchange Act, as the case may be, and (ii) did
not, and any Protection One
-25-
Reports filed with the SEC subsequent to the date hereof will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into the
Protection One Reports (including the related notes and schedules) complied as
to form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto and fairly presents, or will fairly
present, the consolidated financial position of Protection One and its
Subsidiaries as of its date and each of the consolidated statements of income
and of changes in financial position included in or incorporated by reference
into the Protection One Reports (including any related notes and schedules)
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto and fairly presents, or will
fairly present, the results of operations, retained earnings and changes in
financial position, as the case may be, of Protection One and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to notes and normal and recurring year-end audit adjustments that will not be
material in amount or effect), in each case in accordance with GAAP consistently
applied during the periods involved, except as may be noted therein.
(f) Absence of Certain Changes. Except as disclosed in the Protection
One Reports filed prior to the date hereof, since September 30, 1996 (the
"Protection One Audit Date") Protection One and its Subsidiaries have conducted
their respective businesses only in, and have not engaged in any material
transaction other than according to, the ordinary and usual course of such
businesses and there has not been (i) any change in the financial condition,
properties, business or results of operations of Protection One and its
Subsidiaries or any development or combination of developments that,
individually or in the aggregate, has had or is reasonably likely to result in a
Protection One Material Adverse Effect; (ii) any material damage, destruction or
other casualty loss with respect to any material asset or property owned, leased
or otherwise used by Protection One or any of its Subsidiaries, whether or not
covered by insurance; (iii) any change by Protection One in accounting
principles, practices or methods; or (iv) any declaration, setting aside or
payment of any dividend or other distribution in respect of the Common Stock of
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Protection One or any redemption, purchase or other acquisition of their
respective securities. Since the Protection One Audit Date, except as provided
for herein or as disclosed in the Protection One Reports filed prior to the date
hereof, there has not been any increase in the compensation payable or that
could become payable by Protection One or any of its Subsidiaries to officers or
key employees or any amendment of any of the Protection One Compensation and
Benefit Plans (as defined in Section 2.2(h)) other than increases or amendments
in the ordinary course of business consistent with past practice.
(g) Litigation and Liabilities. Except as disclosed in the Protection
One Reports filed prior to the date hereof, there are no (i) pending or, to the
knowledge of Protection One, threatened against Protection One or any of its
Subsidiaries or (ii) obligations or liabilities, whether or not accrued,
contingent or otherwise and whether or not required to be disclosed, including
those relating to matters involving any Environmental Law, or any other facts or
circumstances that could result in any claims against, or obligations or
liabilities of, Protection One or any of its Subsidiaries, except for those that
are not, individually or in the aggregate, reasonably likely to have a
Protection One Material Adverse Effect or prevent or materially burden or
materially impair the ability of Protection One to consummate the Share Issuance
or the other transactions contemplated by this Agreement, the Stock Option
Agreement and the Option and Voting Agreement.
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health, incentive compensation, disability, retiree
medical or life insurance, fringe benefits, or other plan, agreement, policy or
arrangement that covers employees, directors, former employees or former
directors of Protection One and its Subsidiaries (the "Protection One
Compensation and Benefit Plans") and any (i) trust arrangement or insurance
contract forming a part of such Protection One Compensation and Benefits Plans
(ii) the most recent annual report on Form 5500 (and related schedules and
financial statements or opinions required in connection therewith, (iii) the
most recent actuarial report and financial statements with
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respect to each Protection One Compensation and Benefit Plan, if applicable,
(iv) the most recent summary plan description required to be provided to plan
participants, and (v) the most recent IRS determination letter, if any has been
made available to Western prior to the date hereof. The Protection One
Compensation and Benefit Plans are listed in Section 2.2(h) of the Protection
One Disclosure Letter and any "change of control" or similar provision therein
are specifically identified in Section 2.2.(h) of the Protection One Disclosure
Letter.
(ii) Except for instances of non-compliance which would not be
material, all Protection One Compensation and Benefit Plans are, and have been
operated, in compliance with all applicable law, including the Code and ERISA.
Each Protection One Compensation and Benefit Plan that is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA (a "Protection One
Pension Plan") and that is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the IRS that such
Protection One Pension Plan and related trusts are qualified and exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, and Protection One has no knowledge of any circumstances reasonably likely
to result in revocation of any such favorable determination letter. No event has
occurred and no circumstances exist that have adversely affected or could
reasonably be expected to adversely affect the tax qualification of such
Protection One Pension Plans. As of the date hereof, there is no pending or, to
the knowledge of Protection One, threatened material litigation investigations,
terminations, proceedings or other claims (except for benefit claims payable in
the normal operation of the Protection One Compensation and Benefits Plans),
relating to the Protection One Compensation and Benefit Plans or any plan
maintained by one of Protection One's "ERISA Affiliates" as that term is defined
in Section 414(b)(c)(m) or (o) of the Code, and no event has occurred and no
circumstances exist that have given rise to or could reasonably be expected to
give rise to any material liability in the event of any such investigation,
claim or proceeding. Neither Protection One nor any of its Subsidiaries with
respect to any Protection One Compensation and Benefit Plan has engaged in a
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
4975 of the Code) or any other breach of fiduciary duty that, assuming the
taxable period of such transaction expired as of the date hereof, would subject
Protection One or any of its
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Subsidiaries to a material tax or penalty imposed by either Section 4975 of the
Code or Section 502 of ERISA.
(iii) Protection One and its ERISA Affiliates do not sponsor or
maintain and have not sponsored or maintained in the last five years any
ongoing, frozen or terminated plans subject to Title IV of ERISA and as of the
date hereof, no liability under Title IV of ERISA has been or is expected to be
incurred by Protection One or any Subsidiary. Neither Protection One nor any of
its Subsidiaries nor any of Protection One's ERISA Affiliates has incurred or
expects to incur any withdrawal liability with respect to a multiemployer plan
under Subtitle E to Title IV of ERISA. Protection One and its Subsidiaries have
not contributed, or been obligated to contribute, to a multiemployer plan under
Subtitle E of Title IV of ERISA at any time.
(iv) All contributions and payments required to be made under the terms
of any Protection One Compensation and Benefit Plan or of the date hereof have
been timely made or have been reflected on the most recent consolidated balance
sheet filed or incorporated by reference in the Protection One Reports prior to
the date hereof. Neither any Protection One Pension Plan nor any single-employer
plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or
not waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA.
(v) Neither Protection One nor its Subsidiaries have any obligations
for retiree health and life benefits under any Protection One Compensation and
Benefit Plan.
(vi) The consummation of the Share Issuance and the other transactions
contemplated by this Agreement, the Stock Option and the Option and Voting
Agreement will not (x) entitle any employees of Protection One or its
Subsidiaries to severance pay, (y) accelerate the time of payment or vesting or
trigger any payment of compensation or benefits under, increase the amount
payable or trigger any other material obligation pursuant to, any of the
Protection One Compensation and Benefit Plans or (z) result in any breach or
violation of, or default under, any of the Protection One Compensation and
Benefit Plans. No Protection One Compensation and Benefit Plan exists which
could result in the payment to any employee of Protection One or any Subsidiary
that would constitute an excess parachute payment within the meaning of Code
Section 280G.
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(vii) Neither Protection One nor any of its Subsidiaries has incurred
any liability under, and each of them has complied in all respects with, the
WARN Act and the rules and regulations promulgated thereunder and none of them
reasonably expects to incur any such liability as a result of actions taken or
not taken prior to the Closing.
(i) Compliance with Laws; Permits. Except as set forth in the
Protection One Reports filed prior to the date hereof, the businesses of each of
Protection One and its Subsidiaries have not been, and are not being, conducted
in violation of any Laws, except for violations or possible violations that,
individually or in the aggregate, are not reasonably likely to have a Protection
One Material Adverse Effect or prevent or materially burden or materially impair
the ability of Protection One to consummate the Share Issuance or the other
transactions contemplated by this Agreement and the Stock Option Agreement.
Except as set forth in the Protection One Reports filed prior to the date
hereof, no investigation or review by any Governmental Entity with respect to
Protection One or any of its Subsidiaries is pending or, to the knowledge of
Protection One, threatened, nor has any Governmental Entity indicated an
intention to conduct the same, except for those the outcome of which are not,
individually or in the aggregate, reasonably likely to have a Protection One
Material Adverse Effect or prevent or materially burden or materially impair the
ability of Protection One to consummate the Share Issuance or the other
transactions contemplated by this Agreement and the Stock Option Agreement. No
material change is required in Protection One's or any of its Subsidiaries'
processes, properties or procedures in connection with any such Laws, and
neither Protection One nor any of its Subsidiaries has received any notice or
communication of any material noncompliance with any such Laws that has not been
cured. Protection One and each of its Subsidiaries has all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its respective business as presently
conducted except those the absence of which are not, individually or in the
aggregate, reasonably likely to have a Protection One Material Adverse Effect or
prevent or materially burden or materially impair the ability of Protection One
to consummate the Share Issuance or the other transactions contemplated by this
Agreement or the Stock Option Agreement.
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(j) Takeover Statutes. The prohibitions of Section 203 of the DGCL are
not applicable to Protection One or Western in connection with, and will not be
applicable to Protection One or Western as a result of, the Share Issuance or
the other transactions contemplated by this Agreement, the Stock Option
Agreement or the Option and Voting Agreement. No other "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation or provision in Protection One's certificate of incorporation and
by-laws is, or at the Closing will be, applicable to Protection One, the Share
Issuance or the other transactions contemplated by this Agreement, the Stock
Option Agreement or the Option and Voting Agreement.
(k) Environmental Matters. Except as disclosed in the Protection One
Reports filed prior to the date hereof and except for such matters that, alone
or in the aggregate, are not reasonably likely to have a Protection One Material
Adverse Effect: (i) Protection One and its Subsidiaries are currently in
compliance with and have complied with all applicable Environmental Laws; (ii)
the properties currently owned or operated by Protection One and its
Subsidiaries (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances; (iii) Protection
One and its Subsidiaries are not subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (iv) Protection
One and its Subsidiaries have not been associated with any release or threat of
release of any Hazardous Substance; (v) Protection One and its Subsidiaries have
not received any notice, demand, letter, claim or request for information
alleging that may be in violation of or liable under any Environmental Law; (vi)
Protection One and its Subsidiaries are not subject to any orders, decrees,
injunctions or other arrangements with any Governmental Entity and is not
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances; and
(vii) there are no circumstances or conditions involving Protection One and its
Subsidiaries that could reasonably be expected to result in any claims,
liability, investigations, costs or restrictions on the ownership, use, or
transfer of any property of Protection One and its Subsidiaries pursuant to any
Environmental Law.
(l) Tax Matters. Neither Protection One nor any of its Subsidiaries has
taken or agreed to take any action that would prevent the contribution of the
Subsidiary
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Shares and the Investment Shares from qualifying as a contribution to a
controlled corporation within the meaning of Section 351 of the Code.
(m) Taxes. Protection One and each of its Subsidiaries (i) have
prepared in good faith and duly and timely filed (taking into account any
extension of time within which to file) all Tax Returns required to be filed by
any of them; (ii) have paid all Taxes that are shown as due on such filed Tax
Returns or that Protection One or any of its Subsidiaries are obligated to
withhold from amounts owing to any employee, creditor or third party, except
with respect to matters contested in good faith; and (iii) have not waived any
statute of limitations with respect to Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency. As of the date hereof, there are
not pending or, to the knowledge of Protection One, threatened any audits,
examinations, investigations or other proceedings in respect of Taxes or Tax
matters. Protection One has made available to Western true and correct copies of
the United States federal income Tax Returns filed by Protection One and its
Subsidiaries for each of the fiscal years ended December 31, 1994, 1995 and
1996.
(n) Labor Matters. Neither Protection One nor any of its Subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, nor, as of the date hereof, is Protection One or any of its
Subsidiaries the subject of any material proceeding asserting that Protection
One or any of its Subsidiaries has committed an unfair labor practice or is
seeking to compel it to bargain with any labor union or labor organization nor
is there pending or, to the knowledge of Protection One, threatened, nor is
there existing any labor strike, dispute, walk-out, work stoppage, slow-down or
lockout involving Protection One or any of its Subsidiaries.
(o) Insurance. All material fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage and
errors and omissions insurance policies maintained by or for the benefit of
Protection One or any of its Subsidiaries are with reputable insurance carriers,
provide full and adequate coverage for all normal risks incident to the business
of Protection One and its Subsidiaries and their respective properties and
assets, and are in character and amount at least equivalent to that carried by
persons engaged in similar businesses and
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subject to the same or similar perils or hazards, except for any such failures
to maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Protection One Material Adverse Effect.
(p) Intellectual Property.
(i) Protection One and/or each of its Subsidiaries owns, or is licensed
or otherwise possesses legally enforceable rights to use, all Intellectual
Property that are used or held for use in the business of Protection One and its
Subsidiaries as currently conducted, except for any such failures to own, be
licensed or possess that, individually or in the aggregate, are not reasonably
likely to have a Protection One Material Adverse Effect, and all such patents,
trademarks, trade names, service marks and copyrights held by Protection One
and/or its Subsidiaries are valid and subsisting.
(ii) Except as disclosed in Protection One Reports filed prior to the
date hereof or as is not reasonably likely to have a Protection One Material
Adverse Effect:
(A) Protection One is not, nor will it be as a result of its execution
and delivery of this Agreement the Stock Option Agreement or the Option and
Voting Agreement or the performance of its obligations hereunder or
thereunder, in violation of any licenses, sublicenses and other agreements
as to which Protection One is a party and pursuant to which Protection One
is authorized to use any third-party patents, trademarks, service marks,
and copyrights ("Protection One Third-Party Intellectual Property Rights");
(B) no claims with respect to (I) the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefor owned by Protection One or any its
Subsidiaries (the "Protection One Intellectual Property Rights"); (II) any
trade secret material to Protection One and its Subsidiaries taken as a
whole; or (III) Protection One Third-Party Intellectual Property Rights are
currently pending or threatened by any Person;
(C) there exist no valid grounds for any bona fide claims (I) to the
effect that the manufacture,
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sale, licensing or use of any product as now used, sold or licensed or
proposed for use, sale or license by Protection One or any of its
Subsidiaries, infringes on any copyright, patent, trademark, service xxxx
or trade secret; (II) against the use by Protection One or any of its
Subsidiaries, of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and
applications used in the business of Protection One or any of its
Subsidiaries as currently conducted or as proposed to be conducted; (III)
challenging the ownership, validity or effectiveness of any of the
Protection One Intellectual Property Rights or other trade secret material
to Protection One and its Subsidiaries, taken as a whole; or (IV)
challenging the license or legally enforceable right to use of the
Protection One Third-Party Intellectual Rights by Protection One or any of
its Subsidiaries; and
(D) there is no unauthorized use, infringement or misappropriation of
any of the Protection One Intellectual Property Rights by any third party,
including any employee or former employee of Protection One or any of its
Subsidiaries.
(q) Brokers and Finders. Neither Protection One nor any of its
Subsidiaries nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the Share Issuance or the other
transactions contemplated by this Agreement, the Stock Option Agreement and the
Option and Voting Agreement, except that Protection One has employed Xxxxxx
Xxxxxxx & Co. Incorporated as its financial advisor, the arrangements with which
have been disclosed in writing to Western prior to the date hereof.
(r) Real Property. (i) Section 2.2(r)(i) of the Protection One
Disclosure Letter contains a true, complete and correct list of the street
address of each parcel of Protection One Owned Real Property; (ii) Section
2.2(r) of the Protection One Disclosure Letter contains a true, complete and
correct list of the street address of each parcel of Protection One Leased Real
Property; (iii) Protection One and its Subsidiaries have sufficient title to or
leasehold interest in all the Protection One Real Property to conduct their
respective businesses as currently conducted or as contemplated to be conducted,
with only such
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exceptions as, individually or in the aggregate, would not have a Protection One
Material Adverse Effect; (iv) each parcel of Protection One Real Property (A) is
owned or leased free and clear of all Liens, other than (1) Liens for current
taxes and assessments not yet past due, (2) inchoate mechanics' and
materialmen's Liens for construction in progress, (3) workmen's, repairmen's,
warehousemen's and carriers' Liens arising in the ordinary course of business of
the Transferred Subsidiaries consistent with past practice, and (4) all matters
of record, Liens and other imperfections of title and encumbrances which,
individually or in the aggregate, would not have a Protection One Material
Adverse Effect (collectively, "Protection One Permitted Liens"), and (B) is
neither subject to any governmental decree or order to be sold nor is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor has any such condemnation,
expropriation or taking been proposed; (v) all leases of real property leased
for the use or benefit of Protection One or any of its Subsidiaries or to which
Protection One or any of its Subsidiaries is a party requiring rental payments
in excess of $25,000 per year during the period of the lease, and all amendments
and modifications thereto, are in full force and effect and there exists no
default under any such lease by Protection One or any of its Subsidiaries, nor
any event which with notice or lapse of time or both would constitute a default
thereunder by Protection One or any of its Subsidiaries, except as, individually
or in the aggregate, would not have a Protection One Material Adverse Effect;
and (vi) as used herein, (A) "Protection One Real Property" shall mean all real
property leased by Protection One or any of its Subsidiaries, as tenant,
together with, to the extent leased by Protection One or any of its
Subsidiaries, all buildings and other structures, facilities or improvements
currently or hereafter located thereon, all fixtures, systems, equipment and
items of personal property of Protection One or any of its Subsidiaries attached
or appurtenant thereto, and all easements, licenses, rights and appurtenances
relating to the foregoing; (B) "Protection One Owned Real Property" shall mean
all real property owned by Protection One or any of its Subsidiaries, together
with all buildings and other structures, facilities or improvements currently or
hereafter located thereon, all fixtures, systems, equipment and items of
personal property of Protection One or any of its Subsidiaries attached or
appurtenant thereto and all easements, licenses, rights and appurtenances
relating to the foregoing; and (C) "Protection One Real
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Property" shall mean the Protection One Leased Real Property and the Protection
One Owned Real Property.
(s) Opinion of Financial Advisor. The financial advisor of Protection
One, Xxxxxx Xxxxxxx & Co. Incorporated, has delivered to Protection One an
opinion dated the date of this Agreement to the effect that the consideration to
be received by Protection One upon consummation of the Share Issuance and the
distributions to Holders of Record of Common Stock referred to in the recitals
to this Agreement, taken together, are fair from a financial point of view to
Protection One and the holders of shares of Common Stock.
ARTICLE III
Covenants
3.1. Interim Operations. Except as set forth in Section 3.1 of the
Western Disclosure Letter, Western covenants and agrees as to itself and the
Transferred Subsidiaries that, after the date hereof and prior to the Closing
(unless Protection One shall otherwise approve in writing, and except as
otherwise expressly contemplated by this Agreement, the Stock Option Agreement
and the Option and Voting Agreement):
(a) the businesses of the Transferred Subsidiaries shall be conducted
in the ordinary and usual course and, to the extent consistent therewith,
Western shall cause the Transferred Subsidiaries to use all reasonable efforts
to preserve their respective business organizations intact and maintain their
respective existing relations and goodwill with customers, suppliers,
distributors, creditors, lessors, employees and business associates;
(b) neither Western nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of, encumber or accelerate, modify, or amend the terms of any
shares of, or securities convertible into or exchangeable or exercisable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of any capital stock in any Transferred Subsidiary; (ii) amend the
certificate of incorporation or by-laws of any Transferred Subsidiary; (iii)
split, combine or reclassify the outstanding shares of capital stock of any
Transferred Subsidiary; (iv) declare,
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set aside or pay any dividend payable in cash, stock or property in respect of
any capital stock of WestSec or Westar Security; (v) repurchase, redeem or
otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any shares of capital stock of any Transferred Subsidiary or any
securities convertible into or exchangeable or exercisable for any shares of
capital stock of any Transferred Subsidiary; (vi) other than in the ordinary and
usual course of business, transfer, lease, license, guarantee, sell, mortgage,
pledge, dispose of or encumber any other property or assets, real, personal or
mixed (including, without limitation, leasehold interests and intangible assets
and capital stock of any Transferred Subsidiary) of any Transferred Subsidiary
or permit any Transferred Subsidiary to incur or modify any material
indebtedness or other liability; or (vii) permit any Transferred Subsidiary to
make or authorize or commit for any capital expenditures or, by any means,
permit any Transferred Subsidiary to make any acquisition of, or investment in,
assets or stock of any other Person or entity, except for (A) acquisitions of
security monitoring accounts in the ordinary course of business consistent with
past practice, (B) other acquisitions of security monitoring accounts not to
exceed $5,000,000 in the aggregate and (C) other capital expenditures not to
exceed $500,000 in the aggregate;
(c) neither Western nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards under, amend or
otherwise modify, any Compensation and Benefit Plans or increase the salary,
wage, bonus or other compensation of any employees of any Transferred Subsidiary
except grants, awards or increases occurring in the ordinary and usual course of
business (which shall include normal periodic performance reviews and related
compensation and benefit grants, awards or increases);
(d) neither Western nor any of its Subsidiaries shall settle or
compromise any material claims or litigation involving any Transferred
Subsidiary or, except in the ordinary and usual course of business modify, amend
or terminate any material Contracts to which a Transferred Subsidiary is party
or waive, release or assign any material rights or claims of any Transferred
Subsidiary;
(e) neither Western nor any of its Subsidiaries shall make any Tax
election with respect to Taxes payable by
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any Transferred Subsidiary or permit any insurance policy naming any Transferred
Subsidiary as a beneficiary or loss-payable payee to be cancelled or terminated
except in the ordinary and usual course of business;
(f) neither Western nor any of its Subsidiaries shall take any action
or omit to take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(g) neither it nor any of its Subsidiaries will authorize or enter into
an agreement to do any of the foregoing.
Except as set forth in Section 3.1 of the Protection One Disclosure
Letter, Protection One covenants and agrees as to itself and its Subsidiaries
that, after the date hereof and prior to the Closing (unless Western shall
otherwise approve in writing, and except as otherwise expressly contemplated by
this Agreement, the Stock Option Agreement and the Option and Voting Agreement):
(h) the business of Protection One and its Subsidiaries shall be
conducted in the ordinary and usual course and, to the extent consistent
therewith, Protection One and its Subsidiaries shall use all reasonable efforts
to preserve their respective business organizations intact and maintain their
respective existing relations and goodwill with customers, suppliers,
distributors, creditors, lessors, employees and business associates;
(i) neither Protection One nor any of its Subsidiaries shall (i) issue,
sell, pledge, dispose of, encumber or accelerate, modify, or amend the terms of
any shares of, or securities convertible into or exchangeable or exercisable
for, or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of any capital stock of Protection One or any of its Subsidiaries;
(ii) amend the certificate of incorporation or by-laws of Protection One or any
of its Subsidiaries; (iii) split, combine or reclassify the outstanding shares
of capital stock of Protection One or any of its Subsidiaries; (iv) declare, set
aside or pay any dividend payable in cash, stock or property in respect of any
capital stock other than dividends from Protection One's direct or indirect
wholly-owned Subsidiaries and the dividend and other distributions referred to
in the recitals to this Agreement; or (v) repurchase, redeem or otherwise
acquire any shares of
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capital stock or any securities convertible into or exchangeable or exercisable
for any shares of capital stock of Protection One or any of its Subsidiaries;
(vi) other than in the ordinary and usual course of business, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any other
property or assets, real, personal or mixed (including, without limitation,
leasehold interests and intangible assets and (including capital stock of any of
Protection One's Subsidiaries) or incur or modify any material indebtedness or
other liability; or (vii) make or authorize or commit for any capital
expenditures or, by any means, make any acquisition of, or investment in, assets
or stock of any other Person or entity, except for (A) acquisitions of security
monitoring accounts in the ordinary course of business consistent with past
practice, (B) other acquisitions of security monitoring accounts not to exceed
$5,000,000 in the aggregate and (C) other capital expenditures not to exceed
$500,000 in the aggregate;
(j) neither Protection One nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards under, amend or
otherwise modify, any Protection One Compensation and Benefit Plans or increase
the salary, wage, bonus or other compensation of any employees except grants,
awards or increases occurring in the ordinary and usual course of business
(which shall include normal periodic performance reviews and related
compensation and benefit grants, awards or increases) except for the bonuses
referred to in the recitals to this Agreement;
(k) neither Protection One nor any of its Subsidiaries shall settle or
compromise any material claims or litigation or, except in the ordinary and
usual course of business modify, amend or terminate any of its material
Contracts or waive, release or assign any material rights or claims;
(l) neither Protection One nor any of its Subsidiaries shall make any
Tax election or permit any insurance policy naming it as a beneficiary or
loss-payable payee to be cancelled or terminated except in the ordinary and
usual course of business;
(m) neither Protection One nor any of its Subsidiaries shall take any
action or omit to take any action that would cause any of its representations
and
-39-
warranties herein to become untrue in any material respect; and
(n) neither Protection One nor any of its Subsidiaries will authorize
or enter into an agreement to do any of the foregoing.
3.2. Acquisition Proposals. Protection One agrees that neither it nor
any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
otherwise facilitate any inquiries or the making of any proposal or offer with
respect to a merger, reorganization, share exchange, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, it or any of its Subsidiaries (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal").
Protection One further agrees that neither it nor any of its Subsidiaries nor
any of the officers and directors of it or its Subsidiaries shall, and that it
shall direct and use its best efforts to cause its and its Subsidiaries'
employees, agents and representatives (including any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any Person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; provided, however, that nothing contained in
this Agreement shall prevent Protection One or its Board of Directors from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal; (B) providing information in response to a request
therefor by a Person who has made an unsolicited Acquisition Proposal if the
Board of Directors receives from the Person so requesting such information an
executed confidentiality agreement on terms substantially similar to those
contained in the Confidentiality Agreement (as defined in Section 3.7); it being
understood that such confidentiality agreement need not prohibit the making, or
amendment, of an Acquisition Proposal; (C) engaging in any negotiations or
discussions with any Person who has made an unsolicited bona fide written
Acquisition Proposal; or (D)
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recommending such an Acquisition Proposal to the stockholders of Protection One
if and only to the extent that, in each such case referred to in clause (B),(C)
or (D) above, the Board of Directors of Protection One determines in good faith
after consultation with outside legal counsel that such action is necessary in
order for its directors to comply with their respective fiduciary duties under
applicable law. Protection One agrees that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. Protection
One agrees that it will take the necessary steps to promptly in form the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 3.2 and in the Confidentiality Agreement.
Protection One agrees that it will notify Western immediately if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such discussions or negotiations are sought to be
initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such Person. Protection One further
agrees that it will notify Western of the material terms and conditions of any
Acquisition Proposal at least 72 hours prior to the execution by Protection One
of any letter of intent or agreement with respect to such Acquisition Proposal.
Protection One also agrees that it will promptly request each Person that has
heretofore executed a confidentiality agreement in connection with its
consideration of acquiring it or any of its Subsidiaries to return all
confidential information heretofore furnished to such Person by or on behalf of
it or any of its Subsidiaries.
3.3. Information Supplied. Western and Protection One each agrees, as
to itself and its Subsidiaries, that none of the information supplied or to be
supplied by it or its Subsidiaries for inclusion or incorporation by reference
in the proxy statement (such proxy statement, as amended or supplemented, the
"Proxy Statement") to be filed by Protection One with the SEC in connection with
the meeting of Protection One's stockholders to consider proposals concerning
the Share Issuance, the Charter Amendment and the New Option Plan will, at the
date of mailing to stockholders and at the time of the meeting of stockholders
of Protection One to be held in connection with the Share Issuance, the Charter
Amendment and the New Option Plan contain any untrue statement of a material
fact or omit
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to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. As soon as practicable after the date hereof, Western
shall deliver or cause to be delivered to Protection One audited financial
statements for the calendar years ended December 31, 1994, 1995 and 1996 with
respect to those Transferred Subsidiaries for which audited financial statements
are required by Section 3-05 of Regulation S-X promulgated by the SEC for
inclusion in the Proxy Statement (the "Proxy Statement Financials"). The Proxy
Statement Financials shall, and Western hereby represents and warrants to
Protection One that such financial statements will, as of the date the Proxy
Statement is mailed to Protection One Stockholders and as of the Closing Date,
(i) comply in all material respects with the requirements of Section 3-05 of
Regulation S-X promulgated by the SEC, (ii) present fairly the financial
condition and results of operations of those Transferred Subsidiaries covered by
the Proxy Statement Financials as of the dates thereof or for the periods
covered thereby and have been prepared in accordance with GAAP except as noted
therein or in Section 3.3 of the Western Disclosure Letter, and (iii) include
all adjustments (consisting only of normal recurring accruals) that are
necessary for a fair presentation of the financial condition and results of
operations of those Transferred Subsidiaries covered by the Proxy Statement
Financials as of the dates thereof or for the periods covered thereby, and (iv)
the interim financial statements for the six-month period ended June 25, 1997
will not vary in any material respect from, and treat capitalization of costs
associated with account growth consistent with, the financial statements for
such period with respect to the Transferred Subsidiaries set forth in Section
2.1(e) of the Western Disclosure Letter except with respect to those variances
and adjustments noted in Section 3.3 of the Western Disclosure Letter.
3.4. Stockholders Meeting. Protection One will take, in accordance with
its certificate of incorporation and by-laws, all action necessary to convene a
meeting of holders of Common Stock as promptly as practicable to consider and
vote upon the approval of the Charter Amendment, the Share Issuance and the New
Option Plan (as defined in Section 3.19 hereof). Subject to fiduciary
obligations under applicable law, Protection One's board of directors shall
recommend such approval and shall take all reasonable action to solicit such
approval.
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3.5. Filings; Other Actions; Notification. (a) Protection One shall as
promptly as practicable prepare and file with the SEC the Proxy Statement and as
promptly as practicable after receipt of comments from the SEC staff with
respect thereto mail the Proxy Statement to the stockholders of Protection One.
(b) Western and Protection One shall cooperate with each other and use
(and shall cause their respective Subsidiaries to use) their respective
reasonable efforts to take or cause to be taken all actions, and do or cause to
be done all things, necessary, proper or advisable on its part under this
Agreement and applicable Laws to consummate and make effective the Share
Issuance and the other transactions contemplated by this Agreement, the Stock
Option Agreement and the Option and Voting Agreement as soon as practicable,
including preparing and filing as promptly as practicable all documentation to
effect all necessary notices, reports and other filings and to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party
and/or any Governmental Entity in order to consummate the Share Issuance or any
of the other transactions contemplated by this Agreement, the Stock Option
Agreement and the Option and Voting Agreement. Subject to applicable laws
relating to the exchange of information, Protection One, on the one hand and
Western, on the other hand, shall have the right to review in advance, and to
the extent practicable each will consult the other on, all the information
relating to Protection One or Western, as the case may be, and any of their
respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or any Governmental Entity in
connection with the Share Issuance and the other transactions contemplated by
this Agreement, the Stock Option Agreement and the Option and Voting Agreement.
In exercising the foregoing right, each of Western and Protection One shall act
reasonably and as promptly as practicable.
(c) Western and Protection One each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Proxy Statement or any other
statement, filing, notice or application made by or on behalf of Protection One,
Western or any of their respective Subsidiaries to any third party
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and/or any Governmental Entity in connection with the Share Issuance and the
other transactions contemplated by this Agreement, the Stock Option Agreement
and the Option and Voting Agreement.
(d) Western and Protection One each shall keep the other apprized of
the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Protection One or Western, as the case may be, or any
of their respective Subsidiaries, from any third party and/or any Governmental
Entity with respect to the Share Issuance and the other transactions
contemplated by this Agreement, the Stock Option Agreement and the Option and
Voting Agreement. Western and Protection One each shall give prompt notice to
the other of any change that is reasonably likely to result in a Transferred
Subsidiaries Material Adverse Effect or Protection One Material Adverse Effect,
respectively.
(e) Without limiting the generality of the undertakings pursuant to
this Section 3.5, Western and Protection One agree to take or cause to be taken
the following actions: (i) provide promptly to any and all federal, state, local
or foreign court or Government Entity with jurisdiction over enforcement of any
applicable antitrust laws ("Government Antitrust Entity") information and
documents requested by any Government Antitrust Entity or necessary, proper or
advisable to permit consummation of the Share Issuance and the other
transactions contemplated by this Agreement, the Stock Option Agreement and the
Option and Voting Agreement; and (ii) take promptly, in the event that any
permanent or preliminary injunction or other order is entered or becomes
reasonably foreseeable to be entered in any proceeding that would make
consummation of the Share Issuance in accordance with the terms of this
Agreement unlawful or that would prevent or delay consummation of the Share
Issuance or the other transactions contemplated by this Agreement, the Stock
Option Agreement and the Option and Voting Agreement, any and all steps
(including the appeal thereof, the posting of a bond or the taking of the steps
contemplated by clause (ii) of this paragraph) necessary to vacate, modify or
suspend such injunction or order so as to permit such consummation on a schedule
as close as possible to that contemplated by this Agreement, the Stock Option
Agreement and the Option and Voting Agreement.
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(f) Without limiting the generality of the foregoing, Western and
Protection One agree to use their respective reasonable best efforts from and
after the date of this Agreement until the Closing to cooperate with respect to
developing plans and timetables for, and completing such preparatory work as is
commercially reasonable in connection with, the integration and coordination of
the operations, systems, information technology and personnel of Protection One
and its Subsidiaries and the Transferred Subsidiaries, respectively, in order
that such integration and coordination can be effected as soon after the Closing
as reasonably practicable.
3.6. Taxation. Neither Protection One nor Western shall take or cause
to be taken any action, whether before or after the Closing, that would
disqualify the contribution of the Subsidiary Shares and the Investment Shares
as a contribution to a controlled corporation within the meaning of Section 351
of the Code. At or prior to the Closing Protection One shall become a party to
the Western tax sharing arrangements previously in effect (as described in
Section 3.6 of the Western Disclosure Letter).
3.7. Access. Upon reasonable notice, and except as may otherwise be
required by applicable law, each party hereto shall (and shall cause its
Subsidiaries to) afford the other's officers, employees, counsel, accountants
and other authorized representatives ("Representatives") access, during normal
business hours throughout the period prior to the Closing, to the properties,
books, contracts and records of the Transferred Subsidiaries and Protection One
and its Subsidiaries, respectively, and, during such period, each shall (and
shall cause its Subsidiaries to) furnish promptly to the other all information
concerning the business, properties and personnel of the Transferred
Subsidiaries and Protection One and its Subsidiaries, respectively, as may
reasonably be requested, provided that no investigation pursuant to this Section
shall affect or be deemed to modify any representation or warranty made by
Western or Protection One, and provided, further, that the foregoing shall not
require Western or Protection One to permit any inspection, or to disclose any
information, that in the reasonable judgment of Western or Protection One, as
the case may be, would result in the disclosure of any trade secrets of third
parties or violate any of its obligations with respect to confidentiality if
Western or Protection One, as the case may be, shall have used reasonable best
efforts to obtain
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the consent of such third party to such inspection or disclosure. All requests
for information made pursuant to this Section shall be directed to an executive
officer of Western or Protection One, as the case may be, or such Person as may
be designated by either of its officers, as the case may be. Each party hereto
agrees that any non-public information furnished to it or any of its
Representatives by or on behalf of the other party hereto, whether before or
after the date of this Agreement, together with any reports, analyses,
compilations, memoranda, notes and any other writings prepared by such party or
its Representatives which contain, reflect or are based upon such information
(collectively, the "Confidential Information"), will be treated confidentially
and will not be used by such party in any way detrimental to the other party;
provided, however, that each party may disclose Confidential Information
regarding the other party to the extent such disclosure is legally required.
Upon execution of this Agreement, the Confidentiality Agreement between Western
and Protection One entered into in connection with the transactions contemplated
by this Agreement (the "Confidentiality Agreement") shall be deemed terminated
and shall have no further force or effect.
3.8. Nasdaq Listing. Protection One shall use its best efforts to cause
the shares of Common Stock to be issued in the Share Issuance to be accepted for
quotation on the Nasdaq, subject to official notice of issuance, prior to the
Closing.
3.9. Publicity. The initial press release with respect to the
transactions contemplated by this Agreement and the Stock Option Agreement shall
be a joint press release and thereafter Western and Protection One each shall
consult with each other prior to issuing any press releases or otherwise making
public announcements with respect to the Share Issuance and the other
transactions contemplated by this Agreement, the Stock Option Agreement and the
Option and Voting Agreement and prior to making any filings with any third party
and/or any Governmental Entity (including any national securities exchange) with
respect thereto, except as may be required by law or by obligations pursuant to
any listing agreement with or rules of any national securities exchange or
interdealer quotation system; provided, however, that neither Western nor
Protection One shall be required to consult with the other prior to filing a
current report on Form 8-K with the SEC attaching a copy of the initial press
release and a copy of this Agreement
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(excluding therefrom the Western Disclosure Letter and the Protection One
Disclosure Letter).
3.10. Election to Protection One's Board of Directors. At the Closing
of the Share Issuance, Protection One shall promptly increase the size of its
Board of Directors from four to twelve directors in order to permit Western to
appoint eight persons. Any vacancies that Western is entitled to fill pursuant
to this Section 3.10 may be filled from time to time by such persons as Western
may from time to time select. Until the second anniversary of the Closing,
Western shall vote all shares of Common Stock beneficially owned by Western to
elect, and Protection One shall use its best efforts to cause to be elected, the
four current directors of Protection One and eight individuals selected by
Western (some or all of whom, at Western's sole discretion, may be independent
persons). From and after the second anniversary of the Closing, and for so long
as Western shall own, directly or indirectly, more than 50 percent of the issued
and outstanding Common Stock of Protection One, Western shall vote all shares of
Common Stock beneficially owned by Western to elect, and Protection One shall
use its best efforts to cause to be elected, (i) one individual selected from
the executive officers of Protection One, (ii) at least three individuals who
are independent persons ("Independent Directors") and (iii) eight individuals
selected by Western (some or all of whom, at Western's sole discretion, may be
"independent persons"). For purposes of this Agreement, "independent persons"
shall mean a person who (i) is in fact independent, (ii) does not have any
direct financial interest or any material indirect financial interest in
Western, Protection One or any entity or person that beneficially owns greater
than two percent of the outstanding Protection One Common Stock or any of their
respective affiliates, and (iii) is not connected with Western, Protection One
or any entity or person that beneficially owns greater than two percent of the
outstanding Protection One Common Stock or any of their respective affiliates as
an officer, employee, consultant, agent, representative, trustee, partner,
director (other than of Protection One) or person performing similar functions.
The Chairman of the board of directors of Protection One at all times shall be a
person selected by Western.
3.11. Expenses. Except as otherwise provided in Section 5.5(b), each
party hereto shall pay all costs and expenses incurred by it in connection with
this Agreement
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and the Share Issuance and the other transactions contemplated hereby.
3.12. Takeover Statute. If any "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation is or
may become applicable to the Share Issuance or the other transactions
contemplated by this Agreement, the Stock Option Agreement or the Option and
Voting Agreement, each of Protection One and Western and its board of directors
shall grant such approvals and take such actions as are necessary so that the
Share Issuance and the other transactions contemplated by this Agreement, the
Stock Option Agreement and the Option and Voting Agreement may be consummated as
promptly as practicable on the terms contemplated hereby and thereby and
otherwise act to eliminate or minimize the effects of such statute or regulation
on such transactions.
3.13. Indemnification; Directors' and Officers' Insurance. (a) The
provisions with respect to indemnification set forth in the certificate of
incorporation and by-laws of Protection One shall not be amended, repealed or
otherwise modified for a period of six years from the Closing in any manner that
would affect adversely the rights thereunder of individuals who at the Closing
were directors or officers of Protection One, unless such modification shall be
required by law. From and after the Closing, Protection One will indemnify and
hold harmless each present and former director and officer of Protection One
(when acting in such capacity), determined as of the Closing, against any costs
or expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages, liabilities or settlement amounts (collectively, "Costs")
incurred or paid in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Closing, whether asserted or claimed prior to, at or after the Closing, to the
fullest extent that Protection One is permitted under Delaware law (and
Protection One shall also advance expenses as incurred to the fullest extent
permitted under applicable law provided the Person to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined
that such Person is not entitled to indemnification); and provided, further,
that any determination required to be made with respect to whether an officer's
or director's conduct complies with the
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standards set forth under Delaware law shall be made by independent counsel
selected by Protection One.
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 3.13, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Protection One thereof,
but the failure to so notify shall not relieve Protection One of any liability
it may have to such Indemnified Party if such failure does not materially
prejudice Protection One. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Closing), (i)
Protection One shall have the right to assume the defense thereof and Protection
One shall not be liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Protection One
elects not to assume such defense, the Indemnified Parties may retain counsel
satisfactory to them, and Protection One shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that Protection One shall be obligated
pursuant to this paragraph (b) to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will
cooperate in the defense of any such matter and (iii) Protection One shall not
be liable for any settlement effected without its prior written consent; and
provided, further, that Protection One shall not have any obligation hereunder
to any Indemnified Party if and when a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(c) Protection One shall maintain its existing officers' and directors'
liability insurance ("D&O Insurance") for a period of six years after the
Closing so long as the annual premium therefor is not in excess of 150 percent
of the last annual premium paid prior to the date hereof (the "Current
Premium"); provided, however, that if the existing D&O Insurance expires, is
terminated or cancelled during such six (6)-year period, Protection One will use
its reasonable efforts to obtain as much D&O Insurance as can be obtained for
the remainder of such period for a premium not in excess (on an annualized
basis) of 150 percent of the Current Premium.
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(d) If Protection One or any of its successors or assigns (i) shall
consolidate with or merge into any other corporation or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then, and in each such
case, proper provisions shall be made so that the successors and assigns of
Protection One shall assume all of the obligations set forth in this Section.
(e) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
3.14. Headquarters. Until the third anniversary of the Closing, the
corporate headquarters of Protection One shall be located in Los Angeles,
California and the finance headquarters of Protection One shall be located in
Dallas, Texas.
3.15. Post-Closing Actions; Security Systems Business. From and after
the Closing, for so long as Western shall own, directly or indirectly, more than
50 percent of the outstanding Common Stock of Protection One, Western shall
cause Protection One to perform each and every one of its obligations hereunder.
From and after the Closing, for so long as Western shall own, directly or
indirectly, more than 50 percent of the outstanding Common Stock of Protection
One, neither Western nor any of its Subsidiaries (other than Protection One and
its Subsidiaries) shall engage in, or invest in, acquire any equity securities
of, or enter into any material business relationship with, any person engaged in
the business of selling and servicing residential (other than multi-family
residential) or commercial monitoring and response security systems, access
control systems, closed-circuit television and video monitoring systems, vehicle
location and monitoring systems or security guard services (the "Business");
provided, however, that Western and its Subsidiaries may (i) engage in the
business of selling and servicing multi-family residential monitoring and
response security systems (the "Multi-Family Monitoring Business"), (ii) invest
in, acquire any equity securities of, or enter into any material business
relationship with, any person engaged in the Business provided such person
derives at least 75 per cent of its revenues from Multi-Family
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Monitoring and/or any other business other than the Business and (iii) engage in
the Business to the extent such business is acquired pursuant to the foregoing
clause (ii). Notwithstanding the foregoing, neither Western nor any of its
Subsidiaries shall be permitted to invest in, acquire any equity securities of,
or enter into any material business relationship with any person engaged in the
Business if, following such investment, acquisition or entrance into, Western
and its Subsidiaries would derive aggregate annual revenues from the Business in
an amount equal to 7.5% or greater of the aggregate annual revenues at such time
of Protection One and its Subsidiaries.
3.16. Indemnification. (a) Western shall indemnify Protection One and
its affiliates, and their respective officers, directors, employees, agents,
successors and assigns with respect to, and hold each of them harmless from and
against, any and all liabilities, losses, damages, claims, costs and expenses,
interest, awards, judgments and penalties (including, without limitation,
attorneys' and consultants' fees and expenses) suffered, incurred or sustained
by any of them or to which any of them becomes subject (including, without
limitation, any Action brought or otherwise initiated by any of them)
(collectively, "Losses"), resulting from, arising out of or relating to (i) (A)
United States federal, state and local and foreign income Taxes of the
Transferred Subsidiaries attributable to taxable periods (or portions thereof)
ending on or before the Closing Date, and (B) all United States federal, state
and local Taxes of Western and any entity, other than the Transferred
Subsidiaries, which is or has been affiliated with Western as a result of
Treasury Regulation Section 1. 1502-6(a) or similar state or local Tax
provisions, (ii) any increase in the purchase price payable under the
Westinghouse Acquisition Agreement and (iii) the matter of Westec Security, Inc.
v. Westsec, Inc., et al. Western and Protection One further hereby acknowledge
and agree that any increase, reduction or other adjustment in the purchase price
payable under the Westinghouse Acquisition Agreement shall be solely for the
account of Western and that Western shall be entitled in all respects, without
notice to or consultation with Protection One, to control and manage any
proceedings, negotiations or settlements undertaken in connection with such
purchase price adjustment. Western and Protection One further hereby acknowledge
and agree that (i) Protection One shall pay and/or shall indemnify Western for
the first $1,000,000 of Losses suffered by Western, the Transferred Subsidiaries
or
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Protection One resulting from, arising out of or relating to the matter of
Innovative Business Systems (Overseas) Ltd., and Innovative Business Software
Inc. v. Westinghouse Electric Corporation, Westinghouse Security Systems Inc.,
WestSec Inc., Western Resources Inc. and Xxxxx X. Xxxxxxxx, and any related
claims or actions (the "IBS Litigation") and (ii) Western shall pay and/or
indemnify Protection One and the Transferred Subsidiaries for all Losses in
excess of $1,000,000 suffered by Western, the Transferred Subsidiaries or
Protection One resulting from, arising out of or relating to the IBS Litigation.
Without limiting the generality of the foregoing, Western shall be entitled in
its sole discretion, without notice to or consultation with Protection One, to
control and manage any proceedings, negotiations or settlements undertaken in
connection with the IBS Litigation.
(b) In consideration of the indemnification for federal income Taxes
set forth in Section 3.16(a), the parties acknowledge that the Transferred
Subsidiaries shall pay to Western an amount in respect to the Transferred
Subsidiaries' federal income Tax liability for the period from January 1, 1997
to the Closing Date computed on a stand-alone basis, which amounts shall be
calculated and paid as soon as practicable for such period (to the extent not
paid under previous tax-sharing arrangements), and adjusting payments made as
necessary. The tax-sharing arrangements previously in effect between the
Transferred Subsidiaries and Western (as described in Schedule 3.16(b) hereof)
shall continue in full force and effect after the Closing Date.
(c) The obligation of Western to indemnify and hold harmless Protection
One pursuant to this Section 3.16 with respect to Tax liabilities shall
terminate upon the expiration of the applicable statutes of limitations with
respect to the Tax liabilities in question (giving effect to any waiver,
mitigation or extension thereof).
3.17. Dividend. Prior to the Closing, Protection One shall declare, and
as soon as practicable following the Closing, Protection One shall (i)
distribute $7.00 per share with respect to each share of Common Stock held by a
Holder of Record and (ii) distribute (as a cash bonus, in the case of Holders of
Record of Options or Warrants who are directors, officers or employees of
Protection One or any of its Subsidiaries, or as an anti-dilution cash payment,
in the case of Holders of Record of Warrants who are entitled,
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pursuant to the terms governing such Warrants, to elect such a cash payment)
$7.00 with respect to each share of Common Stock issuable upon exercise of
Options or Warrants held by each Holder of Record or, in accordance with the
agreements and other documents governing such Options and Warrants, reduce the
exercise price of, and/or increase the number of shares of Common Stock issuable
upon exercise of, such Options and Warrants; provided that, in the event that
the Closing shall occur before December 31, 1997, Protection One shall pay the
dividend referred to in clause (i) above after the Closing Date and on or before
December 31, 1997; and provided further that, in the event that the Closing
shall occur on or after December 31, 1997, Protection One shall pay the dividend
referred to in clause (i) above on the Closing Date. "Holder of Record" shall
mean each holder of record of a share of Common Stock or an Option or Warrant,
other than Western or any of its Subsidiaries, as of the date of, and
immediately prior to, the Closing (the "Record Date").
3.18. Standstill. (a) For the purposes of this Section 3.18, each of
the following terms shall have the following meaning:
(i) "Western Group" shall mean Western, its Subsidiaries and
Affiliates, and any person acting on behalf of Western or any of such
Subsidiaries or Affiliates.
(ii) "Voting Securities" shall mean the shares of Protection One Common
Stock and any other issued and outstanding securities of Protection One
generally entitled to vote for the election of directors of Protection One and
other matters for which the holders of Protection One Common Stock are entitled
to vote.
(b) Except as set forth in clauses (c) and (d) below, during the period
beginning on the date hereof and ending on the tenth anniversary of the Closing
Date (unless earlier terminated pursuant to the provisions of this Agreement,
the "Standstill Period"), Western shall not, and shall cause the other members
of the Western Group not to, directly or indirectly, (i) in any manner acquire,
agree to acquire, make any proposal to acquire or announce or disclose any
intention to make a proposal to acquire, directly or indirectly, any Voting
Securities, except (A) pursuant to the Share Issuance in accordance with the
terms and conditions of this Agreement; and (B) pursuant to and in accordance
with the terms and conditions of the Stock Option
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Agreement and the Option and Voting Agreement; or (ii) propose to enter into, or
announce or disclose any intention to propose to enter into, directly or
indirectly, any merger or business combination involving Protection One or to
purchase, directly or indirectly, all or substantially all of the assets of
Protection One.
(c) Notwithstanding the provisions of clause (b) above, following the
Closing Date until the six-month anniversary of the Closing Date, Western may in
any manner acquire Voting Securities representing in the aggregate up to but not
exceeding 85% of the Voting Securities issued and outstanding at such time.
Following the six-month anniversary of the Closing Date Western (i) at any such
time as Protection One Convertible Notes representing in the aggregate more than
$51,750,000 in aggregate principal amount thereof remain outstanding, may in any
manner acquire Voting Securities representing in the aggregate up to but not
exceeding 88.5% of the Voting Securities issued and outstanding at such time and
(ii) at any such time as Protection One Convertible Notes representing in the
aggregate less than $51,750,000 in aggregate principal amount thereof remain
outstanding, may in any manner acquire Voting Securities representing in the
aggregate up to but not exceeding 85% of the Voting Securities issued and
outstanding at such time.
(d) Notwithstanding the provisions of clause (b) above, following the
Closing Date, Western may make a tender offer or exchange offer for all
outstanding shares of Protection One Common Stock or Voting Securities or take
any of the actions described in clause (b)(ii) above; provided that any such
action satisfies the following additional requirements (i) if a tender offer,
the offer must be a "tender offer" for purposes of, and must be made in
compliance with, Rules 14d-1 and 13e-3 under the Exchange Act (or any successor
provisions thereto), and (ii) any such action must be at a price and on terms
that are fair to the stockholders of Protection One (as determined by a majority
of the Independent Directors after the receipt of a fairness opinion with
respect to any such proposed transaction from a nationally recognized investment
banking firm selected by a majority of the Independent Directors and reasonably
acceptable to Western, and must be approved by a majority of the Independent
Directors.
3.19. New Option Plan. Subject to the required Stockholder approval,
upon or promptly following the Closing
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Date, Protection One shall, or Western shall cause Protection One to, establish
a stock option plan (the "New Option Plan") for the benefit of officers and key
employees of Protection One and its Subsidiaries (including the Transferred
Subsidiaries). The New Option Plan shall contain such terms and conditions as
are determined by the board of directors of Protection One and approved by the
board of directors of Western; provided, however, that (i) the New Option Plan
shall provide for the issuance of a total of up to 4,200,000 shares of Common
Stock in respect of stock options granted thereunder and (ii) on the Closing
Date, options shall be granted to officers and key employees of Protection One
and its Subsidiaries (including the Transferred Subsidiaries) under the New
Option Plan with respect to 1,600,000 shares of such Common Stock.
3.20. Closing Schedule. Not later than two business days preceding the
Closing Date, Protection One shall deliver to Western a Schedule setting forth
(i) the cash payments to be paid with respect to, the reduction in the exercise
price of, and/or the increase in the number of shares of Common Stock issuable
upon exercise of, each Option, Warrant and Protection One Convertible Note as a
result of the payment to the Holders of Record of Common Stock of the dividend
contemplated by Section 3.17 hereof and (ii) the number of Acquired Shares,
after giving effect to the payments, reductions and increases referred to in
clause (i). In the event that following the Closing, Western shall notify
Protection One, (which notice shall specify in reasonable detail the facts and
circumstances upon which it is based) that any calculation on the Schedule was
incorrect, and that as a result thereof either (i) Western was not issued as of
the Closing the correct number of Acquired Shares or (ii) Protection One has
been required to make distributions or adjustments not contemplated by the
Schedule, then, as promptly as practicable after Western and the Independent
Directors have agreed thereto, such agreement not be unreasonably withheld,
Protection One shall issue additional shares of Common Stock to Western at no
cost to Western to rectify such incorrect calculation. With respect to
distributions or adjustments to exercise prices not contemplated by the Schedule
that Protection One is required to make, Western shall be entitled to receive
for each $1,000,000 of such payments or adjustments that number of shares of
Common Stock equal to .1% of the number of Acquired Shares.
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ARTICLE IV
Conditions
4.1. Conditions to Each Party's Obligation to Effect the Share
Issuance. The respective obligation of each party to effect the Share Issuance
is subject to the satisfaction or waiver at or prior to the Closing of each of
the following conditions:
(a) Stockholder Approval. The Charter Amendment, the Share Issuance and
the New Option Plan shall have been duly approved by the holders of Common Stock
constituting the Protection One Requisite Vote.
(b) Nasdaq Quotation. The shares of Common Stock issuable to Western
pursuant to the Share Issuance shall have been authorized for quotation on the
Nasdaq.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Share Issuance and the other transactions contemplated by
this Agreement under the HSR Act shall have expired or been terminated and all
notices, reports and other filings required to be made prior to the Closing by
Western or Protection One or any of their respective Subsidiaries with, and all
consents, registrations, approvals, permits and authorizations required to be
obtained prior to the Closing by Western or Protection One or any of their
respective Subsidiaries from, any Governmental Entity (collectively,
"Governmental Consents") in connection with the execution and delivery of this
Agreement and the consummation of the Share Issuance and the other transactions
contemplated hereby by Western and Protection One shall have been made or
obtained (as the case may be), except those that the failure to make or to
obtain are not, individually or in the aggregate, reasonably likely to have a
Transferred Subsidiary Material Adverse Effect or a Protection One Material
Adverse Effect or to provide a reasonable basis to conclude that the parties
hereto or any of their affiliates or respective directors, officers, agents,
advisors or other representatives would be subject to the risk of criminal
liability.
(d) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent)
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that is in effect and restrains, enjoins or otherwise prohibits consummation of
the Share Issuance (collectively, an "Order").
4.2. Conditions to Obligations of Protection One. The obligations of
Protection One to effect the Share Issuance are also subject to the satisfaction
or waiver by Protection One at or prior to the Closing of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Western set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing as though made on and as of the
Closing(except to the extent any such representation or warranty expressly
speaks as of an earlier date), and Protection One shall have received
certificates signed on behalf of Western by an executive officer of Western to
such effect; provided, however, that notwithstanding anything herein to the
contrary, this Section 4.2(a) shall be deemed to have been satisfied even if
such representations or warranties are not so true and correct unless the
failure of such representations or warranties to be so true and correct,
individually or in the aggregate, has had, or is reasonably likely to
have, Transferred Subsidiary Material Adverse Effect or is reasonably likely to
prevent or to materially burden or materially impair the ability of Western to
consummate the Share Issuance and the other transactions contemplated by this
Agreement.
(b) Performance of Obligations of Western. Western shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and Protection One shall have
received certificates signed on behalf of Western by an executive officer of
Western to such effect.
(c) Consents Under Agreements. Each of Western and Western Sub shall
have obtained the consent or approval of each Person whose consent or approval
shall be required under any Contract to which Western or any Transferred
Subsidiary is a party, except those for which the failure to obtain such consent
of approval, individually or in the aggregate, is not reasonably likely to have
a Transferred Subsidiary Material Adverse Effect or is not reasonably likely to
prevent or to materially burden or materially impair the ability of Western to
consummate the Share
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Issuance or the other transactions contemplated by this Agreement.
(d) Cash Amount. Protection One shall have received the Cash Amount (i)
by wire transfer in immediately available funds to a bank account designated by
Protection One pursuant to written instructions delivered by Protection One to
Western not fewer than two business days prior to the Closing Date and (ii) by
delivery to Protection One of certificates representing the Investment Shares,
duly endorsed in blank or accompanied by stock powers in blank with all
necessary transfer stamps affixed thereto (at the expense of Western), and such
other instruments or documents as are necessary to transfer such securities to
Protection One free and clear of any Liens.
(e) Transferred Subsidiary Shares. Protection One shall have received
stock certificates evidencing the Subsidiary Shares duly endorsed in blank, or
accompanied by stock powers duly executed in blank, in form satisfactory to
Protection One and with all required stock transfer tax stamps affixed.
(f) No Transferred Subsidiary Material Adverse Effect. No event or
events shall have occurred, or shall be reasonably likely to occur, which,
individually or in the aggregate, have had, or could reasonably be expected to
have, a Transferred Subsidiary Material Adverse Effect.
4.3. Conditions to Obligation of Western. The obligation of Western to
effect the Share Issuance is also subject to the satisfaction or waiver by
Western at or prior to the Closing of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Protection One set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date (except to the extent any such representation and warranty
expressly speaks as of an earlier date), and Western shall have received a
certificate signed on behalf of Protection One by an executive officer of
Protection One to such effect; provided, however, that
notwithstanding anything herein to the contrary, this Section 4.3(a) shall be
deemed to have been satisfied even if such representations or warranties are not
so true and correct unless the failure of such representations or warranties to
be so true and correct, individually or in the
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aggregate, has had, or is reasonably likely to have, a Protection One Material
Adverse Effect or is reasonably likely to prevent or to materially burden or
materially impair the ability of Protection One to consummate the transactions
contemplated by this Agreement.
(b) Performance of Obligations of Protection One. Protection One shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Western shall
have received a certificate signed on behalf of Protection One by an executive
officer of Protection One to such effect.
(c) Consents Under Agreements. Protection One shall have obtained the
consent or approval of each Person whose consent or approval shall be required
in order to consummate the transactions contemplated by this Agreement under any
Contract to which Protection One or any of its Subsidiaries is a party, except
those for which failure to obtain such consents and approvals, individually or
in the aggregate, is not reasonably likely to have a Protection One Material
Adverse Effect or is not reasonably likely to prevent or to materially burden or
materially impair the ability of Protection One to consummate the Share Issuance
or the other transactions contemplated by this Agreement.
(d) Tax Opinion. Western shall have received the opinion of Xxxxxxxx &
Xxxxxxxx, counsel to Western and the Transferred Subsidiaries, dated the Closing
Date, to the effect that the contribution of the Subsidiary Shares and the
Investment Shares will be treated for Federal income tax purposes as a
contribution to a controlled corporation within the meaning of Section 351 of
the Code.
(e) Employment and Non-Compete Agreements. Protection One and/or a
Subsidiary of Protection One shall have entered into an Employment and
Non-Compete Agreement with each of Xxxxx X. XxxXxxxxx, Xx., Xxxx X. Xxxxx, Xxxx
X. Xxxx III and Xxxxxx X. Xxxxxx in the form attached as Exhibit B.
(f) Acquired Shares. Western shall have received stock certificates
evidencing the duly authorized, validly issued, fully paid and nonassessable
Acquired Shares.
(g) No Protection One Material Adverse Effect. No event or events shall
have occurred, or shall be
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reasonably likely to occur, which, individually or in the aggregate, have had,
or could reasonably be expected to have, a Protection One Material Adverse
Effect.
ARTICLE V
Termination
5.1. Termination by Mutual Consent. This Agreement may be terminated
and the Share Issuance may be abandoned at any time prior to the Closing,
whether before or after the approval by stockholders of Protection One referred
to in Section 4.1(a), by mutual written consent of Western and Protection One by
action of their respective Boards of Directors.
5.2. Termination by Either Protection One or Western. This Agreement
may be terminated and the Share Issuance may be abandoned at any time prior to
the Closing by action of the Board of Directors of either Protection One or
Western if (i) the Share Issuance shall not have been consummated by January 31,
1998, whether such date is before or after the date of approval by the
stockholders of Protection One, (ii) the approval of Protection One's
stockholders as required by Section 4.1(a) shall not have been obtained at a
meeting duly convened therefor or (iii) any Order permanently restraining,
enjoining or otherwise prohibiting consummation of the Share Issuance shall
become final and non-appealable (whether before or after the approval by the
stockholders of Protection One); provided, that the right to terminate this
Agreement pursuant to clause (i) above shall not be available to any party that
has breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
of the Share Issuance to be consummated.
5.3. Termination by Western. This Agreement may be terminated and the
Share Issuance may be abandoned at any time prior to the Closing, whether before
or after the approval by stockholders of Protection One referred to in Section
4.1(a), by action of the Board of Directors of Western if (a) the Board of
Directors of Protection One shall have withdrawn or adversely modified its
approval or recommendation of this Agreement or (b) there has been a material
breach by Protection One of any representation, warranty, covenant or agreement
contained in this Agreement
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that is not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by Western to Protection One; provided, however,
that Western shall not be entitled to terminate this Agreement pursuant to this
Section 5.3(a)(ii) if such breach, individually or in the aggregate with any
other such breaches, has not had, or is not reasonably likely to have, a
Protection One Material Adverse Effect, and is not reasonably likely to prevent
or materially burden or impair the ability of Protection One or Western to
consummate the transactions contemplated by this Agreement and the Stock Option
Agreement.
5.4. Termination by Protection One. This Agreement may be terminated
and the Share Issuance may be abandoned at any time prior to the Closing,
whether before or after the approval by the stockholders of Protection One
referred to in Section 4.1(a), by action of the Board of Directors of Protection
One:
(a) if there has been a material breach by Western of any
representation, warranty, covenant or agreement contained in this Agreement that
is not curable or, if curable, is not cured within 30 days after written notice
of such breach is given by Protection One to Western; provided, however, that
Protection One shall not be entitled to terminate this Agreement pursuant to
this Section 8.4(a) if such breach, individually or in the aggregate with any
other such breaches, has not had, or is not reasonably likely to have, a
Transferred Subsidiary Material Adverse Effect, and is not reasonably likely to
prevent or materially burden or impair the ability of Western or Protection One
to consummate the transactions contemplated by this Agreement or the Stock
Option Agreement.
(b) if the Board of Directors of Protection One shall have withdrawn or
adversely modified its approval or recommendation of this Agreement.
5.5. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Share Issuance pursuant
to this Article V, this Agreement (other than as set forth in Section 6.1) shall
become void and of no effect with no liability on the part of any party hereto
(or of any of its directors, officers, employees, agents, legal and financial
advisors or other representatives); provided, however, except as otherwise
provided herein, no such termination
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shall relieve any party hereto of any liability or damages resulting solely from
any wilful breach of this Agreement.
(b) In the event that this Agreement is terminated (i) by Western
pursuant to Section 5.3(b) or (ii) by Protection One pursuant to Section 5.4(a),
then the non-terminating party shall promptly, but in no event later than two
days after being notified of such by the terminating party, pay all of the
charges and expenses incurred by the terminating party in connection with this
Agreement, the Stock Option Agreement and the Option and Voting Agreement and
the transactions contemplated hereby and thereby up to a maximum amount of
$5,000,000, in each case payable by wire transfer of same day funds.
ARTICLE VI
Miscellaneous and General
6.1. Survival. This Article VI and the agreements of Western and
Protection One contained in Sections 3.3 (Information Supplied), 3.6 (Taxation),
3.8 (Stock Exchange Listing), 3.10 (Election to Protection One's Board of
Directors), 3.13 (Indemnification; Directors' and Officers' Insurance), 3.14
(Headquarters), 3.15 (Post-Closing Actions; Security Systems Business), 3.16
(Indemnification), 3.17 (Dividend), 3.18 (Standstill), 3.19 (Certain Employee
Benefit Obligations) and 3.20 (Closing Schedule) shall survive the consummation
of the Share Issuance. This Article VI, the agreements of Western and Protection
One contained in Section 3.11 (Expenses) and Section 5.5 (Effect of Termination
and Abandonment) shall survive the termination of this Agreement. All other
representations, warranties, covenants and agreements in this Agreement shall
not survive the consummation of the Share Issuance or the termination of this
Agreement.
6.2. Modification or Amendment. Subject to the provisions of the
applicable law, at any time prior to the Closing, the parties hereto may modify
or amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties. From and after the Closing,
neither this Agreement nor any other agreement entered into by Protection One in
connection herewith may be amended, supplemented or otherwise modified and
Protection One may not waive any provision hereof, unless such amendment,
supplement, modification, or waiver
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shall have been approved by the affirmative vote of a majority of the Continuing
Directors. For purposes of the foregoing, "Continuing Directors" shall mean
Xxxxx X. XxxXxxxxx, Xx., Xx. Xxx Xxxx and Xxxxx X. Xxxxxx and their respective
successors as Continuing Directors, each of whom shall be chosen by the then
existing Continuing Directors from among the Independent Directors who at such
time are not Continuing Directors.
6.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Share Issuance are for the sole benefit of such
party and may be waived by such party in whole or in part to the extent
permitted by applicable law.
6.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
6.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of
Delaware and the Federal courts of the United States of America located in the
State of Delaware solely in respect of the interpretation and enforcement of
the provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that it is
not subject thereto or that such action, suit or proceeding may not be brought
or is not maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any such document may not be enforced in
or by such courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a
Delaware State or Federal court. The parties hereby consent to and grant any
such court jurisdiction over the person of such parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
6.6 or in
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such other manner as may be permitted by law shall be valid and sufficient
service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 6.5.
6.6. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Western
Western Resources, Inc.
Xxxxxx, Xxxxxx 00000
Attention: Xxxx Xxxxxxxxx
Fax: (000) 000-0000
(with a copy to Xxxx X. Xxxxxxxx, Esq., and
Xxxxxxx X. Xxxxxx, Esq.,
Xxxxxxxx & Xxxxxxxx,
000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000
fax: (000) 000-0000.)
if to Protection One
Protection One, Inc.
0000 Xxxxxxx Xxxxxxx
Xxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx, Xx.
Fax: (000) 000-0000
and
Protection One, Inc.
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0000 X.X. Xxxxxx Xxxxxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxx X. Xxxxx
Fax: (000) 000-0000
(with copies to:
Xxxxxxx E. Gold, Esq.
Xxxxx X. Xxxxxx, Esq.
Xxxxxxxx, Xxxxxxxxxx & Xxxxx LLP
00000 Xxxx Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
and
Xxxxxxxxxxx X. Xxxxxx, Esq.
Xxxxx X. Xxxxxxxx, Esq.
Shearman & Sterling
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000-0000
Fax: (000) 000-0000
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
6.7. Entire Agreement; No Other Representations. This Agreement
(including any exhibits hereto), the Western Disclosure Letter, the Protection
One Disclosure Letter, the Stock Option Agreement and the Option and Voting
Agreement constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties both written and
oral, among the parties, with respect to the subject matter hereof. EACH PARTY
HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN
THIS AGREEMENT, NEITHER PROTECTION ONE NOR WESTERN MAKES ANY OTHER
REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER
REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH
RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR
THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH
RESPECT TO ANY ONE OR MORE OF THE FORE GOING.
6.8. No Third Party Beneficiaries. Except as provided in Section 3.13
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to
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confer upon any Person other than the parties hereto any rights or remedies
hereunder.
6.9. Obligations of Protection One and of Western. Whenever this
Agreement requires a Subsidiary of Protection One to take any action, such
requirement shall be deemed to include an undertaking on the part of Protection
One to cause such Subsidiary to take such action. Whenever this Agreement
requires a Subsidiary of Western to take any action, such requirement shall be
deemed to include an undertaking on the part of Western.
6.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
6.11. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
6.12. Assignment. This Agreement shall not be assignable by operation
of law or otherwise; provided, however, that Western may assign all or any
portion of its rights and obligations hereunder to a Subsidiary provided Western
remains liable for any such assigned obligations.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto as of the date first
written above.
Western Resources, Inc.
By: __________________________
Name:
Title:
Protection One, Inc.
By: __________________________
Name:
Title:
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Amendment No. 1 to
Contribution Agreement
Amendment No. 1, dated as of October 2, 1997 (hereinafter called this
"Amendment")to the Contribution Agreement, dated as of July 30, 1997 (the
"Original Amendment" and, as amended by this Amendment, the "Agreement"),
between Western Resources, Inc., a Kansas corporation ("Western") and Protection
One, Inc., a Delaware corporation ("Protection One").
Capitalized terms used but not defined in this Amendment shall have the
meanings given such terms in the Original Agreement.
WHEREAS, the respective boards of directors of each of Protection One
and Western have each approved, and Protection One and Western have each
executed and delivered, the Original Agreement pursuant to which Western will
contribute the Subsidiary Shares and the Cash Amount to Protection One in
exchange for the Acquired Shares; and
WHEREAS, Western and Protection One have agreed to amend the terms of
the Original Agreement to provide for the possible acquisition by Western of one
or more entities engaged in the Business.
WHEREAS, Western and Protection One have agreed to amend the terms of
the Original Agreement to increase the amount of authorized shares of Common
Stock for which approval will be sought in the Charter Amendment from
100,000,000 to 150,000,000;
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. Section 3.15 of the Original Agreement is hereby redesignated as
Section 3.15(a) and a new Section 3.15(b) is hereby inserted as
follows:
(b) Notwithstanding anything to the contrary contained in Section
3.15(a) hereof, and subject to the limitations contained in this Section
3.15(b), Western
or any Subsidiary of Western other than a Transferred Subsidiary shall be
permitted after the date of this Agreement and prior to the Closing to
enter into any agreement to acquire (i) all of the equity securities of
Centennial Security Holdings, Inc. ("Centennial"), (ii) all of the equity
securities of Network Holdings, Inc. ("Network") and (iii) all or a portion
of the equity securities of Guardian International, Inc. ("Guardian") not
previously purchased by Western and to consummate any or all of such
acquisitions. Prior to entering into any acquisition agreement with
Centennial, Network or Guardian, as the case may be, Western shall (A)
ensure that Protection One is entitled to enter into a confidentiality
agreement with such party in the same form as the confidentiality agreement
entered into between Western and such party and that Protection One and its
representatives are afforded a period of no less than five days to review
all of the same financial and other information made available to or
generated by Western or any of its representatives or advisors in
connection with its review of such party, (B) provide Protection One with a
substantially final draft of the acquisition agreement with respect to such
party at least five days prior to execution thereof and (C) not enter into
such acquisition agreement unless Protection One consents in writing to
Western entering into such agreement. Immediately or as soon as practicable
following the Closing, Western shall transfer, without recourse to Western
or any of its Subsidiaries or affiliates, all of Western's rights, title
and interest, if any, in all of the equity securities of Centennial and
Guardian, as the case may be, owned by Western, as well as all rights and
obligations of Western under the acquisition agreements entered into with
respect to Centennial and Guardian, as the case may be, to Protection One.
For a period of 180 days following the Closing Date, Protection One shall
have the right, exercisable by the vote of a majority of the Protection One
Board of Directors, to require Western to transfer, without recourse to
Western or any of its Subsidiaries or affiliates, all of Western's rights,
title and interest in the equity securities of Network, as well as all
rights and obligations of Western under the acquisition agreement entered
into with respect to Network, to Protection One. In consideration of the
transfer of all of Western's rights, title and interest, if any, in
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each of Centennial, Network and Guardian, as the case may be, and the
respective acquisition agreements with respect thereto, Protection One
shall pay in cash to Western an amount equal to the sum of (x) the purchase
price paid by Western to acquire Centennial, Network or Guardian, as the
case may be (the "Purchase Price"), (y) any fees and expenses incurred by
Western to third parties (including, without limitation, investment
bankers, attorneys and accountants) in connection with its acquisition of
Centennial, Network or Guardian, as the case may be, and (z) a carrying
charge equal to the product of (A) the Purchase Price, (B) 0.1 and (C) the
number of days from and including the date of the consummation of the
acquisition of Centennial, Network or Guardian, as the case may be, by
Western up to but not including the date of transfer from Western to
Protection One of Centennial, Network or Guardian, as the case may be,
divided by 365; provided, however, that with respect to Guardian, (i) the
parties acknowledge that the foregoing formula shall be applied separately
with respect to each date on which Western purchased securities of Guardian
and (ii) Protection One shall pay to Western the higher of (x) the amount
determined by the foregoing formula and (y) the closing sales price of the
securities of Guardian purchased by Western on a national securities
exchange or interdealer quotation system two business days prior to the
consummation of the transfer of such securities to Protection One. The
aggregate amount paid by Protection One to Western for such of Centennial,
Network and Guardian as are transferred to Protection One in accordance
with the terms hereof shall be referred to herein as the "Aggregate
Amount". Notwithstanding anything to the contrary contained herein, in the
event that the Aggregate Amount exceeds the Base Amount (as defined below),
then Protection One shall pay to Western cash in an aggregate amount equal
to the Base Amount and Protection One shall issue to Western (or any
Subsidiary thereof designated by Western) an unsecured note or notes in an
aggregate principal amount equal to the difference between the Aggregate
Amount and the Base Amount. Such note or notes shall bear interest at an
annual rate of 10%, and the principal amount thereof and all accrued
interest thereon shall be payable in full on the first anniversary of the
date of issuance of each such note or notes. Protection One's obligations
under such note
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or notes shall be subordinated to any other outstanding debt obligations of
Protection One to the extent that such subordination is required by the
instruments governing such debt obligations. For purposes of this Section
3.15(b), "Base Amount" shall mean an amount equal to the Cash Amount minus
the sum of (i) the aggregate principal amount and accrued interest
outstanding under Protection One's Amended and Restated Credit Agreement as
of the Closing Date and (ii) the aggregate amount of the cash dividends and
distributions payable to holders of Common Stock, Options and Warrants
following the Closing Date as contemplated by this Agreement. None of
Centennial, Network or Guardian shall be deemed to be a Transferred
Subsidiary for any purposes under this Agreement. Any securities of
Centennial, Network or Guardian transferred by Western to Protection One as
contemplated by this Section 3.15(b) shall not be deemed to constitute
Investment Shares (as such term is defined in Section 1.1 hereof) for any
purposes under this Agreement.
2. The Original Agreement is hereby amended by deleting the number
"100,000,000" in the nineteenth line of the sixth paragraph of the recitals and
replacing it with the number "150,000,000."
3. This Amendment may be executed in one or more counterparts, each
such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
4. This Amendment shall be deemed to be made in and in all respects
shall be governed by and in accordance with the law of the State of Delaware
without regard to the conflict of law principles thereof.
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IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
by the duly authorized officers of the parties hereto as of the date first
written above.
Western Resources, Inc.
By:__________________________
Name:
Title:
Protection One, Inc.
By:___________________________
Name:
Title:
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