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CONTRIBUTION AGREEMENT
Between
WESTERN RESOURCES, INC.
and
PROTECTION ONE, INC.
Dated as of July 30, 1997
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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
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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
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Agreement(the "Option and Voting Agreement"), pursuant to 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 agree ments 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
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"Closing") shall take place as promptly as practicable after the satisfaction or
waiver of the conditions set forth in 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:
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(a) Organization, Good Standing and Qualif ication. Western
and each of the Transferred Subsidiaries (as defined below) 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 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) "Subsid iary" 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
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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.
(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,
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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 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 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 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
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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 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
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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
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,
destruc tion 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 divi dend 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.
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(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,
threat ened 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 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 liabili ties 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 compensa tion, 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
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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 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
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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- 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 deter mined present value of all "benefit liabilities", within
the
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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 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 busi nesses 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,
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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 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, ▇▇▇▇
chises, 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
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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, 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
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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 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
informa tion 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
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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.
(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
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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);
(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 ▇▇▇▇ 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 ▇▇▇▇▇▇▇ & Co.
Inc. ("Bear ▇▇▇▇▇▇▇") and ▇▇▇▇▇▇ Associates ("▇▇▇▇▇▇ Associates") as its
financial advisors.
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(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) 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,
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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.
(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
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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.
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 Qualifica tion. 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
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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.
(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 Non- Qualified 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 ▇▇▇▇▇
▇▇▇▇▇▇ & Company (the "▇▇▇▇▇▇ 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, ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ 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
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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 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
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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 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,
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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 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).
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(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 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 mis leading. 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
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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 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 dis closed 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.
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(h) Employee Benefits.
(i) A copy of each bonus, deferred compensa tion, 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 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
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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 Subsidi aries 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 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.
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(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.
(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 Sub sidiaries 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
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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.
(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
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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 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.
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(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 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:
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(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, 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 ▇▇▇▇ 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,
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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 ▇▇▇▇▇▇
▇▇▇▇▇▇▇ & 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 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
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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
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, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & 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.
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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, 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
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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 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 fore going.
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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 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
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(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 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
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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 Subsidi aries) 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)
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
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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 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
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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.
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
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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 authori zations 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 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
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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.
(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
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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 3.16 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 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,
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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 (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
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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 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
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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 indemnifi cation 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 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
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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.
(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
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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 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).
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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 Protection One resulting from, arising out of or relating to the matter of
Innovative Business Systems (Overseas) Ltd.,
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and Innovative Business Software Inc. v. Westinghouse Electric Corporation,
Westinghouse Security Systems Inc., WestSec Inc., Western Resources Inc. and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, 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,
pursuant to the terms governing such Warrants, to elect such
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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.
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3.19. New Option Plan. Subject to the required Stockholder
approval, upon or promptly following the Closing 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
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of shares of Common Stock equal to .1% of the number of Acquired Shares.
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.
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(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) 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
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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 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
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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 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
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, 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 the persons listed on Section 4.3(e) of the
Western Disclosure Letter in the form attached as Exhibit B.
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(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 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
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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 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.
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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 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 agree ments 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.
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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 shall have been approved by the affirmative
vote of a majority of the Continuing Directors. For purposes of the foregoing,
"Continuing Directors" shall mean ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇., ▇▇. ▇▇▇ ▇▇▇▇ and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 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 counter part 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 interpreta tion 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
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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 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:
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if to Western
Western Resources, Inc.
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(with a copy to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq., and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
fax: (▇▇▇) ▇▇▇-▇▇▇▇.)
if to Protection One
Protection One, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
Protection One, Inc.
▇▇▇▇ ▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(with copies to:
▇▇▇▇▇▇▇ E. Gold, Esq.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Shearman & Sterling
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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
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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 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
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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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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
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72
(g) Litigation and Liabilities.....................................27
(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
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73
4.1. Conditions to Each Party's Obligation to Effect the Share Issuance....57
(a) Stockholder Approval...........................................57
(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
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74
6.10. Severability..........................................................67
6.11. Interpretation........................................................67
6.12. Assignment............................................................67
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