<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1997
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
SECURITY ASSOCIATES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7382 87-0467198
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
2101 SOUTH ARLINGTON HEIGHTS ROAD, ARLINGTON HEIGHTS, ILLINOIS 60005-4142 (847) 956-8650
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
JAMES S. BRANNEN
PRESIDENT
SECURITY ASSOCIATES INTERNATIONAL, INC.
2101 ARLINGTON HEIGHTS ROAD, ARLINGTON HEIGHTS, ILLINOIS 60005-4142 (847) 956-8650
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
________________
Copies to:
JOEL R. SCHAIDER
SACHNOFF & WEAVER, LTD.
30 S. WACKER DRIVE, 29TH FLOOR
CHICAGO, ILLINOIS 60606-7484
TELEPHONE NO. (312) 207-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
_________________
</TABLE>
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Common Stock, $0.001 par value 2,777,588 shares(2) $2.84375 $7,898,765.80 $2,393.57
- ---------------------------------------------------------------------------------------------------------------------------
Warrants 2,000,000 warrants $0 $0 $0
===========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of computing the registration fee pursuant
to Rule 457 under the Securities Act of 1933 on the basis of the average
of the bid and asked price of the Common Stock as of July 17, 1997, which
was $2.84375.
(2) 777,588 of which shares are also registered for resale, with the consent
of the Registrant, by (i) certain stockholders of the Company; (ii)
persons who are holders of currently exercisable options; and (ii) persons
who receive shares covered by this Registration Statement in connection
with acquisitions and who may wish to sell such shares under circumstances
requiring or making desirable use of the Prospectus contained herein.
Also includes 2,000,000 shares which may be issued pursuant to the
exercise of the Warrants.
_________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 22, 1997
PROSPECTUS
2,777,588 SHARES AND
2,000,000 WARRANTS
SECURITY ASSOCIATES INTERNATIONAL, INC.
COMMON STOCK
AND
WARRANTS
2,000,000 Shares of common stock, $.001 par value per share ("Common
Stock") and warrants to purchase 2,000,000 shares of Common Stock (the
"Warrants"), covered by this Prospectus may be offered and issued from time to
time by Security Associates International, Inc. (the "Company") in connection
with (i) acquisitions of other businesses, real or personal properties, or
securities in business combination transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act of 1933, as amended
(the "Securities Act"); (ii) securities to be sold by persons other than the
Registrant pursuant to Rule 415(a)(i); (iii) securities the offering of which
will be commenced promptly, will be made on a continuous basis and may continue
for a period in excess of 30 days from the date of initial effectiveness under
Rule 415(a)(1)(ix) of Regulation C; and (iv) or otherwise under Rule 415
promulgated under the Securities Act. This Prospectus may also be used, with
the Company's prior consent, by certain stockholders who wish to offer and sell
shares under circumstances requiring or making desirable its use. See
"Securities Covered by this Prospectus."
777,588 of the shares of Common Stock covered by this Prospectus may be
offered for sale by certain selling stockholders ("Selling Stockholders").
The Common Stock is traded on the OTC Bulletin Board under the symbol
LRMD. On July 9, 1997, the last reported sale price of the Common Stock was
$2.625. See "Price Range of Common Stock."
_________________________
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ________, 1997.
<PAGE> 3
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR
AN OFFER TO ANY PERSON IN A JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH
OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME SHALL NOT, UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 3
RISK FACTORS 5
PRICE RANGE OF COMMON STOCK 11
DIVIDEND POLICY 11
SELECTED FINANCIAL DATA 12
PRO FORMA STATEMENT OF INCOME 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 14
BUSINESS 19
MANAGEMENT 33
CERTAIN TRANSACTIONS 36
PRINCIPAL AND SELLING STOCKHOLDERS 37
DESCRIPTION OF CAPITAL STOCK 40
LEGAL MATTERS 43
EXPERTS 43
ADDITIONAL INFORMATION 43
INDEX TO FINANCIAL STATEMENTS F-1
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in or implied
by these forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in "Risk
Factors."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, all references to "Security
Associates" or the "Company" include the Company and its subsidiaries.
THE COMPANY
Security Associates International, Inc. ("Security Associates" or the
"Company") provides two types of security alarm monitoring services for
residences and businesses: (i) retail monitoring, which provides alarm
monitoring services to "Accounts" (contracts to provide monitoring services)
owned by the Company ("Retail Monitoring"), and (ii) wholesale monitoring,
which provides alarm monitoring services to Accounts owned by third parties
("Wholesale Monitoring"), largely independent alarm system sales and
installation organizations ("Dealers"). The Company's ability to capture both
Retail Monitoring and Wholesale Monitoring business is enhanced and supported
by a network of approximately 2,000 Dealers to which the Company provides
industry-related education including technology, finance, management and
marketing training ("Dealer Network"). The Company presently owns and operates
three central monitoring stations located in Des Plaines, Illinois, Grand
Rapids, Michigan and Pompano Beach, Florida.
Security Associates' revenues generally consist of recurring payments
under written contracts to provide Retail Monitoring and Wholesale Monitoring.
For the year ended December 31, 1996, the Company derived approximately 35% of
its monitoring revenues from Retail Monitoring and approximately 65% of its
revenues from Wholesale Monitoring. Total revenues increased from $699,154 for
the fiscal year ended December 31, 1993 to $3,782,091 for the fiscal year ended
December 31, 1996. Operating income improved from a loss of $932,957 for the
fiscal year ended December 31, 1993 to a loss of $342,832 for the fiscal year
ended December 31, 1996. The Company's loss per share of Common Stock for the
fiscal year ended December 31, 1996, was $0.47 per share.
The Company's Retail Monitoring services are provided to Accounts that
generally were purchased from portfolios of subscriber Accounts owned by the
Dealers that originally sold and installed the security alarm systems. As of
June 30, 1997, Security Associates owned a total of 18,895 Accounts. From
January 1, 1993 through December 31, 1996 the Company acquired 14,386 Accounts.
During first quarter ended March 31, 1997, the Company acquired 3,825
Accounts. As a result the recurring monthly revenue ("RMR") that the Company
is entitled to receive from owned Accounts has increased from $28,388 ($340,655
annualized) as of December 31, 1992 to $293,933 ($3,527,196 annualized) as of
March 31, 1997.
As of June 30, 1997, the Company monitors a total of 121,414 Accounts on a
Wholesale Monitoring basis, of which 102,519 Accounts are owned by 865 Dealers
and 18,895 Accounts are owned by the Company. All of these Accounts are
monitored from the Company's three central monitoring stations. From January
1, 1993 through December 31, 1996 the number of monitored Accounts increased
from 12,301 to 109,659. During the quarter ended March 31, 1997, the Company
provided monitoring services to 11,755 additional Accounts. As a result, the
Company's RMR from Wholesale Monitoring has increased from $59,253 ($711,036
annualized) as of December 31, 1992 to $546,418 ($6,557,016 annualized) as of
March 31, 1997. The Company estimates that its central monitoring stations are
capable of monitoring 140,000 Accounts without requiring substantial additional
capital outlays. The Company's current plan envisions increasing the total
capacity of the Company's central stations to 300,000 Accounts by the end of
1997, although there can be no assurance that this goal can be achieved.
The Company maintains its principal executive offices at 2101 Arlington
Heights Road, Arlington Heights, Illinois 60005. The Company's telephone
number is (847) 956-8650.
3
<PAGE> 5
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
PRO FORMA
1992 1993 1994 1995 1996 1996 (1)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 526 $ 699 $1,397 $2,733 $ 3,782 $8,232
Operating income (loss)....... (903) (933) (328) (289) (343) 219
Net (loss) available to common
stockholders.................. $ (1,015) $ (846) $(457) $(947) $(1,718) $(1,838)
Net loss per share............ (.37) (.25) (.13) (.26) (.47) (.50)
Shares used in computing
net income per share......... 2,746,513 3,407,502 3,662,187 3,665,642 3,669,343 3,669,343
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1997
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $795 $ 2,198
Operating income (loss)....... 53 (18)
Net (loss) available to common
stockholders.................. $(128) $ (627)
Net loss per share............ (.03) (.15)
Shares used in computing
net income per share......... 3,688,087 4,198,875
MARCH 31,
1997
----------------
BALANCE SHEET DATA:
Cash and cash equivalents.................. $715
Working capital............................ (664)
Total assets............................... 20,402
Total debt................................. 16,948
Total stockholders' equity................. 862
</TABLE>
(1) Proforma data for the year ended December 31, 1996 give effect to the
acquisitions of Security Associates Command Center II, L.L.C. ("SACC") and
AMJ Central Station Corporation ("AMJ") as if each had occurred on January
1, 1996.
4
<PAGE> 6
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective investors should consider carefully the following factors.
Risks Related to High Leverage. The Company is highly leveraged. At
December 31, 1996, the Company's consolidated indebtedness was approximately
$12.8 million, and the Company had unused borrowing capacity of approximately
$7.7 million under the Company's $15 million senior loan facility and
$4,500,000 under a $5 million subordinated loan facility (the "Loan
Agreements"). Future acquisitions of Account portfolios and central monitoring
stations will require additional borrowings under the Loan Agreements, thereby
further increasing the Company's leverage. See "Risks Related to
Acquisitions."
The Company's ability to continue to service its indebtedness will be
subject to various business, financial and other factors, many of which are
beyond the Company's control. In addition, the Loan Agreements include
covenants that restrict the operational and financial flexibility of the
Company. Failure to comply with certain covenants would, in some instances,
permit the lenders under the Loan Agreements to accelerate the maturity of the
Company's obligations thereunder, and in other instances could result in
cross-defaults permitting the acceleration of all such debt.
The Company's high degree of leverage may have important consequences to
holders of the Common Stock, including the following: (i) a substantial portion
of the Company's cash flow from operations is, and will continue to be,
dedicated to the payment of the principal of and interest on its existing
indebtedness, thereby reducing the funds available to the Company for its
operations and future growth or other business opportunities; (ii) the
Company's ability to obtain additional financing in the future for working
capital, acquisitions of portfolios of Accounts and of central monitoring
stations, capital expenditures, general corporate purposes or other purposes
may be impaired; (iii) the Loan Agreements contain, and are expected to
continue to contain, certain restrictive covenants, including certain covenants
that require the Company to obtain the consent of its lenders and to maintain
certain financial ratios in order to undertake significant acquisitions of
portfolios of subscriber Accounts or of central monitoring stations; (iv) one
of the Company's borrowings under the Loan Agreements is at a floating rate of
interest, causing the Company to be vulnerable to increases in interest rates;
(v) the Company will be more vulnerable to a downturn in the Company's business
or the economy generally; and (vi) the Company's ability to compete against
other less leveraged companies may be adversely affected.
Risks Related to Acquisitions. A principal element of the Company's
business strategy is to acquire Accounts on a portfolio basis and to acquire
additional central monitoring stations. See "Business--Financing Program
Strategy--Expand the Account Acquisition Program." The Company faces
competition for the acquisition of portfolios of Accounts and central
monitoring stations, and may be required to offer higher prices for such
acquisitions than it has in the past. See "--Competition." In addition, due
to the continuing consolidation of the security alarm industry and the
acquisition by the Company and other companies of a number of large portfolios
of Accounts and of central monitoring stations, there may in the future be
fewer large portfolios of Accounts and fewer central monitoring stations
available for acquisition. There can be no assurance that the Company will be
able to find acceptable acquisition candidates or, if such candidates are
identified, that acquisitions can be consummated on terms acceptable to the
Company.
Acquisitions of portfolios of subscriber Accounts and of central
monitoring stations involve a number of special risks, including the
possibility of unanticipated problems not discovered prior to the acquisition,
Account attrition (i.e., cancellation) and the diversion of management's
attention from other business activities in order to focus on the assimilation
of such acquisitions. For acquisitions of central monitoring stations that are
structured as the purchase of the stock of other companies, the Company may
assume unexpected liabilities and may need to dispose of the unnecessary assets
of the acquired companies.
Because the Company's primary consideration in acquiring a portfolio of
subscriber Accounts is the amount of cash flow that can be derived from the RMR
associated with the purchased Accounts, the price
5
<PAGE> 7
paid by the Company is customarily directly tied to RMR. The price paid varies
based on the number and quality of the Accounts being purchased from the seller
and the historical financial information with respect to the acquired Accounts.
In making acquisitions the Company has relied on management's knowledge of the
industry, due diligence procedures and representations and warranties of the
sellers. There can be no assurance that in all instances the representations
and warranties made by the sellers were true and complete or, if the
representations and warranties are inaccurate, that the Company will be able to
recover from the seller damages in an amount sufficient to fully compensate the
Company for any resulting losses. The Company expects that future acquisitions
will present the same risks to the Company as its prior acquisitions.
History of Losses. The Company incurred losses of $627,000 for the first
quarter of 1997, $1.7 million for fiscal 1996, $947,000 for fiscal 1995 and
$457,000 for fiscal 1994. These losses reflect, among other factors, the
substantial charges incurred by the Company for amortization of purchased
subscriber Accounts and interest incurred on the Company's indebtedness. Such
charges will increase as the Company continues to purchase subscriber Accounts,
as the Company's indebtedness increases, or if interest rates increase. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company's earnings have been
insufficient to cover its fixed charges since the Company was formed, and there
can be no assurance that the Company will attain profitable operations.
Need for Additional Capital. In fiscal 1995 and 1996 and during the first
quarter of 1997, the Company invested a total of approximately $6.4 million in
acquisitions of portfolios of Accounts and central monitoring stations. The
Company used borrowings under the Loan Agreements to fund the Company's
investing activities during those fiscal years. The Company intends to
continue to pursue growth through the acquisitions of subscriber Accounts and
central monitoring stations. As a result, the Company will be required to seek
additional funding under the Loan Agreements and from the possible sale of
additional securities in the future, which may lead to higher leverage or the
dilution of then existing holders' investment in the Common Stock. See "Risks
Related to High Leverage." Any inability of the Company to obtain funding
through external financing is likely to adversely affect its ability to
increase its investing activities. There can be no assurance that external
funding will be available to the Company on attractive terms or at all.
Dependence on Dealers. A principal element of the Company's business
strategy is to grow by increasing the number of Accounts monitored in its
Retail Monitoring and Wholesale Monitoring programs. The Company is dependent
on entering into and maintaining relationships with Dealers who will either
sell their Accounts directly to the Company or will enter into contracts to
provide monitoring services for the Accounts retained by the Dealers. The
Company faces competition from other alarm monitoring companies, including
companies who are better capitalized than the Company and who may offer higher
prices and more favorable terms to Dealers for Accounts they purchase or lower
prices for the monitoring services they provide. There can be no assurance
that the Company will be able to continue to attract Dealers in order to expand
its programs. The Company expects that future acquisitions of central
monitoring stations will also be an integral part of the Company's revenue
growth. Other alarm service companies have adopted a strategy similar to the
Company's that entails the acquisition of central monitoring stations. Some of
these competitors have greater financial resources than the Company or may be
willing to offer higher prices than the Company is prepared to offer to acquire
such stations. The effect of such competition may be to reduce the acquisition
opportunities available to the Company, thus reducing the Company's rate of
growth, or to increase the price paid by the Company for such acquisitions
which will reduce the Company's return on its investments. There can be no
assurance that the Company will be able to find acceptable acquisition
candidates. See "- Competition."
Attrition of Subscriber Accounts. The Company experiences attrition of
subscriber Accounts as a result of several factors including relocation of
subscribers, adverse financial and economic conditions and competition from
other alarm service companies. In addition, the Company may lose certain
Accounts, particularly acquired Accounts, if the Company does not service those
Accounts adequately or does not
6
<PAGE> 8
successfully assimilate new Accounts into the Company's operations. A
significant increase in attrition could have a material adverse effect on the
Company's revenues and earnings.
When acquiring Accounts, the Company usually withholds a portion of the
purchase price as a partial reserve against excess subscriber attrition. If
the actual attrition rate for the Accounts acquired is greater than the rate
assumed by the Company at the time of the acquisition, and the Company is
unable to recoup its damages from the portion of the purchase price held back
from the seller, such attrition could have a material adverse effect on the
Company's financial condition or results of operations. The Company is not
aware of any reliable historical data relating to Account attrition rates
prepared by the Dealers from whom the Company has acquired Accounts, and the
Company has no assurance that the actual attrition for acquired Accounts will
not be greater than the attrition rate assumed or historically incurred by the
Company. In addition, because some acquired Accounts are prepaid on an annual,
semi-annual or quarterly basis, attrition may not become evident for some time
after an acquisition is consummated.
Possible Adverse Effect of "False Alarm" Ordinances. Significant concern
has arisen in certain municipalities about the high incidence of false alarms.
This concern could cause a decrease in the likelihood or timeliness of police
response to alarm activations and thereby decrease the propensity of consumers
to purchase or maintain alarm monitoring services.
A number of local governmental authorities have considered or adopted
various measures aimed at reducing the number of false alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms and (v) requiring further
verification of an alarm signal before the police will respond. Enactment of
such measures could adversely affect the Company's future business and
operations.
Possible Adverse Effect of Future Government Regulations; Risks of
Litigation. The Company's operations are subject to a variety of laws,
regulations and licensing requirements of federal, state and local authorities.
In certain jurisdictions, the Company is required to obtain licenses or
permits, to comply with standards governing employee selection and training and
to meet certain standards in the conduct of the Company's business. The loss
of such licenses, or the imposition of conditions to the granting or retention
of such licenses, could have a material adverse effect on the Company. The
Company believes that it is in material compliance with applicable laws and
licensing requirements.
Risks of Liability from Operations. The nature of the services provided
by the Company potentially exposes it to greater risks of liability for
employee acts or omissions or system failure than may be inherent in other
businesses. Most of the Company's alarm monitoring agreements and other
agreements pursuant to which the Company sells its products and services
contain provisions limiting liability to subscribers and Dealers in an attempt
to reduce this risk. However, in the event of litigation with respect to such
matters there can be no assurance that these limitations will be enforced, and
the costs of such litigation could have an adverse effect on the Company.
The Company carries insurance of various types, including general
liability and errors and omissions insurance. The loss experience of the
Company and other security service companies may affect the availability and
cost of such insurance. Certain of the Company's insurance policies and the
laws of some states may limit or prohibit insurance coverage for punitive or
certain other types of damages, or liability arising from gross negligence.
Competition. The security alarm industry is highly competitive and highly
fragmented. While the Company does not compete directly with many of the large
new entrants into the industry because it does not sell and install security
systems, it is nonetheless impacted by the competitive challenge these entrants
present to independent Dealers. To some extent new alarm systems installations
made by large
7
<PAGE> 9
integrated industry participants represent systems that may not be installed by
the Dealers on whom the Company's business depends. As a result, there may be
less Dealer owned Accounts for which Wholesale Monitoring can be provided and
fewer Dealer owned Accounts available for the Company to purchase. The
Company's Wholesale Monitoring services compete with those offered by an
estimated 2,000 to 3,000 companies. Of those companies, an estimated 200 firms
including the Company offer monitoring services from UL listed facilities.
While many of the companies providing monitoring services are small local
operations, several of the UL listed competitors are companies that are larger
and better financed than the Company. The Company also competes with several
companies that have Account acquisition and loan programs for independent
Dealers and some of those competitors are larger and better capitalized than
the Company. There is also the potential for other entities such as banks or
finance companies to gain a better understanding of the industry and become
more active as a source of competition for the Dealer financing portions of the
Company's business.
Possible Impact of Lower Crime Rates. For the past several years crime
rates have been dropping in the United States. Particularly relevant to the
Company's business is the decrease in the number of burglaries. While the
number of homes and businesses with installed alarm systems has continued to
increase even as crime rates have decreased, there can be no assurance that
this will continue to be the case. Any significant decrease in the number of
homes and businesses installing new alarm systems could have a material adverse
effect on the Company's business.
Dependence Upon Senior Management. The success of the Company's business
is largely dependent upon the active participation of its executive officers.
The loss of the services of one or more of such officers for any reason may
have a material adverse effect on the Company's business.
Significant Ownership of Shares by Certain Stockholders. The Company's
largest stockholder owns approximately 49% of the issued and outstanding voting
stock of the Company, as well as the right to designate two members of the
Company's Board of Directors. In addition, this investor holds a warrant to
purchase 150,000 shares of Convertible Preferred Stock which is exercisable
upon the satisfaction of certain conditions. Upon exercise, this investor
would hold 56.9% of the issued and outstanding voting stock of the Company. As
a result, this investor currently has the ability to significantly influence
the outcome of matters submitted for approval of the stockholders and directors
of the Company (including the election of directors and any merger,
consolidation or sale of all or substantially all of the Company's assets) and
the affairs of the Company generally.
Certain Antitakeover Effects. Certain provisions of Delaware law, could
delay or prevent a change in control of the Company, could discourage
acquisition proposals and could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers at a price above the then
current market value of the Common Stock or over a stockholder's cost basis in
the Common Stock. See "Description of Capital Stock--Antitakeover Effects of
Provisions of the Certificate of Incorporation, By-Laws and Delaware Law." In
addition, the Board of Directors, without further stockholder approval, may
issue preferred stock which could have the effect of delaying, deferring or
preventing a change in control of the Company. The issuance of preferred stock
could also adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others. See "Description of Capital
Stock--Preferred Stock."
Dividend Policy; Restrictions on Dividends. The Company has never paid
any cash dividends on the Common Stock and does not intend to pay any cash
dividends in the foreseeable future. The Loan Agreements restrict the
Company's ability to declare or pay any dividend on, or make any other
distribution in respect of, the Company's capital stock. In addition, the
Company's outstanding series of preferred stock contain restrictions on the
ability of the Company to declare or pay any dividend or distribution on the
Company's Common Stock. See "Dividend Policy" and "Description of Capital
Stock--Preferred Stock."
8
<PAGE> 10
Possible Volatility of Stock Price. The stock market has from time to
time experienced extreme price and volume fluctuations that have been unrelated
to the operating performance of particular companies. The market price of the
Common Stock may be significantly affected by quarterly variations in the
Company's operating results, changes in financial estimates by securities
analysts or failures by the Company to meet such estimates, litigation
involving the Company, general trends in the security alarm industry, actions
by governmental agencies, national economic and stock market conditions,
industry reports and other factors, many of which are beyond the control of the
Company.
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding the equivalent of 10,502,363 shares of Common
Stock (including the shares issuable upon exercise of the Warrants and
conversion of the shares of Convertible Preferred Stock, assuming no exercise
of other outstanding options or warrants). Of such shares, (i) 5,313,746
shares (consisting of the 2,000,000 shares offered hereby, 777,588 being
registered for resale hereby, 2,536,158 shares previously registered or as to
which the restrictions have expired pursuant to Rule 144(k) ("Rule 144(k)"
under the Securities Act of 1933, as amended (the "Securities Act"), or other
applicable exemptions from registration requirements) will be freely tradable
in the public market and (ii) 5,188,617 shares will be eligible for sale
pursuant to Rule 144 ("Rule 144") under the Securities Act.
In addition to the foregoing, certain stockholders of the Company also
have certain demand and "piggyback" registration rights pursuant to which an
aggregate of 4,197,288 shares of Common Stock (consisting of shares issued upon
conversion of the outstanding Convertible Preferred Stock and exercise of an
outstanding warrant) could become immediately available for sale in the public
market. See "Description of Capital Stock" and "Shares Eligible for Future
Sale."
SECURITIES COVERED BY THIS PROSPECTUS
2,000,000 of the shares of Common Stock and 2,000,000 Warrants covered by
this Prospectus are available for use (i) in future acquisitions of other
businesses, real or personal properties, or securities in business combination
transactions in accordance with Rule 415(a)(1)(viii) of Regulation C under the
Securities Act; (ii) securities the offering of which will be commenced
promptly, will be made on a continuous basis and may continue for a period in
excess of 30 days from the date of initial effectiveness in accordance with
Rule 415(a)(1)(ix) of Regulation C; or (iii) otherwise under Rule 415.
Acquisitions described in (i) above may be made directly by the Company or
indirectly through a subsidiary, may relate to businesses or securities of
businesses similar or dissimilar to those of the Company or to properties of a
type which may or may not currently be used by the Company, and may be made in
connection with the settlement of litigation or other disputes. The
consideration offered by the Company in such acquisitions, in addition to the
shares of Common Stock and Warrants offered by this Prospectus, may include
cash, debt or other securities (which may be convertible into shares of Common
Stock covered by this Prospectus), or assumption by the Company of liabilities
of the business, properties, or securities being acquired or of their owners,
or a combination thereof. It is contemplated that the terms of acquisitions
will be determined by negotiations between the Company and the owners of the
businesses, properties, or securities to be acquired, with the Company taking
into account such factors as the quality of management, the past and potential
earning power, growth and appreciation of the businesses, properties or
securities acquired, and other relevant factors, and it is anticipated that
shares of Common Stock and Warrants issued in acquisitions will be valued at a
price reasonably related to the market value of the Common Stock either at the
time the terms of the acquisition are tentatively agreed upon or at or about
the time or times of delivery of the shares. Shares and Warrants issued in
transactions described in (ii) above relate to the Company's planned program to
issue shares of Common Stock and Warrants to certain Dealers as part of its
program of entering into long-term relationships with affiliates of the Dealer
community. See "Business--Expand Membership in the Dealer Network."
777,588 of the shares of Common Stock covered by this Prospectus were
issued to or are subject to issuance upon exercise of currently exercisable
options and warrants and have been registered for resale by those persons
identified elsewhere in this Prospectus under the caption "Principal and
Selling Stockholders."
9
<PAGE> 11
The Company may from time to time, in an effort to maintain an orderly
market in the Common Stock, negotiate agreements with persons receiving Common
Stock covered by this Prospectus that will limit the number of shares that may
be sold by such persons at specified intervals. Such agreements may be more
restrictive than restrictions on sales made pursuant to the exemption from
registration requirements of the Securities Act, including the requirements
under Rule 144 or 145(d), and certain persons party to such agreements may not
otherwise be subject to such Securities Act requirements.
With the consent of the Company, this Prospectus may also be used by
persons who have received or will receive from the Company Common Stock covered
by this Prospectus and who may wish to sell such stock under circumstances
requiring or making desirable its use. The Company's consent to such use may
be conditioned upon such persons' agreeing not to offer more than a specified
number of shares following supplements or amendments to this Prospectus, which
the Company may agree to use its best efforts to prepare and file at certain
intervals. The Company may require that any such offering be effected in an
organized manner through securities dealers.
Sales by means of this Prospectus may be made from time to time privately
at prices to be individually negotiated with the purchasers, or publicly
through transactions in the over-the-counter market (which may involve block
transactions), at prices reasonably related to market prices at the time of
sale or at negotiated prices. Broker-dealers participating in such
transactions may act as agent or as principal and, when acting as agent, may
receive commissions from the purchasers as well as from the sellers (if also
acting as agent for the purchasers). The Company may indemnify any
broker-dealer participating in such transactions against certain liabilities
under the Securities Act. Profits, commissions, and discounts on sales by
persons who may be deemed to be underwriters within the meaning of the
Securities Act may be deemed underwriting compensation under the Securities
Act.
Stockholders may also offer shares of stock covered by this Prospectus by
means of prospectuses under other registration statements or pursuant to
exemptions from the registration requirements of the Securities Act, including
sales which meet the requirements of Rule 144 or Rule 145(d) under the
Securities Act, and those stockholders should seek the advice of their own
counsel with respect to the legal requirements for such sales.
This Prospectus may be supplemented or amended from time to time to
reflect its use for resales by persons who have received shares of Common Stock
and for whom the Company has consented to the use of this Prospectus in
connection with resales of such shares.
10
<PAGE> 12
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the OTC Bulletin Board under
the symbol "LRMD" since August 1992. The following table sets forth, for the
periods indicated, the range of high and low bid quotations prices for the
Common Stock as reported on the OTC Bulletin Board. The following quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
---------- ----------
<S> <C> <C>
1995
First Quarter $ .26 $ .25
Second Quarter $ .55 $ .25
Third Quarter $ .375 $ .375
Fourth Quarter $ .51 $ .25
1996
First Quarter $ .53125 $ .52
Second Quarter $ .60 $ .375
Third Quarter $ 1.125 $ .46875
Fourth Quarter $ 2.75 $ 1.50
1997
First Quarter $ 3.5625 $ 3.125
Second Quarter $ 3.125 $ 2.78125
Third Quarter (through July 9, 1997) $ 3.5625 $ 2.625
</TABLE>
On July 9, 1997, the last reported bid price of the Common Stock was
$2.625 per share. At June 24, 1997, the Company had approximately 204
stockholders of record.
DIVIDEND POLICY
The Company currently anticipates that it will retain all of its earnings
for development of the Company's business, and does not anticipate paying any
cash dividends in the foreseeable future. Future cash dividends, if any, will
be at the discretion of the Company's Board of Directors and will depend upon,
among other things, the Company's future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions
and such other factors as the Board of Directors may deem relevant.
11
<PAGE> 13
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial data for the fiscal years ended 1994
through 1996 is derived from the Company's Consolidated Financial Statements
which have been audited by Arthur Andersen LLP, independent public accountants.
The following selected financial data for the fiscal years ended 1992 and 1993
is derived from audited financial statements. The statements of operations and
the balance sheet data as set forth below for and as of the three months ended
March 31, 1996 and 1997 have been derived from the unaudited consolidated
financial statements of the Company, which in the opinion of management,
include all adjustments necessary to present fairly the consolidated financial
position and results of operations of the Company. The selected financial data
for the three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year. The selected financial data set
forth below should be read in conjunction with the Company's consolidated
financial statements and related notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
PRO FORMA
1992 1993 1994 1995 1996 1996 (1)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 526 $ 699 $ 1,397 $ 2,733 $ 3,782 $ 8,232
Operating income (loss)....... (903) (933) (328) (289) (343) 219
Net (loss) available to common
stockholders.................. $ (1,015) $ (846) $ (457) $ (947) $ (1,718) $ (1,838)
Net loss per share............ (.37) (.25) (.13) (.26) (.47) (.50)
Shares used in computing
net income per share......... 2,746,513 3,407,502 3,662,187 3,665,642 3,669,343 3,669,343
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1997
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $795 $ 2,198
Operating income (loss)....... 53 (18)
Net (loss) available to common
stockholders.................. $(128) $ (627)
Net loss per share............ (.03) (.15)
Shares used in computing
net income per share......... 3,688,087 4,198,875
MARCH 31,
1997
----------------------
BALANCE SHEET DATA:
Cash and cash equivalents.................. $715
Working capital............................ (664)
Total assets............................... 20,402
Total debt................................. 16,948
Total stockholders' equity................. 862
</TABLE>
- ------------------
(1) Proforma data for the year ended December 31, 1996 give effect to the
acquisitions of Security Associates Command Center II, L.L.C. ("SACC") and
AMJ Central Station Corporation ("AMJ") as if each had occurred on January
1, 1996.
12
<PAGE> 14
PRO FORMA STATEMENT OF INCOME
(in thousands, except per share data)
The following unaudited Pro Forma Combined Statement of Income for the
year ended December 31, 1996 was prepared to illustrate the estimated effects
of the acquisition of the non-Company interests in SACC and of AMJ (both
central monitoring stations) as if each had occurred on January 1, 1996. The
Pro Forma Statement of Income does not purport to represent what the Company's
results of operations would actually have been if the acquisition had occurred
on the dates indicated or to predict the Company's results of operations for
any future period. The following financial information should be read in
conjunction with "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the related Notes thereto included
elsewhere in the Prospectus.
<TABLE>
<CAPTION> PRO FORMA PRO FORMA
THE COMPANY(1) SACC(2) AMJ(3) ADJUSTMENT COMBINED
-------------- ------- ------ -------------------- ------------------
<S> <C> <C> <C> <C> <C>
Monitoring fees and other revenues $ 3,782 $2,346 $2,104 $ -- $ 8,232
General, selling and administrative expenses 3,105 1,669 1,935 (121) (4) 6,588
Amortization and depreciation 1,020 101 23 281 (5) 1,425
------------- ------ ------ ------------------- -----------------
Income (loss) from operations (343) 576 146 (160) 219
Interest expense, net 1,384 105 19 (69) (6) 1,439
Interest income -- (43) -- - (43)
Loss from disposal of contract rights 248 -- -- -- 248
------------- ------ ------ ------------------- -----------------
Income (loss) before income in equity of
joint venture (1,975) 514 127 (91) (1,425)
Income in equity of joint venture (257) -- -- (257) (7) --
------------- ------ ------ ------------------- -----------------
Income (loss) before minority interest (1,718) 514 127 (348) (1,425)
Minority interest -- 2 -- (2) (8) --
------------- ------ ------ ------------------- -----------------
Net income (loss) (1,718) 512 127 (346) (1,425)
Dividends accrued on preferred stock - -- -- 413 (9) 413
------------- ------ ------ ------------------- -----------------
Net income (loss) available to common
stockholders $(1,718) $ 512 $ 127 $(759) $ (1,838)
============= ====== ====== =================== =================
Net loss per share $ (.50)
Weighted average shares outstanding 3,669,343
</TABLE>
(1) Data for the Company is for the year ended December 31, 1996.
(2) Data for SACC is for the period January 1, 1996 to September 5, 1996.
(3) Data for AMJ is for the period January 1, 1996 to December 19, 1996.
(4) Represents the elimination of certain expenses related to non-monitoring
business activities of AMJ not purchased.
(5) Provides for the pro forma increase in fixed asset depreciation expense
and goodwill amortization expense for the period January 1, 1996 to
September 5, 1996 related to the acquisition of SACC, and for the period
January 1, 1996 to December 15, 1996 related to the acquisition of AMJ.
(6) Eliminates the interest expense for the subordinated debt for the period
of September 5 to December 31, 1996, which was converted to preferred
stock on December 31, 1996 (as an effect of the TJS Amendment).
(7) Eliminates the income in equity of joint venture (SACC) for the period
January 1 to September 5, 1996 as a result of the acquisition of the
controlling interest in SACC and pro forma inclusion of SACC's financial
statements for such period.
(8) Eliminates the minority interest (2% of All-Security Monitoring Services,
L.L.C.) as a result of certain insignificant acquisitions made by the
Company.
(9) Represents the accrued dividends on the preferred stock (as an effect of
the TJS Amendment) for the period January 1, 1996 to December 31, 1996.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of the Prospectus, Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used in this section, the words "anticipate," "believe," "estimate," and
"expect" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements could differ materially
from the results expressed in or implied by these forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors."
OVERVIEW
A majority of the Company's revenues are derived from recurring payments
for Retail Monitoring through contracts with individual subscribers and
Wholesale Monitoring pursuant to agreements with independent security alarm
dealers who subcontract monitoring services to the Company. Retail Monitoring
contracts have initial terms ranging from one to five years with provisions for
automatic renewal usually for periods of one year. Wholesale Monitoring
contracts are entered into with Dealers which generally permit cancellation
with notice of 60 days. The remainder of the Company's revenues are derived
from revenues from the sale of memberships to independent dealers which entitle
them to access certain management support services offered by the Company.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of operations data:
<TABLE>
<CAPTION>
Three Months
Years Ending December 31 Ended March 31
---------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenue $1,397 $2,733 $ 3,782 $ 795 $2,198
Operating Expenses:
General, selling & administrative 1,481 $2,482 3,105 524 1,771
Amortization & depreciation 244 540 1,020 218 445
Income (Loss) from Operations (328) (289) (343) 53 (18)
Interest Expense 251 743 1,384 226 365
Net Loss (457) (947) (1,718) (128) (627)
</TABLE>
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:
14
<PAGE> 16
<TABLE>
<CAPTION>
Three Month Periods
Years Ending December 31 Ended March 31
1994 1995 1996 1996 1997
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Total Revenue 100% 100% 100% 100% 100%
Operating Expenses:
General, selling & administrative 106% 91% 82% 66% 81%
Amortization & depreciation 17% 20% 27% 27% 20%
Income (Loss) from Operations (23%) (11%) ( 9%) 7% ( 1%)
Interest Expense (18%) (27%) (37%) (28%) (17%)
Net Loss (33%) (35%) (45%) (16%) (29%)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
For the quarter ended March 31, 1997, revenues of the Company were
$2,198,094 compared to $795,122 for the same period the prior year. This
represents an increase of $1,402,972 or 176.4%. The increase is attributable
to inclusion of Wholesale Monitoring revenues as a result of consolidation of
central monitoring station operations in September and December 1996.
Operating loss for the quarter ended March 31, 1997 was $18,045 compared to
operating profit for the same quarter in the prior year of $53,895. This
resulted from an increase in amortization and depreciation from $218,000 in
1996 to $445,000 in 1997, attributable principally to an increase in goodwill
of $7,405,084 associated with the SACC and AMJ acquisitions in September and
December 1996, respectively. Interest expense increased from $226,000 in 1996
to $365,000 in 1997, an increase of $139,000 or 61.5% resulting from an
increase in debt from $7,502,472 at March 31, 1996 to $17,099,533 at March 31,
1997. The debt increase of $9,597,061 provided funds for the acquisition of
the central monitoring stations described above and the acquisition of
Accounts.
1996 COMPARED TO 1995
Revenues. Revenues for fiscal 1996 increased by $1,048,838 or 38.4%, to
$3,782,091 from $2,733,253 for fiscal 1995. Monitoring fees increased by
$1,262,379 from $2,390,513 to $3,652,892, an increase of 52.8%. $704,028 of
the increase came from consolidation of the operations of SACC and All-Security
Monitoring Services, L.L.C. ("All-Security") beginning September 5, 1996, on
which date those entities became wholly owned subsidiaries. Prior to that
date, results of operations of the two entities were accounted for on the
equity method. Revenue from Retail Monitoring increased $558,351 or 23.4% due
to the addition of approximately 3,495 subscribers from the acquisition of
portfolios of Accounts during fiscal 1996. Revenues from memberships fees and
other dealer services decreased $213,541 to $129,199 from $342,740, a decrease
of 62.3%. This decrease resulted from decreased emphasis on this business
segment as a revenue source.
Operating Expenses. Operating expenses for fiscal 1996 increased by
$1,103,109, an increase of 36.5% from $3,021,814 to $4,124,923. General,
selling and administrative expenses increased from $2,482,180 to $3,104,496, an
increase of $622,316 or 25.1%, while amortization and depreciation increased
$480,793 or 89.1% from $539,634 to $1,020,427. The increased depreciation is
attributable to an increase in contract rights to monitor security systems of
$1,665,476 and the increased amortization of $201,000 is attributable to a net
increase in goodwill of $6,666,373 between year end 1995 and 1996. $3,762,724
of the goodwill increase was attributable to the acquisition of AMJ and
$2,903,649 resulted from the consolidation of the results of All-Security
following the acquisition in September, 1996, of the 1% interest in that
company held by Intec, Inc. and the 50%
15
<PAGE> 17
interest in SACC not previously owned by the Company. The increase in general,
selling and administrative expenses is attributable to the increased level of
business activity.
Interest Expense. Interest expense increased $641,580 from $742,659 in
1995 to $1,384,239 in 1996, an increase of 86.4%. This increase was caused
primarily by an increase in the debt outstanding of $3,484,065 under the
Company's credit facility from $3,819,935 at the end of fiscal 1995 to
$7,304,000 at the end of 1996. In addition, the Company incurred interest
expense of $9,370 in 1996 in connection with borrowings under a $5,000,000
subordinated loan agreement. $500,000 was outstanding under this agreement at
year-end 1996.
1995 COMPARED TO 1994
Revenues for 1995 increased by $1,336,256 or 95.7% to $2,733,253 from
$1,396,997 for 1994. Monitoring revenue increased by $1,273,305 or 114.0%
which was the result of the addition of approximately 6,815 subscribers during
1995. Membership fees and other revenues increased from $279,789 to $342,740,
an increase of $62,951 or 22.5%.
Operating Expenses. Operating expenses increased $1,296,682 or 75.2% from
$1,725,132 in 1994 to $3,021,814 in 1996. General, selling and administrative
expenses increased $1,001,005 or 67.6% from $1,481,175 to $2,482,180, while
amortization and depreciation increased $295,677 or 121.2% from $243,957 to
$539,634. The increase in general, selling and administrative expense and the
increase in depreciation and amortization expense is attributable primarily to
the increased level of business associated with the acquisition of 6,815 new
subscriber accounts during the year.
Interest Expense. Interest expense increased $492,126 or 196.4% from
$250,533 in 1994 to $742,659 in 1995. The increase is attributable to
increased levels of borrowing associated with the acquisition of subscriber
Accounts. Borrowings under the Company's credit facility increased from
$672,794 at year end 1994 to $3,819,935 at the end of 1995. During that same
period, notes payable to Dealers associated with holdbacks for subscriber
Account purchases increased from $448,386 at the end of 1994 to $1,033,492 at
the end of 1995.
TJS Partners L.P.'s Investment. On September 5, 1996, TJS Partners, L.P.
("TJS") purchased a 49% interest in the Company by receiving 3,525,682 shares
of Common Stock and $3,441,649 of debt with an interest rate of 6% for a total
contribution of $5 million. This stock and debt was converted to 12%
Redeemable Preferred Stock and Convertible Preferred Stock on December 31,
1996, and a new credit facility of $5 million was provided to the Company. The
proceeds from this transaction were used by the Company, either directly or
through its subsidiaries, to purchase the equity interests in five companies.
See "Certain Transactions."
Loan Agreement with FINOVA Capital Corporation. On December 31, 1996, the
Company and FINOVA Capital Corporation ("FINOVA") entered into a loan agreement
(the "FINOVA Loan Agreement"). The maximum amount available under the FINOVA
Loan Agreement is $15 million. The company had $7,304,000 outstanding at
December 31, 1996. The FINOVA Loan Agreement matures on December 31, 2001,
subject to earlier termination.
Availability under the FINOVA Loan Agreement is restricted in two ways:
(1) the total debt may not exceed 22 times RMR for Retail
Monitoring plus 12 times RMR for Wholesale Monitoring; and
16
<PAGE> 18
(2) the ratio of total debt to operating cash flow may not exceed
3.75. This is the more restrictive of these availability tests and
resulted in remaining availability of approximately $1.6 million on
June 30, 1997.
The interest rates on borrowings under the FINOVA Loan Agreement are the
base rate in effect from time to time plus the applicable margin. At present
the applicable margin is 2%. This margin can decrease as the ratio of total
debt to operating cash flow decreases below 3.5. The Company paid a loan fee
of $262,500 on closing and is obligated to pay a commitment fee of .5% on the
unused portion of the facility.
The FINOVA Loan Agreement contains customary covenants including, among
others, restrictions on the incurrence of debt, encumbrances on a sale of
assets, mergers and acquisitions, investments, dividends, capital expenditures
and transactions with affiliates. Financial covenants include the maintenance
of (i) a minimum ratio of operating cash flow to total debt, (ii) minimum RMR
for Retail Monitoring and Wholesale Monitoring and (iii) mandatory prepayments
from excess cash flow as defined.
CAPITAL EXPENDITURES
The Company anticipates making capital expenditures during 1997 totaling
$585,000. This amount exceeds the $250,000 limit permitted in the FINOVA Loan
Agreement. The Company plans to seek a covenant waiver from FINOVA to permit
those expenditures. $528,000 of the contemplated capital expenditures are
allocated to the central monitoring stations. Should the Company not be able
to secure approval from FINOVA, the Company's operations this year would not be
seriously impacted, but projected growth for 1998 would be reduced.
LIQUIDITY AND CAPITAL RESOURCES
Since January 1994, the Company has financed its operations and growth
from a combination of borrowings under the Company's credit facilities and
sales of stock. The Company's principal uses of cash are the acquisition of
subscriber Account portfolios and acquisition of central monitoring stations.
A substantial portion of the Company's future cash flow will be used to acquire
subscriber Account portfolios, to acquire additional central monitoring
stations and to pay down debt.
For the year ended December 31, 1996, the Company's net cash used in
operating activities was $421,628, compared to $164,655 in 1995. The increase
in cash used in 1996 compared to 1995 was largely attributable to an increase
in the net loss from $947,278 in 1995 to $1,718,259 in 1996, an increase of
$770,981, or 81.4%. The increase in the loss was largely the result of an
increase in interest expense from $742,659 in 1995 to $1,384,239 in 1996, an
increase of $641,580 or 86.4%.
For the year ended December 31, 1996, the Company's net cash used in
investing activities was $3,704,026 compared to $3,667,827 in 1995, an increase
of $36,199 or 1.0%. Purchases of Accounts decreased from $3,639,934 in 1995 to
$1,855,953 in 1996, a decrease of $1,783,981 or 49.0%. Cash used for central
monitoring station acquisitions was $1,794,021 in 1996.
During fiscal 1996, the Company's net cash provided by financing
activities was $4,704,191, compared to $3,810,104 in 1995. Financing
activities in 1996 were principally the $5,000,000 proceeds from issuance of
capital stock and the issuance and retirement of notes payable. In 1995
activity was principally the issuance and retirement of notes payable.
As of June 30, 1997, $2,815,270 was available pursuant to the FINOVA Loan
Agreement and $50,000 was available under the Subordinated Loan Agreement with
TJS.
17
<PAGE> 19
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share, which establishes
new standards for computing and reporting earnings per share. This standard
will replace the presentation of primary earnings per share with a presentation
of basic earnings per share and diluted earnings per share on the income
statement. It will also require a reconciliation of the numerator and
denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation. Adoption of this
statement is required no later than with fiscal year 1998.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which
establishes standards for reporting and display of comprehensive income. The
objective of this standard is to report a measure of changes in equity of an
enterprise that result from transactions other than with owners. Comprehensive
income is the total of net income and all other nonowner changes in equity.
Adoption of this statement is required no later than with fiscal year 1998.
18
<PAGE> 20
BUSINESS
INDUSTRY OVERVIEW
General
The electronic security market is characterized by a large number of small
companies involved in security alarm system installation and monitoring. A
recent survey by a nationally recognized management consulting firm indicated
that the top 100 companies account for an approximately 23% market share, with
an estimated 13,000 smaller independent dealers sharing the remainder of the
market. Other studies have estimated the number of companies involved in the
installation and servicing of burglar and fire alarm systems to be in the
12,000 to 14,000 range, including 2,000 to 4,000 participants that are active
on a limited basis. While the largest industry participants have revenues in
the hundreds of million dollars, more than one-third of all Dealers earned less
than $200,000 in gross revenues in 1994, with more than half earning less than
$400,000. It is the needs of this market of small independent Dealers that the
Company seeks to address.
The Company's management believes that another characteristic of the
security alarm industry is its potential growth. The 1990 Hallcrest Report II
study, funded by the National Institute of Justice and the U.S. Department of
Justice, projected that alarm monitoring revenues would grow from an estimated
$4.5 billion in 1990 to $14 billion by the year 2000, a compounded annual
growth rate of 12%. A national brokerage firm estimated that by the year 2000,
there will be 28.1 million households in the United States with security
systems, 17.5 million of which are expected to be monitored systems. This
represents a projected increase in households with monitored security systems
to 16.9% of all households compared to an estimated 12.2% in 1996.
The Company believes that the growth in the security alarm industry has
been fueled by several factors. The aging of the population and the increase
in two career families have both contributed to an increased focus on the
security of the home. Studies cited in the 1996 Fact Book Issue of Security
Sales, an industry publication, indicate that commercial sites without alarm
systems are 4.5 times more likely to be burglarized than those with such
systems (7.59% vs. 1.66%) and that residences without alarm systems are more
than twice as likely to be burglarized as homes with such systems (14.8% vs.
6.6%). These underlying tendencies are reinforced by the practices of many
insurance companies that offer discounts to home and business owners that
install alarm systems.
Several large well-capitalized companies have recently entered the
security alarm industry directly or through acquisitions, including Republic
Industries, Inc., Western Resources, Inc. Tyco International, Inc. and
Ameritech. Security Associates' management believes that these new entrants
have been attracted by the fragmented nature of the industry, its growth
potential and in the case of the utility and telephone companies, the
similarity between the services provided in the security alarm industry and the
services they already perform, which also involve providing services via wire
connections in return for monthly fees. These characteristics are also shared
by cable television companies which represent another potential group of large
well-capitalized potential entrants. Recent developments in digital
communications technology have also made it possible to provide monitoring
services over wide geographic areas from large central monitoring stations,
where in the past a large number of geographically disbursed stations would
have been required.
As larger participants have entered the security alarm industry they have
introduced mass marketing techniques which have included heavy advertising and
"free" or low cost system installations tied to long-term monitoring contracts,
in effect subsidizing the cost of installations with the profits generated from
the long-term monitoring contracts. These long-term contracts typically have
one to five year initial terms and one year automatic renewals thereafter, if
not canceled. The result has been
19
<PAGE> 21
a decline in the average price of installed systems from $1,250 to $1,100
between 1993 and 1995, with an increasing number of basic systems being offered
for $200 or less and sometimes such systems are offered "free." This has been
accompanied by an increase in the average monthly monitoring fee from $20.00 a
month to $25.00 over the same period. As competition has driven the price of
installed alarm systems down, and as the competition for providing
installations has increased, independent Dealers have been pressed to find an
appropriate competitive response.
THE NEEDS OF THE INDEPENDENT DEALER COMMUNITY
Retaining Customer Accounts
The independent Dealer sells and installs the alarm system in the home or
business and at the same time enters into a long-term contract with the
subscriber to provide monitoring services. The Dealer then generally
subcontracts with a third party monitoring entity, to provide the actual
monitoring, retaining as profit the "spread" between what is charged to the
subscriber as a "retail" monitoring fee and the cost to the Dealer of buying
monitoring services on a "wholesale" basis. This recurring monthly monitoring
income is an important component of a Dealer's total revenue stream. According
to a study cited in the 1996 Fact Book of Security Sales, approximately 24% of
a Dealer's revenues consist of monitoring and service fees. These fees have
become increasingly important to Dealers as the price of installed systems have
decreased. However, Dealers cannot expect to maintain this stream of income if
their customers do not receive high quality monitoring services. As the
industry has been driven towards lower priced system installations, independent
Dealers are increasingly being forced to subsidize system installations with
the profits generated by monitoring fees. This trend has placed greater
importance on retaining the Accounts beyond the end of the initial contract
term.
Financing
For many independent Dealers, their customer Accounts represent their most
substantial assets. Banks and other commercial lenders, which are a very
important source of financing for small businesses, have historically been
unwilling to lend against customer Accounts as collateral. This represents a
competitive disadvantage for the independent Dealer trying to compete with the
larger market entrants with superior access to capital. It also limits the
ability of the independent Dealer to finance the growth and expansion of its
business. This competitive disadvantage has become more pronounced as Dealers
have been forced to finance the cost of system installations. The inability to
turn customer Accounts into the cash needed to support other aspects of their
businesses is a very important concern of independent Dealers.
Training and Support
New entrants with large marketing budgets place significant pressure on
smaller participants which market their services with limited resources.
Dealers must not only be financially sophisticated, they must also be able to
run their businesses economically and with limited resources. In addition,
Dealers must be able to choose effectively between competing new technologies
in an environment where they have limited financial resources with which to
absorb potentially expensive mistakes. Further, Dealers need the tools that
will allow them to identify and exploit new opportunities both within the alarm
industry and in related fields. Finally, Dealers must also be aware of
regulatory changes affecting the industry. There are limited resources
presently available to help the independent Dealer meet these needs.
20
<PAGE> 22
New Business Opportunities
The skills needed to install security alarm systems are very similar to
those required for the installation of closed circuit televisions systems, home
automation systems, audio systems, and home entertainment centers and satellite
dishes. While the entry of large new participants into the industry has
created competitive threats to independent Dealers, the Company believes that
this same phenomenon will also generate new business opportunities. Many of
these opportunities may exist in the form of strategic partnerships or
alliances with some of the new entrants, who may wish to offer their customer
base (e.g., electric utility or telephone company customers) with a broad range
of related services without incurring the expense or experiencing the
uncertainties of entering unfamiliar product markets. The Company believes
that independent Dealers must be aware of and learn how to respond to these new
market opportunities if they are to survive and prosper in the future.
THE COMPANY
Overview
Security Associates provides two types of security alarm monitoring
services for residences and businesses: (i) retail monitoring, which provides
alarm monitoring services to "Accounts" (contracts to provide monitoring
services) owned by the Company ("Retail Monitoring"), and (ii) wholesale
monitoring, which provides alarm monitoring services to Accounts owned by third
parties ("Wholesale Monitoring"), largely independent alarm system sales and
installation organizations ("Dealers"). The Company's ability to capture both
Retail Monitoring and Wholesale Monitoring business is enhanced and supported
by a network of approximately 2,000 Dealers to which the Company provides
industry-related education including technology, finance, management and
marketing training ("Dealer Network").
The Company was incorporated in 1990 as an Illinois corporation and,
through a merger in 1992, became a Delaware corporation. The Company's
original stockholders were 30 independent alarm Dealers, in addition to its
four founding stockholders. Three of the Company's four founders are still
active in the management of the Company: Ronald I. Davis, the Chairman of the
Board of Directors, James S. Brannen, its President, and Stephen Rubin, Senior
Vice President and Secretary. The Company conducts its operations through four
wholly-owned operating subsidiaries. Monitor Service Group, L.L.C. owns the
Accounts for Retail Monitoring. Wholesale Monitoring is conducted through
three entities, each of which operates a single central monitoring station:
All-Security Monitoring Services, L.L.C. which owns and operates a central
monitoring station located in Des Plaines, Illinois ("Des Plaines Station"),
Security Associates Command Center II, L.L.C. which owns and operates a central
monitoring station located in Grand Rapids, Michigan ("Grand Rapids Station"),
and AMJ Central Station Corporation, Inc., which owns and operates a central
monitoring station located in Pompano Beach, Florida ("Pompano Beach Station").
Prior to September 1996, outside investors owned a controlling interest in
the Company's operating subsidiaries. In September 1996, concurrent with a $5
million debt and equity investment by a new investor, the Company redeemed all
of the interests of the outside investors with the result that all of the
Company's subsidiaries are now wholly-owned (in some cases through other
wholly-owned subsidiaries) by the Company. See "Certain Transactions."
Security Associates' revenues generally consist of recurring payments
under written contracts to provide Retail Monitoring and Wholesale Monitoring.
For year ended December 31, 1996, the Company derived approximately 35% of its
monitoring revenues from Retail Monitoring and approximately 65% of its
revenues from Wholesale Monitoring. Total revenues increased from $699,154 for
the fiscal year ended December 31, 1993 to $3,782,091 for the fiscal year ended
21
<PAGE> 23
December 31, 1996. Operating income improved from a loss of $932,957 for the
fiscal year ended December 31, 1993 to a loss of $342,832 for the fiscal year
ended December 31, 1996. The Company's loss per share of Common Stock for the
fiscal year ended December 31, 1996, was $0.47 per share.
The Company's Retail Monitoring services are provided to Accounts that
generally were purchased from portfolios of subscriber Accounts owned by the
Dealers that originally sold and installed the security alarm systems. As of
June 30, 1997, Security Associates owned a total of 18,895 Accounts. From
January 1, 1993 through December 31, 1996 the Company acquired 14,386 Accounts.
During the quarter ended March 31, 1997, the Company acquired 3,825 Accounts.
As a result the RMR that the Company is entitled to receive from owned
Accounts has increased from $28,388 ($340,655 annualized) as of December 31,
1992 to $293,933 ($3,527,196 annualized) as of March 31, 1997.
As of June 30, 1997, the Company monitors a total of 121,414 Accounts on a
Wholesale Monitoring basis, of which 102,519 Accounts are owned by 865 Dealers
and 18,895 Accounts are owned by the Company. Of these Accounts, 28,476 are
monitored from the Grand Rapids Station, 54,532 are monitored from the Pompano
Beach Station and 38,586 are monitored from the Des Plaines Station. From
January 1, 1993 through December 31, 1996 the number of monitored Accounts
increased from 12,301 to 109,659. During the quarter ended March 31, 1997, the
Company provided monitoring services to 11,755 additional Accounts. As a
result, the Company's RMR from Wholesale Monitoring has increased from $59,253
($711,036 annualized) as of December 31, 1992 to $546,418 ($6,557,016
annualized) as of March 31, 1997. The Company estimates that its central
monitoring stations are capable of monitoring 140,000 Accounts without
requiring substantial additional capital outlays. The Company's current plan
envisions increasing the total capacity of the Company's central stations to
300,000 Accounts by the end of 1997, although there can be no assurance that
this goal can be achieved.
Security Associates' Dealer Network consists of approximately 2,000
Dealers nationwide that are estimated to own 600,000 Accounts, the majority of
which are presently monitored at central stations owned by other companies.
The Company hosts an annual meeting for its affiliates at which developments in
the security industry are discussed and where numerous presentations are made
by industry experts to keep Dealers abreast of new developments in technology,
marketing and management as well as new business opportunities for Dealers. In
addition, the Company distributes an "audio magazine" to the affiliates of its
Dealer Network on a quarterly basis and conducts numerous smaller meetings
throughout the year. The Company believes that its relationships with
independent Dealers are an important component of its entire operation as
Dealers are the source of the portfolios of Accounts acquired and monitored by
the Company. The Company also believes that the relationships with Dealers
established through the Wholesale Monitoring program are a potentially valuable
source for future acquisitions of portfolios of Accounts.
The Company intends to continue to acquire portfolios of Accounts from
Dealers and to increase the number of Accounts it monitors on a wholesale
basis. In pursuing these goals, the Company may acquire additional central
monitoring stations although no agreements are pending as of the date of this
Prospectus. In addition, the Company plans to further develop its Dealer
Network by enhancing its educational programs and by offering selected Dealers
the opportunity to own equity in the Company as part of their ongoing
relationship with Security Associates.
22
<PAGE> 24
STRATEGY
Independent Dealer Based Strategy
Security Associates' response to the challenges and opportunities
presented by the security alarm industry have been significantly influenced by
the personal and business experience of its founders. Both Ronald Davis, the
Chairman of the Company's Board of Directors and Stephen Rubin, its Senior Vice
President and Secretary were principals of Davis Marketing, an organization
formed in the mid-1970s to provide consulting services to alarm companies, that
evolved into a franchisor of alarm installation franchises, which later became
a dealer network, initially made up of the former franchisees. The association
provided its affiliates with group buying, training and education services. In
1990, Security Associates, Inc., the corporate predecessor to Security
Associates International, Inc. was formed to acquire Accounts for its own
portfolio and to acquire an interest in the Grand Rapids Station of which the
Company is now the sole owner. The initial stockholders (other than the
founders) were almost all independent Dealers. The Dealer network became part
of the Company and remains a key part of the Company's strategy. It is this
history that has made Security Associates keenly aware of the needs of
independent alarm Dealers and of the opportunities that those needs represent.
WHOLESALE MONITORING STRATEGY
Provide High Quality Wholesale Monitoring
A Dealer-owned Account represents a stream of income that may continue for
many years if the monitoring contracts are extended for additional renewal
terms. An enterprising Dealer can even increase the value of an Account by
selling add-on services such as, system maintenance and servicing, two-way
voice communications between the subscriber and the central monitoring station
and cellular telephone or private radio backup to the normal land line
telephone links to the central monitoring station. There is relatively little
cost to the Dealer for providing monitoring services other than the Dealer's
Wholesale Monitoring fees. Accounts are subject to attrition for many reasons
that are beyond the Dealer's control, such as nonpayment by the subscriber, the
sale of a home or business or lower cost service offerings by competitors. One
element that the Dealer can control, however, is attrition due to poor
monitoring services provided by the central station from which it purchases
Wholesale Monitoring. Dealers address this problem by contracting with
companies that have a demonstrated record of providing high quality services.
The Company's strategy is to own and operate superior central monitoring
stations with highly efficient equipment and a well trained staff to deliver
high quality monitoring services to its retail and wholesale Accounts. All of
the Company's central stations are Underwriters Laboratory ("UL") listed. To
obtain and maintain a UL listing, a central station must be located in a
building meeting UL's structure requirements, have backup and uninterruptible
power supply, have secured telephone lines and redundant computer systems that
meet UL criteria. Access to the facility must also be strictly controlled.
Security Associates' central stations are also capable of supporting a full
range of add-on services such as two way voice communications, cellular
transmission and private radio access.
The Company's goal is to increase the number of Accounts to which it
provides Wholesale Monitoring by 100,000 over the next 12 months, and to
increase the profitability of the services it provides although no assurances
can be given that these goals will be achieved. In order to achieve these
goals, Security Associates will need to add the required monitoring capacity,
integrate its monitoring operations to be able to benefit from economies of
scale, maintain and enhance the quality of the services it renders and
successfully market its services to the Dealer community. In order to assist
the Company in this regard, the Company recently appointed Ronald Carr as a
Vice President.
23
<PAGE> 25
Mr. Carr was formerly a Director of Ameritech's SecurityLink where he was
responsible for telecommunications and central station operations.
Increase Wholesale Monitoring Capacity
Historically, the Company's Wholesale Monitoring capacity has grown
principally through the acquisition of central monitoring stations. In October
1990 the Company obtained a 50% interest in the Grand Rapids Station and in
July 1995 the Company purchased a minority interest in of the Des Plaines
Station through a wholly-owned subsidiary. All of the interests in the Des
Plaines and Grand Rapids stations owned by outside investors were purchased by
the Company in September 1996. In December 1996 the Company purchased the
Pompano Beach Station. Subject to the availability of suitable candidates and
financing, Security Associates may acquire additional central monitoring
stations in the future. A principal advantage of purchasing an entire central
monitoring station is that the future cash flows generated from Accounts
currently being monitored may be utilized to finance a significant portion of
the purchase price.
The Company has reviewed its current operations and determined that it can
economically expand the capacity of its existing central monitoring stations to
accommodate 500,000 monitored alarm systems (300,000 by the end of 1997) and,
subject to the availability of financing, the Company intends to embark on a
program of expansion. This Company's expansion would principally involve
hiring additional personnel, purchasing additional computers and monitoring
equipment and leasing additional phone lines. The Company will then be faced
with the additional challenge of bringing in the Accounts to absorb the
increased monitoring capacity.
Integrate Operations and Realize Economies of Scale
Historically, the Company's central monitoring stations were separately
owned and operated as independent business units. The Company's acquisition of
the formerly independent entities has presented the Company with several
opportunities to increase the profitability of each of these operations by
eliminating duplicative efforts through the creation of a single centralized
accounting system and a single billing and collections department to service
all of the Company's central monitoring stations.
The availability of additional monitoring capacity in the presently owned
central stations means that the incremental cost of servicing additional
Accounts is substantially reduced. This can be illustrated by the acquisition
in February 1997 of Northern Central Station, a central monitoring station
located in New Jersey. In the Northern Central Station transaction, the New
Jersey facility was not purchased. Instead, all of the 8,860 Accounts
monitored by Northern Central were transferred in bulk (along with certain
equipment and software) to the Des Plaines Station. Only two new personnel
were hired to accommodate the additional 8,860 Accounts. The old Northern
Central Station operation had eight full-time employees plus a leased facility.
The Company is also reviewing the merits of combining its central monitoring
station operations into fewer facilities.
24
<PAGE> 26
Maintain and Enhance the Quality of Wholesale Monitoring Services
One of the initiatives undertaken by the Company is a review of the
operations of each of the central monitoring stations owned by the Company and
the development of a strategic plan to improve the functionality and
profitability of the Company's Wholesale Monitoring services. The Company's
three central monitoring stations use slightly different event monitoring
software and hardware. All of the existing systems are being evaluated as well
as other systems that are available in the industry. The Company also plans to
restructure and enhance its central monitoring stations' operational systems to
provide a platform from which to offer a wider selection of value-added
services to Dealers including providing Dealers with after-hours answering
services, telemarketing services for lead development, direct access to
end-user information for a Dealer's Accounts and automated interactive alarm
system testing services.
The Company is also planning to implement a user group program in order to
gain insight into both the quality of the services it is providing on an
ongoing basis, as well as to obtain Dealer input into potential new service
offerings. As presently envisioned each of the Company's central stations
would form a user group of leading Dealers in its service area. The users
groups would meet periodically and serve as a regular source of feedback for
both the central stations and for Security Associates. The Company also plans
to use the groups as forums at which it can test the attractiveness of new
service introductions before making major commitments of time and money to new
programs.
Implement Relationship-Based Marketing Program for Wholesale Monitoring
The Company's goal is to increase the number of Accounts it monitors by
100,000 in the next twelve months. While there can be no assurances that this
goal can be reached, the Company is planning to undertake several initiatives
toward its accomplishment.
One important initiative is to reorganize and change the focus of its
sales force. In the past, the Company relied on the existing Account base of
the acquired central monitoring stations and the "natural increase" in Accounts
that occurs as Dealers who are already customers install additional alarm
systems. The Company's sales force has focused its efforts on purchasing
Accounts from Dealers seeking financing rather than selling Wholesale
Monitoring. In the future, the Company will direct its sales force to engage
in "relationship marketing" and present Dealers with the whole range of
services provided by the Company, including Wholesale Monitoring. As part of
its relationship marketing program, Security Associates will attempt to take
greater advantage of its existing relationships with the Dealer community by
initiating a cross-selling program. The Dealers who participate in the
Company's financing programs will be offered Wholesale Monitoring services as
will the participants in its training programs. The relationship oriented
salespeople will be supported by technical salespeople who will be able to
supply potential purchasers of Wholesale Monitoring with a complete
understanding of the capabilities of the Company's central stations.
As part of its relationship oriented strategy the Company is planning to
implement a program that will allow selected Dealers to become equity owners of
Security Associates. Those Dealers who are interested in entering into a
formal contractual relationship with the Company, which will include a bulk
transfer of their Wholesale Monitoring Accounts to one of the Company's central
monitoring stations and other ongoing commitments, as negotiated between them
and the Company, will be issued Common Stock or Warrants. The Company believes
that this program will be attractive to many Dealers, especially in light of
the fact that the Company will also be providing them with high quality
Wholesale Monitoring services at competitive rates. The Company believes that
this program will be a central component of its Wholesale Monitoring marketing
efforts.
25
<PAGE> 27
In addition to its relationship based marketing initiatives, the Company
will also consider the purchase of additional central monitoring stations
including bulk purchases of Wholesale Monitoring Accounts by acquiring smaller
central monitoring stations and transferring the actual monitoring to its own
facilities in a manner similar to the Northern Central Station transaction
noted above.
FINANCING PROGRAM STRATEGY
Provide Dealer Financing Programs
Independent alarm dealers, like many other small businesses, from time to
time need financing in order to operate their businesses. The reasons a Dealer
might need access to cash are extremely varied and include the need to deal
with seasonal cash shortfalls, to finance expansion or inventory, and to
subsidize the costs of system installation. As is common with small
businesses, access to the capital markets is limited. Sales of equity may be
impossible or undesirable. Access to the credit markets is also limited. For
many Dealers, the most significant assets they own are the contract rights in
the monitoring Accounts they retain. Unfortunately, such contract rights are
generally not treated as "assets" against which banks will lend on a secured
basis. This situation creates a dilemma for Dealers and a market opportunity
for the Company, which because of the depth of its knowledge of the security
alarm industry, is able to accurately assess the value of these assets.
The Company's Dealer financing programs are headed by Stephen Rubin who
has twenty five years of experience counseling Dealers as to their financing
options and assisting them with their financing needs. The Company presently
operates an active "Account Acquisition Program" and plans to implement a
Dealer financing program pursuant to which it will make loans to Dealers
secured by Accounts as collateral. See "Business--Implement Loan Program."
Expand the Account Acquisition Program
One important method of financing that has developed in the security alarm
industry is the sale of Accounts to third parties such as Security Associates.
All of the Company's Retail Monitoring services are provided to Accounts
that are purchased as portfolios of subscriber Accounts from the Dealers that
originally sold and installed the security alarm systems. In a typical
transaction, the Dealer will sell its Accounts for a purchase price that is a
multiple of the RMR generated by that Account. For example, if a single
contract provided for monthly payments of $25.00 per month it might sell for
$750.00 or thirty times RMR. The multiple paid in any actual transaction is
impacted by several factors including the prices paid by the Company's
competitors and the Company's prior experience with Accounts purchased from the
seller. Because Accounts typically have three year contract terms (with annual
renewals thereafter) the purchaser of the Account is generally undertaking a
significant risk related to how long the Account remains active and current on
its monthly payments. In the foregoing example, it will take thirty months for
the purchaser of the Account to receive payments equal to the purchase price.
In order for an Account acquisition to be profitable, not only must the
cash flow from the Account be sufficient to recoup the purchaser's investment,
such cash flow must also be sufficient to satisfy the cost of providing
monitoring service on a monthly basis as well as the billing, collection,
customer service, financing and other costs as well as provide a return on the
purchaser's investment. The "quality" of the Accounts purchased which is
generally measured in terms of the consistency with which the monthly
monitoring fees will be paid and the expected longevity of the Accounts are the
crucial elements in determining whether an Account acquisition is a profitable
undertaking. The Company's plan to continue the growth of its Account
Acquisition Program is dependent on several factors including the availability
of suitable Account acquisition opportunities, the market price at which
acquisitions are being made and the amount and cost of financing available to
the Company.
26
<PAGE> 28
Implement Relationship Based Marketing in Account Acquisition Program
The Company's relationship based marketing strategy is the foundation of
its Account Acquisition Program. One of the unique aspects of Security
Associates' position in the security alarm industry is what it does not do - it
does not sell and install security systems. As a result, the Company is not
viewed as a competitor in the Dealer community. Several of the Company's
competitors in the Account acquisition business sell and install security
systems, and some are even leading mass-marketers of low cost system
installations. In a typical Account purchase, Security Associates will hire
the selling Dealer to service the underlying burglar alarm system. Security
Associates will also refer all inquiries relating to system enhancements to the
selling Dealer. This process serves two purposes: first, in a business where
Account longevity is important, it allows the Company to take advantage of the
goodwill between the subscriber and the person it knows - the Dealer; second,
it encourages the Dealer to sell additional Accounts to Security Associates as
new installations are made. In a market where the purchase price of Accounts
is extremely competitive, the Company believes that, at least in some cases,
the depth of its relationships with Dealers gives it a competitive edge.
As noted above, the Company intends to place greater emphasis on
cross-selling its services. In this regard it intends to encourage the Dealers
to whom it provides Wholesale Monitoring services to use the Company as
purchaser when they wish to sell Accounts. Just as the Company values its
relationships with Dealers and understands that such relationships are a source
of future business and referrals, Dealers value their relationships with their
installation customers. Because Security Associates uses its own central
monitoring stations to provide Retail Monitoring to its owned Accounts and
these are the same stations that the Dealers are already familiar with, Dealers
need not be concerned that their customer relationships are going to be
disrupted because of poor monitoring services.
Maintain Quality Controls for Acquired Accounts
The key to the profitability of an Account acquisition is the "quality" of
the Accounts purchased. Before closing on any Account acquisition, the
Company generally reviews the underlying contract of each Account to be
purchased and the payment history and credit rating of the underlying
subscribers. As part of each closing, the Company will directly pay any third
parties with liens relating to the purchased Accounts in return for a release
of such liens.
Obtain Dealer Guarantees
The Company's Account acquisition contracts contain provisions designed to
protect the Company's investment in the Accounts purchased. Generally, the
Company will pay 80-90% of the purchase price in cash (including the amount
needed to pay any lien holders) and retain the balance of the purchase price as
collateral for a guarantee period of up to two years. In the event that any
Account is canceled or stops regular payments during the guarantee period,
replacement Accounts must be delivered by the selling Dealer or otherwise a
portion of the holdback amount is retained to offset the purchase price of the
defaulted Accounts. The Company will also obtain a lien on some or all of the
other Accounts owned by the selling Dealer in order to secure the Dealer's
obligations. The guarantee period becomes, in effect, a quality control
testing period for the purchased Accounts. The guarantee periods and the
holdback amounts vary from transaction to transaction. As the Company and the
Dealer develop a history of successful transactions, the holdback amounts and
the guarantee periods generally will tend to decrease.
27
<PAGE> 29
Provide Continuing Customer Service to Company Owned Accounts
The Company maintains a staff of 10 customer service personnel who handle
customer inquiries and perform billing and collection tasks. In addition, the
Company generally enters into an agreement with the selling Dealer to provide
continuing maintenance services for the system hardware. In those cases where
the installing Dealer is unwilling or unable to provide maintenance services,
the Company will enter into a maintenance agreement with a third party for such
services.
Reduce Attrition Rates
In the normal course of its business, the Company experiences cancellation
of its owned Accounts due to subscribers relocating, cancellation for
nonpayment, problems with service and miscellaneous other reasons. This
attrition is offset somewhat by the ability of the Company to offset against
the amounts held back in Account acquisitions and by Dealers meeting their
obligation to replace Accounts that go into default during the guarantee
period. From January 1, 1991 to December 31, 1996, the Company experienced
gross attrition of 9.2% and net attrition (i.e., after taking into account
replacements for canceled Accounts) of 5.5%. During 1997, the Company
experienced significantly higher gross and net attrition primarily as a result
of losses attributable to two acquisitions of Accounts out of approximately 20
acquisitions made by the Company over the past six years. The historical gross
and net attrition, after faxing into effect the write-offs from the
acquisitions was 14.2% and 11.7%, respectively. The Company believes that it
can improve its attrition experience by improving its acquisition quality
control and customer service programs. The Company's goal is to reduce its
gross attrition rate to 8% and its net attrition rate to 6% by year end 1997,
although there can be no assurance that this goal can be achieved. See "Risk
Factors--Attrition of Subscriber Accounts."
Implement Loan Program
Because high quality Accounts represent a reliable future stream of
revenue with little incremental costs, many Dealers sell them only reluctantly
and would prefer to borrow using their Accounts as collateral. Banks have been
historically reluctant to lend against Accounts as collateral. The Company
believes that only two finance companies exist with active lending programs in
the industry and both are relatively small compared to what the Company
believes is the potential demand for loans secured by Accounts. Because of its
familiarity with the security industry and its experience in providing
monitoring services, customer service and billing and collections, the Company
believes it is well prepared to both determine the value of Accounts as
collateral and to realize on the value of those Accounts in case of default.
The Company is presently in the process of developing a loan program, which it
may undertake directly or through a subsidiary. The formal implementation of
such a program is subject to many contingencies including the availability of
financing and obtaining the necessary consents from the Company's lenders.
TRAINING AND SUPPORT STRATEGY
Offer High Quality Training Programs
The marketplace in which the independent alarm Dealer competes is
undergoing rapid change. The entry of large well capitalized companies is
creating uncertainty among Dealers. It is in this context that the Company
believes that its ongoing training and educational programs are not only
valuable to Dealers, but also can add depth and permanence to all of the
Company's business relationships with independent Dealers. The Company's
Dealer training and support efforts are headed by Ron Davis, Chairman of the
Board, with twenty five years of experience as a speaker and author on a broad
range of subjects concerning the security alarm industry, independent Dealers
and the changes in the marketplace that have and will continue to impact them.
28
<PAGE> 30
The Company conducts approximately 50 conferences a year at locations
around the country at which issues and opportunities facing the industry are
presented. Security Associates also hosts an annual three day educational
conference attended by several hundred Dealers, where presentations are made by
both Company personnel and other professionals from within the industry, as
well as specialists in such fields as finance and marketing.
These activities are supplemented by the Company's "Audio Insight"
program. Audio Insight is an audio magazine that is distributed four times a
year. Each edition of Audio Insight is a 1 1/2-2 hour cassette magazine of
ideas, interviews and insights relating to the alarm industry, hosted by Ron
Davis. Also distributed quarterly is camera ready art for use in consumer
newsletters that can be customized by Dealers for mailing to their own customer
base as a marketing tool. The Audio Insight magazine and the consumer
newsletter program are only available to affiliates of the Company's Dealer
Network.
Assist Dealers in Identifying and Exploiting New Business Opportunities
The installation of security alarm systems requires the same array of
skills necessary for the installation of a broad range of other low-voltage
electronic systems that can be marketed to the independent alarm Dealers'
existing customer base, i.e., homeowners and businesses. These include
products such as closed circuit television systems, home automation systems,
intercoms, home entertainment centers, and satellite dishes. The Company's
training programs have for many years exposed the Dealer community to these
opportunities including how to market and install these products.
Recently, the Company entered into a joint venture agreement with EchoStar
Satellite Corporation pursuant to which Security Associates has agreed to
provide Dealers with training on the marketing and installation of the EchoStar
satellite dish program for direct broadcast television. The Company believes
that the installation of satellite dishes requires similar skills to alarm
system installation and has similar revenue generating characteristics. The
installing Dealer receives an initial payment related to the equipment purchase
and also receives monthly payments based on the homeowner's monthly
subscription payments for programming. The Company has also recently entered
into agreements with two companies that market home entertainment products and
systems. Pursuant to these agreements, participating Dealers are expected to
have access to a full range of home entertainment products.
The EchoStar joint venture and the home entertainment products are
examples of the types of business relationships that the Company hopes to
continue to develop in the future. In both situations, the Company expects to
receive fees based on the success of the joint marketing effort addressed to
the Dealer community and at the same time the Dealers are expected to receive
true "dealer" pricing for the products they purchase. As both programs are
new, they have yet to develop significant revenues.
Security Associates also anticipates that new business opportunities for
Dealers will develop as a result of "bundling" which is a new phenomenon
impacting the alarm industry. Bundling involves a single entity providing a
range of similar services and billing for all those services on a consolidated
basis. A single company could very well supply a home with local and long
distance telephone services, cable television programming and alarm monitoring,
all billed monthly on a single bill. The Company anticipates that at least
some bundlers may wish to "outsource" significant portions of the installation
and maintenance functions. Because of the breadth of its Dealer network, the
Company intends to present itself to the "bundlers" as an ideal way of
approaching independent installers in an efficient manner.
29
<PAGE> 31
Expand Affiliation with the Dealer Network
The Company views its overall marketing strategy as an attempt to build a
broad range of relationships with independent Dealers through which it can
develop and market a range of services designed to address Dealer needs. At
the same time its access to, and knowledge of, the alarm industry and
independent Dealers is of value to outsiders who may wish to use the services
of, or sell products to, Dealers. The Company recognizes that increasing the
depth and breadth of its relationship with the Dealer community is an important
component of its overall strategy. This need to extend and strengthen its
relationship with Dealers has led the Company to place greater emphasis on its
affiliation program. The goal of the affiliation program is to provide the
Company with the broadest possible base of affiliates, with increased benefits
available to those affiliates with closer and more permanent relationships
with the Company.
The Company views the entire population of independent Dealers as
potential affiliates of its Dealer Network. As of the date of this Prospectus,
approximately 2,000 of the estimated 13,000 independent alarm Dealers are
Security Associates affiliates and additional efforts are expected to be
undertaken to induce more Dealers to join. The Company is currently developing
a marketing program designed to introduce the benefits of association with
Security Associates to a broader segment of the Dealer community. This program
will emphasize the education and training programs the Company offers and the
services it provides in identifying and making available new business
opportunities to its affiliates. The Company will also include information
concerning the Wholesale Monitoring and Account Acquisition programs. All
Dealers that enter into transactions with the Company, whether for Wholesale
Monitoring or in Account acquisition transactions will automatically become
affiliates.
The Company expects that its relationships with some of its affiliates
will grow into long term business relationships and plans to develop programs
to reward Dealers who develop deeper relationships with the Company. For
example, should a national retail chain approach the Company for a list of
Dealers who are potential installers for alarm systems for stores in multiple
locations, the Company would introduce those affiliates with whom it had an
existing and ongoing transactional relationship. The Company also plans to
invite some of the affiliates who use its Wholesale Monitoring services to
participate in central monitoring station based user groups designed to help
the Company improve its current performance as well as design new service
offerings.
The Company also plans to offer a select group of affiliates the
opportunity to become equity owners of Security Associates and thereby
participate in the growth in the value of the Company. As presently
envisioned, the program would require the stockholder/affiliate and the Company
to enter into a long term agreement pursuant to which the Company would provide
Wholesale Monitoring for all of the stockholder/affiliate's owned Accounts and
would also grant the Company rights of first refusal in the event that the
stockholder/affiliate elects to sell its Accounts. As presently envisioned,
the agreements will contain appropriate commitments on the part of the Company
to provide high quality monitoring services at market prices. Each such
agreement will be individually negotiated between the Company and the
individual Dealer.
RISK MANAGEMENT
The nature of the services provided by the Company potentially exposes it
to greater risks of liability for employee acts or omissions or system failures
than may be inherent in other businesses. Generally, the Company's Wholesale
Monitoring and Retail Monitoring agreements contain provisions limiting the
Company's liability to subscribers in an attempt to reduce this risk.
The Company carries insurance of various types, including general
liability and errors and omissions insurance providing coverage of $1.0 million
and $2.0 million, respectively. The loss
30
<PAGE> 32
experience of the Company and other companies in the security industry may
affect the cost and availability of such insurance. Certain of the Company's
insurance policies and the laws of some states may limit or prohibit insurance
coverage for punitive or other types of damages, or liability arising from
gross negligence or wanton behavior. See "Risk Factors--Risk of Liability from
Operations."
COMPETITION
The security alarm industry is highly competitive and highly fragmented.
While the Company does not compete directly with many of the large new entrants
into the industry because it does not sell and install security systems, it is
nonetheless impacted by the competitive challenge these entrants present to
independent Dealers. To some extent new alarm systems installations made by
large integrated industry participants are systems that may not be installed by
the Dealers on whom the Company's business depends. As a result, there may be
less Dealer owned Accounts for which Wholesale Monitoring can be provided and
fewer Dealer owned Accounts available for the Company to purchase. The
Company's Wholesale Monitoring services compete with those offered by an
estimated 1,500 to 2,000 companies. Of those companies, an estimated 200 firms
including the Company offer monitoring services from UL listed facilities.
While many of the companies providing monitoring services are small local
operations, several of the UL listed competitors are companies that are larger
and better financed than the Company. The Company also competes with several
companies that have Account acquisition and loan programs for independent
Dealers and some of those competitors are larger and better capitalized than
Security Associates. There is also the potential for other entities such as
banks or finance companies to gain a better understanding of the industry and
become more active as a source of competition for the Dealer financing portions
of the Company's business.
The Company's competitive strategy has three basic components: provide
the Dealer community with high quality monitoring and financial services at
competitive prices; provide Dealers with the training and access to new
business opportunities that will allow them to compete effectively and conduct
their businesses profitably; and constantly enhance and reinforce Security
Associates' relationships with independent alarm Dealers with a view to
becoming the provider of choice for each of the services the Company provides.
See "Risk Factors--Competition."
REGULATORY MATTERS
A number of local governmental authorities have adopted or are considering
various measures aimed at reducing the number of false alarms. Such measures
include: (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms, and (v) requiring further
verification of an alarm signal before the police will respond.
The Company's operations are subject to a variety of other laws,
regulations and licensing requirements of federal, state and local authorities.
In certain jurisdictions, the Company is required to obtain licenses or
permits, to comply with standards governing employee selection and training,
and to meet certain standards in the conduct of its business. Many
jurisdictions also require certain of the Company's employees to obtain
licenses or permits.
The alarm industry is also subject to requirements imposed by various
insurance, approval, listing and standards organizations. Depending upon the
type of subscriber served, the type of service provided and the requirements of
the relevant local governmental jurisdiction, adherence to the requirements and
standards of such organizations is mandatory in some instances and voluntary in
others.
31
<PAGE> 33
The Company's alarm monitoring business utilizes telephone lines and radio
frequencies to transmit alarm signals. The cost of telephone lines and the
type of equipment which may be utilized in telephone line transmissions are
currently regulated by both federal and state governments. The operation and
utilization of radio frequencies are regulated by the Federal Communications
Commission and state public utilities commissions.
LEGAL PROCEEDINGS
The Company from time to time experiences routine litigation in the normal
course of its business. The Company does not believe that any pending
litigation will have a material adverse effect on the financial condition or
results of operations of the Company.
EMPLOYEES
At May 31, 1997, the Company employed 118 individuals on a full-time basis
and 27 individuals on a part-time basis. Currently, none of the Company's
employees is represented by a labor union or covered by a collective bargaining
agreement. The Company believes that its relationships with its employees are
good.
FACILITIES
The Company's executive offices are located at 2101 South Arlington
Heights Road, Arlington Heights, Illinois and its central monitoring stations
are located at 2116 South Wolf Road, Des Plaines, Illinois, 1208 Butterworth,
S.W., Grand Rapids, Michigan and 1471 S.W. 12th Avenue, Pompano Beach, Florida.
All of the Company's facilities are leased. The Arlington Heights lease
expires December 31, 2000, but can be renewed by the Company at its option for
one additional five year term, the Des Plaines lease expires June 30, 2000, but
can be renewed by the Company at its option for one additional five year term,
the Grand Rapids lease expires September 4, 1998, but can be renewed by the
Company at its option for one additional one year term and the Pompano Beach
lease expires July 31, 2000, but can be renewed by the Company at its option
for one additional five year term.
32
<PAGE> 34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors and their respective ages
and positions as of June 30, 1997, are as follows:
<TABLE>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Ronald I. Davis 58 Chairman of the Board
James S. Brannen 58 President, Chief Executive Officer and Director
Stephen Rubin 50 Senior Vice President and Secretary
Thomas J. Salvatore 30 Director
Douglas Oberlander 47 Director
Ronald J. Carr 46 Vice President
Timothy M. McAuliff 38 Vice President
</TABLE>
Ronald I. Davis was a founder of the Company and has been Chairman of the
Board since October 1990. Prior to formation of the Company, he had many years
of experience in the security alarm industry. He was the founder and from 1987
to 1990 Mr. Davis was chairman and principal shareholder of SAI Partners, Inc.,
an alarm dealer buying group which also provided Dealers with other support
services such as training and educational programs, consulting, group insurance
programs and certain proprietary alarm products manufactured by others. From
1982 to 1987 Mr. Davis was President of Security Alliance Corporation, a
franchise company in the alarm industry and a joint venture with Pittway
Corporation. Prior to 1982, Davis was a full time consultant to many of the
alarm companies that now make up the affiliates of the Company's Dealer
Network. Mr. Davis attended Roosevelt University where he received a B.A.
James S. Brannen was a founder of the Company and has been a Director and
President of the Company since October 1990 and Chief Executive Officer since
1992. He was a self-employed consultant in the alarm industry from February,
1988 to October, 1990. From 1962 until 1987, Mr. Brannen was associated with
the First National Bank of Chicago where he served as a senior vice president
in both the commercial and international banking departments. In those
capacities he managed the commercial areas of the bank responsible for lending
to the cable television and paging industries. In addition he managed the
secured lending activity and was responsible for organizing and managing the
bank's first work-out lending activity. Mr. Brannen has an A.B. degree from
Dartmouth College and received MBA degree from Northwestern University.
Stephen Rubin was a founder of the Company and has been Senior Vice
President and Secretary since October 1990. From 1987 to 1990, he was a Senior
Vice President of SAI Partners, Inc. From 1978 to 1986, Mr. Rubin was an
officer of Davis Marketing Group and Security Alliance Corporation. Mr. Rubin
has a B.S. degree from Northern Michigan University and MBA degree from Loyola
University. Mr. Rubin has the principal responsibility for the day-to-day
relationships with the dealers in the Company's Dealer Network and for
negotiating account acquisitions.
Thomas J. Salvatore was elected as a Director of the Company in December
1996. Since 1991 Mr. Salvatore has been the Managing General Partner of TJS
Management, L.P. which is the General Partner of TJS Partners, L.P. ("TJS"), a
principal stockholder of the Company. TJS has a contractual right to designate
two directors to the Company's Board of Directors and Mr. Salvatore is one of
the designees. Mr. Salvatore holds a Bachelors Degree in Business
Administration from Fordham University.
33
<PAGE> 35
Douglas Oberlander has been a Director since January 1994. Since 1989 Mr.
Oberlander has been President of Lease I, Inc. a commercial lease and finance
company. From 1965 to 1988 Mr. Oberlander was employed by Oberlander Security,
a security alarm dealer. Since 1991 Mr. Oberlander has served as a director of
Oberlander Alarms, a security alarm dealer.
Ronald J. Carr has been the Company's Vice President since March, 1997.
From March 1996 to March 1997 Mr. Carr was Director of Telecommunications and
Central Station Operations for Ameritech's SecurityLink subsidiary. From 1991
to 1996 he was Director of Telecommunications for ADT, Inc. Mr. Carr holds a
Bachelors Degree in Business Administration from Brookdale College.
Timothy M. McAuliff has served as Vice President since September 1996.
Mr. McAuliff served as a Vice President responsible for acquisition and credit
for Old Kent Leasing, a subsidiary of Old Kent Financial Corporation from
December 1995 to September 1996. From October 1994 to December 1995 Mr.
McAuliff was Accounting Manager for Advo, Inc., a direct mail marketing firm.
From December 1992 to October 1994 he was Division Controller for a publishing
firm, Thomson Corporation. From 1986 through 1992 Mr. McAuliff was a manager
for the Tribune Company, a publishing and broadcasting company. Mr. McAuliff
holds a bachelors degree in Business Administration from Elmhurst College.
The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. Each executive officer is a
full-time employee of the Company. All directors hold office until the next
annual meeting of stockholders or until their successors are duly elected and
qualified. The Board of Directors currently consists of four members. Ronald
I. Davis and Stephen Rubin are brothers-in-law. There are no other family
relationships between any director or executive officer of the Company.
DIRECTOR COMPENSATION
Directors who are not executive officers of the Company are reimbursed for
travel expenses incurred in connection with attending board and committee
meetings. Directors are not entitled to additional fees for serving on
committees of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation earned for the fiscal year ended December 31,
1996 for the Company's Chief Executive Officer. No executive officer of the
Company earned more than $100,000 during the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
NAME AND ANNUAL COMPENSATION
PRINCIPAL POSITION SALARY
James S. Brannen.......................
President and Chief Executive Officer $94,523
The following table sets forth information regarding the number and value
of options and warrants held at December 31, 1996 by the Chief Executive
Officer. No options were exercised during 1996 by the Chief Executive Officer.
34
<PAGE> 36
YEAR-END OPTION VALUES
<TABLE>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1996 AT DECEMBER 31, 1996 (1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
James S. Brannen 278,308 0 $606,711 $0
</TABLE>
DEFERRED COMPENSATION STOCK PLAN
The Board of Directors on April 28, 1997, adopted an executive deferred
compensation plan entitled "Security Associates International Inc. Supplemental
Employees' Retirement Plan ("Plan"). The Plan will establish a deferred
compensation program for participating officers. The Board of Directors will
make annual year-end awards to plan participants in the form of shares of the
Company's Common Stock, with 20% of said awards to be subject to forfeiture at
the end of each of the five years following an initial award based on the
Board's assessment of each participating officer's performance against the
Company's goals and objectives for the year. The Company had no executive
deferred compensation plan or stock plan prior to the adoption of the current
Plan.
401(K) PLAN
On April 28, 1997, the Board of Directors adopted the Datair Mass
Submitted Prototype Standardized Cash or Deferred Profit Sharing Plan and Trust
("401(k) Plan"). Effective June 1, 1997, any employee of the Company, including
the Company's Named Executive Officer, who has completed six months of
employment at the end of his or her first twelve months of employment or any
calendar year ending thereafter, may contribute to the 401(k) Plan. The
Company will contribute to each employee's account an amount equal to 25% of
the first 4% of each employee's compensation that is contributed by each
employee.
EMPLOYMENT AGREEMENT
On August 30, 1996, the Company entered into a three year Employment
Agreement with James S. Brannen to serve as the Company's President and Chief
Executive Officer. Pursuant thereto, Mr. Brannen receives an annual salary of
$125,000, which amount is increased following an annual salary review. In
addition, Mr. Brannen will participate in such other benefits as offered to
other executive employees of the Company.
35
<PAGE> 37
CERTAIN TRANSACTIONS
On September 5, 1996, TJS Partners, L.P. ("TJS") invested a total of $5
million in the Company. The investment consisted of the purchase of 3,525,682
shares of Common Stock for $1,558,351 pursuant to a Common Stock Purchase and
Subscription Agreement and a loan to the Company of $3,441,649 pursuant to a
Convertible Subordinated Promissory Note. The shares of Common Stock issued to
TJS represented approximately 49% of the issued and outstanding Common Stock of
the Company. As part of these transactions the Company entered into a Standby
Option and Warrant Agreement pursuant to which the Company granted TJS certain
"mirror options" to purchase 1,855,243 shares of Common Stock that are
exercisable in an equivalent number and at the same price in the event any of
the Company's then existing option holders exercise their options. The Common
Stock Purchase and Subscription Agreement included a grant by TJS to Ronald I.
Davis and James S. Brannen of a voting proxy to vote all of TJS' shares of
Common Stock for a period ending on the earlier of 18 months following the
closing of that transaction or the second annual meeting of stockholders
following the closing. TJS was granted certain rights of first refusal with
respect to issuance of new securities which have been waived in connection with
this offering. TJS was also granted "piggyback" and demand registration rights
for its shares of the Company's capital stock. Those rights were waived in
connection with this Offering. TJS also has the right to designate two members
of the Company's Board of Directors. Thomas J. Salvatore, Managing General
Partner of TJS Management, L.P., TJS's General Partner is one such designee.
As of the date of this Prospectus, TJS has not designated an additional Board
member.
The Convertible Subordinated Promissory Note provided the holders of that
Note with the right to convert the principal amount of that Note into Common
Stock in the event of an initial public offering or the use of Common Stock in
a business acquisition. These provisions are no longer applicable as explained
below.
On December 31, 1996, TJS and the Company agreed to restructure TJS' total
investment in the Company (the "TJS Amendment"). Pursuant to the TJS
Amendment, the shares of Common Stock originally purchased and the Convertible
Subordinated Promissory Note were canceled. In their place, the Company issued
to TJS 35,257 shares of Convertible Preferred Stock (each convertible into 100
shares of Common Stock), 344,165 shares of 12% Redeemable Preferred Stock and a
warrant to purchase 15,000 shares of Convertible Preferred Stock at $250.00 per
share. See "Description of Capital Stock." In addition, TJS entered in a
Subordinated Loan Agreement with the Company pursuant to which the Company has
a $5,000,000 line of credit. On November 1, 1996 TJS lent the Company $500,000
and made further loans of $4,200,000 on January 2, 1997 and $250,000 on May 1,
1997.
As part of the TJS Amendment the Standby Option and Warrant Agreement was
amended so that TJS' mirror options are henceforth exercisable to purchase
Convertible Preferred Stock rather than Common Stock. On April 21, 1997 TJS
purchased 5,215.88 shares of Convertible Preferred Stock (the equivalent of
521,588 shares of Common Stock) pursuant to exercise of mirror options.
On January 3, 1997 the Company paid $135,000 to Ronald I. Davis in
connection with a previously negotiated Settlement Agreement with SAI Partners,
Inc. which is wholly-owned by Mr. Davis. The Settlement Agreement concerned
commissions owed by the Company.
36
<PAGE> 38
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of June 30, 1997 by: (i) each person
known by the Company to own beneficially more than five percent of the
outstanding shares of Common Stock; (ii) each of the Company's directors; (iii)
the Named Executive Officer; (iv) each Selling Stockholder; and (v) all
directors and executive officers of the Company as a group. The Company
believes that except as noted each person or entity named below has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by such holder, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP
PRIOR TO OFFERING OFFERED AFTER OFFERING
---------------------------- --------- ----------------------------
NAME NUMBER OF SHARES PERCENT(1) NUMBER OF SHARES PERCENT(2)
<S> <C> <C> <C> <C> <C>
TJS Partners, L.P.(3)
52 Vanderbilt Avenue
New York, New York 10017....................... 4,047,288 49.1% 0 4,047,288 39.5%
Ronald I. Davis(4)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005.............. 4,957,710 57.6% 0 4,957,710 46.7%
James S. Brannen(5)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005.............. 4,585,904 53.8% 0 4,585,904 43.6%
Thomas J. Salvatore(6)
c/o TJS Partners, L.P.
52 Vanderbilt Avenue
New York, New York 10017....................... 4,047,288 49.1% 0 4,047,288 39.5%
Douglas Oberlander
10225 N. Knoxville Avenue
Peoria, Illinois 61615......................... 106,022 1.3% 0 106,022 1.0%
Robert Brown
IRA Account
3605 N. Robinwood Drive
Muncie, Indiana 47304.......................... 25,000 * 25,000 0 0
Bobbie Conrad
383 Adams Street
Glencoe, Illinois 60022........................ 20,000 * 20,000 0 0
Sidney Dechter
7406 Princeton Drive
Hanover Park, Illinois 60103................... 25,000(7) * 25,000 0 0
Anita M. Delmar
2324 North East Regents Drive
Portland, Oregon 97212......................... 20,000 * 20,000 0 0
Robert H. Dilworth
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078.................... 50,000 * 50,000 0 0
Fred Figge
221 S. Blackstone
LaGrange, Illinois 60525....................... 98,500(7) 1.2% 98,500 0 0
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP
PRIOR TO OFFERING OFFERED AFTER OFFERING
---------------------------- -------- ----------------------------
NAME NUMBER OF SHARES PERCENT(1) NUMBER OF SHARES PERCENT(2)
<S> <C> <C> <C> <C> <C>
Dianne G. Freeman
P.O. Box 143
Sand Lake, New York 12153...................... 25,000 * 25,000 0 0
Phyllis Greinwald
c/o Courtney Van Lopik
18 Woodland Trail
Ogden Dunes
Portage, Indiana 46368......................... 77,000 * 77,000 0 0
Raymond C. Hoven
105 Chicory Court
Rolling Meadows, Illinois 60008................ 46,800(8) 0.6% 40,000 6,800 *
Infinity Partnership II
4075 N. Victoria Drive
Hoffman Estates, Illinois 60195................ 10,000(7) * 10,000 0 0
Inversiones Alange, C.A.
c/o Malcolm Caplan
Baker & McKenzie
Barnett Tower, Suite 1600
701 Bickwell Avenue
Miami, Florida 33131........................... 62,500 * 62,500 0 0
Inversiones Aparicio, C.A.
c/o Malcolm Caplan
Baker & McKenzie
Barnett Tower, Suite 1600
701 Bickwell Avenue
Miami, Florida 33131........................... 120,000 1.5% 120,000 0 0
Inversiones Erlanger, C.A.
c/o Malcolm Caplan
Baker & McKenzie
Barnett Tower, Suite 1600
701 Bickwell Avenue
Miami, Florida 33131........................... 100,000 1.2% 100,000 0 0
Irwin Jacobson
1035 Carlyle Terrace
Highland Park, Illinois 60035.................. 123,000(9) 1.5% 12,500 110,500 1.1%
Lee Jones
c/o Support Services Group
63 Calle de Industrias
Suite 550
San Clemente, California 92672................. 22,088 * 22,088 0 0
Metro Suburban Pediatrics
600 N. Court
Palatine, Illinois 60067....................... 12,500(7) * 12,500 0 0
Mark Scharmann
1661 Lakeview Circle
Ogden, Utah 84403.............................. 144,800(10) 1.7% 32,500 112,300 1.1%
Bernard and Samuel Sered
4023 Suffield Court
Skokie, Illinois 60076......................... 12,500(7) * 12,500 0 0
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP
PRIOR TO OFFERING OFFERED AFTER OFFERING
---------------------------- -------- ----------------------------
NAME NUMBER OF SHARES PERCENT(1) NUMBER OF SHARES PERCENT(2)
<S> <C> <C> <C> <C> <C>
Brady E. Turner
P.O. Box 840
Brunswick, Georgia 31521 12,500(7) * 12,500 0 0
All Executive Officers and Directors as a group
(4 persons)(11)................................ 5,620,348 63.0% 0 5,620,348 51.4%
</TABLE>
(1) Applicable percentage of ownership as of June 30, 1997 is based upon
8,246,363 shares of Common Stock outstanding (including shares issuable upon
conversion of outstanding shares of Convertible Preferred Stock). Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, and unless otherwise noted includes voting and investment
power with respect to the shares shown as beneficially owned.
(2) Applicable percentages of ownership are based on 10,246,363 shares of
Common Stock outstanding. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and unless otherwise
noted includes voting and investment power with respect to the shares shown as
beneficially owned. Assumes all shares being registered for resale are sold.
(3) Consists of 40,472.88 shares of Convertible Preferred Stock. Each share of
Convertible Preferred Stock is convertible into and has the voting rights of
100 shares of Common Stock. TJS Partners is the only holder of Convertible
Preferred Stock.
(4) Includes 530,114 shares owned by Mr. Davis and SAI Partners, Inc. and
398,308 shares purchasable upon the exercise of currently exercisable options
and warrants. Also includes the shares issuable upon conversion of TJS
Partners' shares of Convertible Preferred Stock as to which Mr. Davis holds a
voting proxy but as to which Mr. Davis does not have investment power.
Excludes 225 shares owned by Beverly Davis, Mr. Davis' wife, 200 shares owned
by Scott Davis, Mr. Davis' son, 6,000 shares owned by Ethan Davis, 6,000 shares
owned by Benjamin Davis and 5,301 shares owned by Ann Davis, Mr. Davis' sister,
as to which Mr. Davis disclaims beneficial ownership.
(5) Includes 260,308 shares owned by Mr. Brannen and 278,308 shares of Common
Stock purchasable upon exercise of currently exercisable options. Also
includes the shares issuable upon conversion of TJS Partners' shares of
Convertible Preferred Stock as to which Mr. Brannen holds a voting proxy but as
to which Mr. Brannen does not have investment power. Excludes 7,580 shares
owned by Martha A. Brannen, Mr. Brannen's wife, 6,000 shares owned by Craig
Brannen, 6,000 shares owned by Sarah B. Ozee and 6,000 shares owned by Peter
Brannen, Mr. Brannen's children, as to which Mr. Brannen disclaims beneficial
ownership.
(6) Consists of 40,472.88 shares of Convertible Preferred Stock owned by TJS
Partners, L.P., Mr. Salvatore controls voting and disposition of these shares
through TJS Management, L.P., which is the sole general partner of TJS
Partners, L.P.
(7) Includes only shares which may be purchased pursuant to currently
exercisable options. All of such shares are being registered for resale
hereby.
(8) Includes 6,800 shares owned by Mr. Hoven and 40,000 shares which may be
purchased pursuant to currently exercisable options. Only the 40,000 shares
subject to the options are being registered for resale hereby.
39
<PAGE> 41
(9) Includes 110,500 shares owned by pension plans controlled by Mr. Jacobson
and 12,500 shares which may be purchased pursuant to currently exercisable
options. Only the 12,500 shares subject to the options are being registered
for resale hereby.
(10) Includes 112,300 shares owned by Mr. Scharmann and 32,500 shares which may
be purchased pursuant to currently exercisable options issued to Mr. Scharmann
and Troika Capital a corporation controlled by Mr. Scharmann. Only the 32,500
shares subject to the options are being registered for resale hereby.
(11) Includes 676,616 shares purchasable upon exercise of currently exercisable
options and warrants.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.0001 per share. As of June 30, 1997, the Company
has outstanding 4,199,057 shares of Common Stock, 40,427.88 shares of
Convertible Preferred Stock and 344,165 shares of 12% Redeemable Preferred
Stock. As of June 30, 1997, there were 204 holders of record of Common Stock
and one holder of record for the Convertible Preferred Stock and 12% Redeemable
Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for the
election of directors and all other matters submitted for stockholder vote,
except matters submitted to the vote of another class or series of shares.
Holders of Common Stock are not entitled to cumulative voting rights.
Therefore, the holders of a majority of the shares voting for the election of
directors can elect all of the directors if they choose to do so. The holders
of Common Stock are entitled to dividends in such amounts and at such times, if
any, as may be declared by the Board of Directors out of funds legally
available therefor. The Company has not paid any dividends on its Common Stock
and does not anticipate paying any cash dividends on such stock in the
foreseeable future. See "Dividend Policy." Upon liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all net assets available for distribution to stockholders after
payments to creditors. The Common Stock is not redeemable and has no preemptive
or conversion rights.
All outstanding shares of Common Stock are, and the shares of Common Stock
to be sold by the Company in this offering when issued will be, duly
authorized, validly issued, fully paid and nonassessable.
The Common Stock is listed under the symbol "LRMD."
PREFERRED STOCK
The Company's amended and restated Certificate of Incorporation authorizes
the issuance, upon resolution of the Board of Directors and without further
stockholder approval, of up to a total of 500,000 shares of Preferred Stock.
The terms of one or more classes or series of Preferred Stock, including
dividend rights, conversion prices, voting rights, redemption prices and
similar matters will be determined by the Board of Directors. Further series
of preferred stock could have voting, dividend and other rights, preferences
and privileges superior to those of the Common Stock or other classes of
Preferred Stock. See "Risk FactorsCertain Antitakeover Effects."
12% REDEEMABLE PREFERRED STOCK
Each share of 12% Redeemable Preferred Stock is senior to the Company's
outstanding Convertible Preferred Stock and senior to the Company's Common
Stock. Dividends accrue at the rate per share of 12% per annum of the stated
value which is initially $10.00 per share. In the event the Company raises $10
million in new equity, all dividends that have not been paid must be paid. If
the Company raises $15 million in new equity, the
40
<PAGE> 42
Company will have the right to redeem the 12% Redeemable Preferred Stock for its
liquidation value plus unpaid dividends. If the Company does not redeem the 12%
Redeemable Preferred Stock at that time, the dividend rate will increase to 18%
and the stockholder will have the right to convert such stock into Common Stock
at a conversion price equal to 80% of the market price of the Common Stock at
the date of conversion. The holder of 12% Redeemable Preferred Stock shall not
have voting rights (except with respect to an amendment to the Certificate of
Incorporation that would have the effect of canceling or otherwise affecting the
rights of the holders of such stock to receive dividends which have accrued but
which have not been declared). The 12% Redeemable Preferred Stock has a $10.00
per share liquidation preference over the Convertible Preferred Stock and the
Common Stock.
CONVERTIBLE PREFERRED STOCK
Each share of Convertible Preferred Stock is senior to the Company's
outstanding Common Stock but ranks junior to the outstanding 12% Redeemable
Preferred Stock. The holder of Convertible Preferred Stock is entitled to
receive such dividends, if any, as may be declared on the Common Stock, if such
holder were the holder of the number of shares of Common Stock into which the
shares of Convertible Preferred Stock then held by such holder are then
convertible. The shares of Convertible Preferred Stock are convertible into
100 shares of Common Stock at the option of the holder at any time and
automatically upon an initial public offering by the Company. Each share of
Convertible Preferred Stock has the voting power of one share and the holders
of such stock vote together with the Common Stock as a single class. The
Convertible Preferred Stock has a $250.00 per share liquidation preference,
after payment to the holders of the 12% Redeemable Preferred Stock.
WARRANTS
The Company will issue an aggregate of 2,000,000 Warrants. Each Warrant
entitles the holder to purchase one share of Common Stock from the Company at
an exercise price as shall be determined from time to time [but not less than
fair market value of the common stock at the date of grant. The Warrants are
redeemable at the option of the Company after no less than two years from the
date of issuance at a redemption price of $.10 per share, provided the market
price of the Common Stock equals or exceeds 150% of the exercise price for a
period of 15 out of 20 consecutive trading days ending within 30 days of the
date on which the notice of redemption is given. The exercise price will be
adjusted in the event of share splits, share consolidations and certain rights
offerings and share dividends involving Common Stock. The Warrants may be
exercised at any time after issuance until five years after issuance. Warrants
not exercised by that time will expire. The Warrants do not confer upon the
holder any voting rights, preemptive rights or any other rights as a Company
shareholder.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS
AND DELAWARE LAW
Certificate of Incorporation and By-Laws. The Company's Certificate of
Incorporation provides that the Board of Directors may issue preferred stock
with such voting rights, preferences and designations as the Board determines
in its sole discretion without stockholder approval. Further, the Certificate
of Incorporation provides that the Board of Directors shall have the power to
make, adopt, amend or repeal the Bylaws. The Bylaws provide that the Company's
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 25% of the Company's capital stock. These
provisions of the Certificate of Incorporation and By-Laws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. These provisions may enhance the likelihood of continuity and
stability in the policies formulated by the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions may reduce the
vulnerability of the Company to an unsolicited acquisition proposal. The
provisions may also discourage certain tactics that may be used in proxy
fights. However, such provisions could have the effect of discouraging others
from making tender offers for the Company's shares and, as a consequence, they
also may inhibit fluctuations in the market price of the Company's shares that
could result from actual or rumored takeover attempts. Such provisions also may
have the effect of preventing changes in the management of the Company. See
"Risk Factors--Certain Antitakeover Effects."
41
<PAGE> 43
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(a) by persons who are directors and also officers and (b) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of the stockholders, and not by written consent, by the
affirmative vote of at least 66-2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets of
the corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitation of Liability. As permitted by the Delaware General Corporation
Law, the Company's Certificate provides that directors of the Company shall not
be personally liable for monetary damages to the Company for certain breaches
of their fiduciary duty as directors, unless they violated their duty of
loyalty to the Company or its stockholders, acted in bad faith, knowingly or
intentionally violated the law, authorized illegal dividends or redemptions, or
derived an improper personal benefit from their action as directors. This
provision would have no effect on the availability of equitable remedies or
nonmonetary relief, such as an injunction or rescission for breach of the duty
of care. In addition, the provision applies only to claims against a director
arising out of his or her role as a director and not in any other capacity
(such as an officer or employee of the Company). Further, liability of a
director for violations of the federal securities laws will not be limited by
this provision. Directors will, however, no longer be liable for monetary
damages arising from decisions involving violations of the duty of care which
could be deemed grossly negligent.
Indemnification. The Certificate provides that directors and officers of
the Company shall be indemnified by the Company to the fullest extent
authorized by Delaware law, against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of the Company. The
Certificate also authorizes the Company to enter into one or more agreements
with any person which provide for indemnification greater or different from
that provided in the Certificate. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Fidelity Transfer
Company, Salt Lake City, Utah.
42
<PAGE> 44
LEGAL MATTERS
The validity of the shares of Common Stock and Warrants offered hereby
will be passed upon for the Company by Sachnoff & Weaver, Ltd., Chicago,
Illinois.
EXPERTS
The Financial Statements and Schedules of the Company as of December 31,
1995 and 1996, and for each of the years in the three-year period ended
December 31, 1996, have been included herein in reliance upon the reports of
Arthur Andersen LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of such firm as experts in giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement, of which this Prospectus constitutes a part, on Form
S-1 under the Securities Act with respect to the Common Stock and Warrants
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules to the
Registration Statement. For further information with respect to the Company
and the Common Stock and Warrants offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such
statement is qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission. The Registration
Statement, including the exhibits and schedules thereto, is also available at
the Commission's site on the World Wide Web at http:/www.sec.gov.
43
<PAGE> 45
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SECURITY ASSOCIATES INTERNATIONAL, INC.
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1995, 1996 and March 31,
1997 (unaudited) F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995, 1996, and the three months ended March 31, 1996 (unaudited)
and March 31, 1997 (unaudited) F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995, 1996, and the three months ended March 31, 1996
(unaudited) and March 31, 1997 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995, 1996, and the three months ended March 31, 1996 (unaudited)
and March 31, 1997 (unaudited) F-6
Notes to consolidated financial statements F-7
AMJ CENTRAL STATION CORPORATION
Report of Independent Public Accountants F-17
Balance Sheets as of December 31, 1995, and December 19, 1996 F-18
Statements of Operations and Retained Earnings for the year ended
December 31, 1995 and for the period January 1, 1996 to December 19, 1996 F-19
Statements of Cash Flows for the year ended December 31, 1995 and for the
period January 1, 1996 to December 19, 1996 F-20
Notes to financial statements F-21
SECURITY ASSOCIATES COMMAND CENTER II, L.L.C.
Report of Independent Public Accountants F-23
Consolidated Balance Sheet as of September 5, 1996 F-24
Consolidated Statement of Operations and Members' Equity for the period
January 1, 1996 to September 5, 1996 F-25
Consolidated Statement of Cash Flows for the period January 1, 1996 to
September 5, 1996 F-26
Notes to consolidated financial statements F-27
</TABLE>
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Security Associates International, Inc.:
We have audited the accompanying consolidated balance sheets of SECURITY
ASSOCIATES INTERNATIONAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December
31, 1994, 1995 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Associates
International, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
results of its operations and its cash flows for the years ended December 31,
1994, 1995 and 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 11, 1997
F-2
<PAGE> 47
SECURITY ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
ASSETS 1995 1996 1997
------------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 53,818 $ 632,355 $ 714,723
Accounts receivable, net 330,138 1,332,990 1,517,914
Notes receivable from stockholders - 25,180 39,436
Other current assets 83,949 236,872 223,698
---------- ----------- -----------
Total current assets 467,905 2,227,397 2,495,771
---------- ----------- -----------
INVESTMENT IN JOINT VENTURES 85,556 - -
FIXED ASSETS, net 33,589 417,899 472,374
OTHER ASSETS:
Contract rights to monitor security systems, net 5,424,650 6,606,126 9,428,553
Goodwill, net - 6,666,373 7,423,162
Other assets, net 18,354 614,928 581,755
---------- ----------- -----------
Total other assets 5,443,004 13,887,427 17,433,470
---------- ----------- -----------
Total assets $6,030,054 $16,532,723 $20,401,615
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 140,105 $ 615,775 $ 209,496
Note payable for acquisition - 3,721,131 -
Current maturities of long-term notes payable 1,858,992 413,227 569,010
Current maturities of notes payable--related parties 96,748 136,000 -
Accrued expenses 499,748 439,660 728,213
Unearned revenues 543,927 1,409,796 1,653,537
Other 27,024 9,322 -
---------- ----------- -----------
Total current liabilities 3,166,544 6,744,911 3,160,256
NOTES PAYABLE, net of current maturities 4,768,573 8,019,348 11,679,372
NOTES PAYABLE-related parties, net of current maturities 137,994 500,000 4,700,000
---------- ----------- -----------
Total liabilities 8,073,111 15,264,259 19,539,628
---------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock, $10.00 par value; 35,478
shares outstanding on December 31, 1996 and March 31,
1997 - 354,780 354,780
12% redeemable preferred stock, $10.00 par value; 344,165 shares
outstanding on December 31, 1996 and March 31, 1997 - 3,441,650 3,441,650
Common stock, $.001 par value; 50,000,000 shares
authorized; 3,688,087, 3,699,375 and 4,198,875 shares
outstanding on December 31, 1995, 1996 and March 31,
1997, respectively 3,668 3,699 4,199
Additional paid-in capital 2,724,761 3,958,080 4,178,360
Retained deficit (4,771,486) (6,489,745) (7,117,002)
---------- ----------- -----------
Total stockholders' equity (deficit) (2,043,057) 1,268,464 861,987
---------- ----------- -----------
Total liabilities and stockholders' equity (deficit) $6,030,054 $16,532,723 $20,401,615
========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 48
SECURITY ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
FOR THE YEAR ENDED DECEMBER 31 MARCH 31, MARCH 31,
1994 1995 1996 1996 1997
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES: (unaudited) (unaudited)
Monitoring fees $1,117,208 $2,390,513 $ 3,652,892 $ 744,695 $2,170,172
Membership fees and other 279,789 342,740 129,199 50,427 27,922
---------- ---------- ----------- ---------- ----------
Total revenues 1,396,997 2,733,253 3,782,091 795,122 2,198,094
OPERATING EXPENSES:
General, selling and administrative 1,481,175 2,482,180 3,104,496 523,784 1,770,979
Amortization and depreciation 243,957 539,634 1,020,427 217,943 445,161
---------- ---------- ----------- ---------- ----------
Total operating expenses 1,725,132 3,021,814 4,124,923 741,727 2,216,140
---------- ---------- ----------- ---------- ----------
Income (loss) from operations (328,135) (288,561) (342,832) 53,395 (18,046)
INTEREST EXPENSE 250,533 742,659 1,384,239 225,747 364,555
LOSS FROM DISPOSITION OF CONTRACT RIGHTS 16,902 100,700 248,635 36,607 141,406
---------- ---------- ----------- ---------- ----------
Loss before income in equity of joint venture (595,570) (1,131,920) (1,975,706) (208,959) (524,007)
INCOME IN EQUITY OF JOINT VENTURE 71,960 184,642 257,447 81,018 -
---------- ---------- ----------- ---------- ----------
Loss before income taxes (523,610) (947,278) (1,718,259) (127,941) (524,007)
PROVISION FOR INCOME TAXES - - - - -
---------- ---------- ----------- ---------- ----------
Net loss before minority interest (523,610) (947,278) (1,718,259) (127,941) (524,007)
MINORITY INTEREST 66,385 - - - -
---------- ---------- ----------- ---------- ----------
Net loss (457,225) (947,278) (1,718,259) (127,941) (524,007)
DIVIDENDS ACCRUED ON PREFERRED STOCK - - - - 103,250
---------- ---------- ----------- ---------- ----------
Net loss available to common stockholders $ (457,225) $ (947,278) $(1,718,259) $ (127,941) $ (627,257)
========== ========== =========== ========== ==========
NET LOSS PER SHARE $ (.13) $ (.26) $ (.47) $ (.03) $ (.15)
========== ========== =========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 3,662,187 3,665,642 3,669,343 3,688,087 4,198,875
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE> 49
SECURITY ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE 12% REDEEMABLE ADDITIONAL
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------- -------- -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 3,662,187 $3,662 - $ - - $ - $2,688,042
Net loss - - - - - - -
--------- ------- ------ -------- ------- ---------- ----------
BALANCE, December 31, 1994 3,662,187 3,662 - - - - 2,688,042
Issuance of common stock 5,900 6 - - - - 1,469
Capital contribution - - - - - - 35,250
Net loss - - - - - - -
--------- ------- ------ -------- ------- ---------- ----------
BALANCE, December 31, 1995 3,668,087 3,668 - - - - 2,724,761
Issuance of preferred stock - - 35,478 354,780 344,165 3,441,650 1,216,160
Issuance of common stock for
services 9,200 9 - - - - 4,591
Issuance of common stock 22,088 22 - - - - 12,568
Net loss - - - - - - -
--------- ------- ------ -------- ------- ---------- ----------
BALANCE, December 31, 1996 3,699,375 3,699 35,478 354,780 344,165 3,441,650 3,958,080
Issuance of common stock
(unaudited) 499,500 500 - - - - 220,280
Accrued dividends (unaudited) - - - - - - -
Net loss (unaudited) - - - - - - -
--------- ------- ------ -------- ------- ---------- ----------
BALANCE,March 31,1997(Unaudited) 4,198,875 $4,199 35,478 $354,780 344,165 $3,441,650 $4,178,360
========= ======= ====== ======== ======= ========== ==========
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT)
------------ -----------------
<S> <C> <C>
BALANCE, December 31, 1993 $(3,366,983) $ (675,279)
Net loss (457,225) (457,225)
------------ -----------------
BALANCE, December 31, 1994 (3,824,208) (1,132,504)
Issuance of common stock - 1,475
Capital contribution - 35,250
Net loss (947,278) (947,278)
------------ -----------------
BALANCE, December 31, 1995 (4,771,486) (2,043,057)
Issuance of preferred stock - 5,012,590
Issuance of common stock for
services - 4,600
Issuance of common stock - 12,590
Net loss (1,718,259) (1,718,259)
------------ -----------------
BALANCE, December 31, 1996 (6,489,745) 1,268,464
Issuance of common stock
(unaudited) - 220,780
Accrued dividends (unaudited) (103,250) (103,250)
Net loss (unaudited) (524,007) (524,007)
------------ -----------------
BALANCE,March 31,1997(Unaudited) $(7,117,002) $ 861,987
============ =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE> 50
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31 MARCH 31,
----------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) (unaudited)
Net loss $(457,225) $ (947,278) $(1,718,259) $ (127,941) $ (524,007)
Adjustments to reconcile net loss to net cash
used for operating activities-
Income in equity of joint venture (71,960) (184,642) (257,447) (81,018) -
Issuance of common stock for services - - 4,600 -
Amortization and depreciation 243,957 539,634 1,020,427 217,943 445,161
Loss on disposal of contract rights 248,635 36,607 141,406
Minority interest (66,385) - - -
Changes in assets and liabilities-
Accounts Receivables, net (28,552) (195,531) 136,036 (298,304) 58,249
Note receivables (125,000) 125,000 - - (39,436)
Prepaid monitoring expense and other current
assets (4,881) (73,504) (126,992) 19,724 13,174
Other long-term assets (3,523) (15,160) - - -
Accounts payable (4,276) 77,776 41,334 46,045 (406,279)
Bank overdraft 7,580 (35,568) - - -
Accrued expenses 74,975 252,430 (172,208) 685,145 55,167
Unearned revenue (79,512) 408,948 425,148 (255,443) 243,741
Other current liabilities (4,139) (116,760) (22,902) (16,897) (9,322)
----------- ---------- ----------- ---------- ----------
Net cash provided by (used for) operating
activities (518,941) (164,655) (421,628) 225,861 (22,146)
----------- ---------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contract rights to monitor security
systems, net (1,289,036) (3,639,934) (1,855,953) (694,594) (2,840,971)
Purchase of fixed assets - (37,893) (54,052) - (42,829)
Cash paid for acquisition, net - - (1,794,021) - -
----------- ---------- ----------- ---------- ----------
Net cash used for investing activities (1,289,036) (3,677,827) (3,704,026) (694,594) (2,883,800)
----------- ---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital - 36,725 5,000,000 - 220,780
Deferred financing costs - - (596,879) - -
Proceeds from notes receivable from stockholders 33,085 10,358 - - 25,180
Repayment of notes payable to related parties (32,897) (54,349) (98,742) - (136,000)
Proceeds from notes payable to related parties - - 500,000 - 4,200,000
Repayment of notes payable (98,705) (774,720) (7,404,188) (246,920) (4,852,376)
Proceeds from notes payable 1,438,050 4,592,090 7,304,000 682,074 3,530,730
----------- ---------- ----------- ---------- ----------
Net cash provided by financing activities....... 1,339,533 3,810,104 4,704,191 435,154 2,988,314
----------- ---------- ----------- ---------- ----------
INCREASE (DECREASE) IN CASH (468,444) (32,378) 578,537 (33,579) 82,368
CASH, beginning of year 554,640 86,196 53,818 53,818 632,355
----------- ---------- ----------- ---------- ----------
CASH, end of year $ 86,196 $ 53,818 $ 632,355 $ 20,239 $ 714,723
=========== ========== =========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE> 51
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994, 1995 AND 1996
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE
UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
COMPANY BACKGROUND
Security Associates International, Inc. and Subsidiaries (the "Company") is
composed of Security Associates International, Inc. ("SAI") and its
subsidiaries, RMR Management Corp. ("RMR"), MCAP Investors, Inc., a Delaware
Corporation ("MCAP"), Winnetka Investors, Inc., a Delaware corporation
("Winnetka"), Security Associates Command Center II, LLC, a Michigan Limited
Liability Company ("SACC"), Monitor Service Group, LLC, an Illinois Limited
Liability Company ("MSG"), All-Security Monitoring Services, LLC, an
Illinois Limited Liability Company ("All-Security") and AMJ Central Station
Corporation, a Delaware Corporation ("AMJ").
The Company was organized for the primary purpose of acquiring service
contracts for remote electronic monitoring of security systems in businesses
and homes throughout the United States and providing monitoring services to
independent alarm dealers on a subcontract basis. Revenues are composed
primarily of fees for monitoring services and dealer/membership support
services.
2. SUMMARY OF MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements consolidate the accounts of Security Associates
International Inc., and its wholly owned subsidiaries. All intercompany
items and transactions have been eliminated.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
THREE MONTHS ENDED DATA (UNAUDITED)
In the opinion of management, the unaudited financial statements for the
three-month periods ended March 31, 1996 and 1997, are presented on a basis
consistent with the audited financial statements and contain all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. The results of operations for interim periods are not
necessarily indicative of results of operations for the full year.
REVENUE RECOGNITION
Revenue is recognized for each source as follows:
Monitoring fee revenue is recognized as earned over the related contract
period. Services may be billed in advance on a monthly, quarterly or
annual basis and any amounts not earned are included as unearned
revenues.
F-7
<PAGE> 52
The Company recognizes revenue for membership fees and other over the
term of the membership period or as products are delivered.
ACCOUNTS RECEIVABLE
The Company grants unsecured trade credit to customers in the normal course
of business. Receivables in the accompanying consolidated balance sheets
are net of reserves for doubtful accounts of approximately $29,000, $206,000
and $165,000 as of December 31, 1995, 1996 and March 31, 1997, respectively.
CONTRACT RIGHTS TO MONITOR SECURITY SYSTEMS
The Company actively pursues the acquisition of contract rights to monitor
security systems. These contract rights are recorded at the Company's
purchase price. The Company has arrangements with a number of dealers from
which it has purchased contract rights to receive replacement contract
rights of canceled contracts for a period ranging up to three years. These
arrangements are secured, in some cases, by liens on dealers' unsold
accounts. Accounts which are replaced are carried at the book value of the
replaced account. The Company's attrition rate for accounts not replaced is
approximately 6% (4% net of replaced accounts from dealers). The net
attrition rate is affected by the age of the portfolio and may increase as
the guarantee period on recent account purchases expires. Amortization is
calculated on a straight-line basis over an estimated useful life of 10
years. When an account is cancelled, the Company will record a loss from
disposition of contract rights for any unamortized portion. Contract rights
to monitor security systems in the accompanying consolidated balance sheets
are net of accumulated amortization of approximately $866,000, $1,350,000
and $1,600,000 as of December 31, 1995, 1996 and March 31, 1997,
respectively. The Company's continued growth and profitability is
dependent, in part, upon the availability of monitored service accounts for
purchase at reasonable rates.
GOODWILL
Goodwill is recorded as the cost of purchased businesses in excess of the
fair value of the net assets acquired and is amortized on a straight-line
basis over a period of fifteen years. The Company regularly reviews the
performance of acquired businesses to evaluate the realizability of the
underlying goodwill. Goodwill in the accompanying consolidated balance
sheets is net of accumulated amortization of approximately $201,000 and
$294,000 as of December 31, 1996, and March 31, 1997, respectively.
OTHER LONG-TERM ASSETS
Other long-term assets consist primarily of deferred financing costs. The
deferred financing costs are being amortized over 5 years, the life of the
related loan. Other long-term assets in the accompanying consolidated
balance sheets are net of accumulated amortization of approximately $2,000,
$7,000 and $40,000 as of December 31, 1995, 1996 and March 31, 1997,
respectively.
F-8
<PAGE> 53
FIXED ASSETS
Fixed Assets are stated at cost. Depreciation is calculated using
accelerated methods for both financial statement and income tax purposes.
The depreciable lives by major class of assets are as follows:
Equipment 3-7years
Office furniture and fixtures 5-7years
Automobiles/trucks 5 years
Leasehold improvements 15 years
The following is a summary of fixed assets by major class of assets:
<TABLE>
<CAPTION>
DECEMBER 31
----------------- MARCH 31,
1995 1996 1997
-------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Equipment $243,839 $744,277 $778,632
Office furniture and fixtures 79,334 54,496 92,969
Automobiles/trucks - 20,188 20,188
Leasehold improvements - 53,834 53,835
-------- --------- -----------
323,173 872,795 945,624
Less accumulated depreciation 289,584 454,896 473,250
-------- --------- -----------
Fixed assets, net $ 33,589 $417,899 472,374
======== ========= ===========
</TABLE>
RENT EXPENSE
The Company leases its office building and the facilities from which their
central stations operate for various periods and amounts through the year
2000. Rent expense was approximately $35,000, $36,000, $206,000 for the
years ended December 31, 1994, 1995 and 1996, respectively, and
approximately $88,000 for the three months ended March 31, 1997.
Future minimum lease payments, as of December 31, 1996, are as follows:
1997 $330,995
1998 327,885
1999 304,331
2000 224,272
========
F-9
<PAGE> 54
ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------- MARCH 31,
1995 1996 1997
-------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Accrued interest $224,355 $114,833 331,530
Accrued service fees 124,580 - -
Accrued payroll 86,721 181,244 154,241
Other 64,092 143,583 242,442
-------- -------- -------
$499,748 $439,660 728,213
======== ======== =======
</TABLE>
UNEARNED REVENUES
Unearned revenues consist primarily of prebilled monitoring fees to
customers and dealers and prebilled memberships to dealers. As of December
31, 1995, 1996, and March 31, 1997, unearned revenues related to monitoring
fees were approximately $499,000, $1,380,000 and $1,638,000, respectively,
and unearned revenues related to memberships and other were approximately
$45,000, $30,000 and $16,000, respectively.
PREFERRED STOCK
In conjunction with the sale of 49% interest of the Company, $5 million of
common stock and debt were converted to 379,422 shares of preferred stock on
December 31, 1996. Additionally, on December 31, 1996 this stockholder
exercised options for purchase of 221 shares of preferred stock at $57 per
share, in the form of a stockholder note receivable which was paid after
year-end.
Of the 379,643 shares of preferred stock issued and outstanding as of
December 31, 1996, 344,165 shares are 12% Redeemable Preferred Stock, $10
par and liquidation value with dividends deferred. As of March 31, 1997,
cumulative dividends deferred was $103,250. In the event that the Company
raises $10,000,000 in new equity, all dividends that have not been paid must
be paid. If the Company raises $15,000,000 in new equity, the Company will
have the right to redeem the 12% Redeemable Preferred Stock for its
liquidation value plus unpaid dividends. If the Company does not redeem the
12% Redeemable Preferred Stock at that time, the dividend rate will increase
to 18% and the stockholder will have the right to convert this preferred
stock into common stock at a conversion price equal to 80% of the market
price of the common stock at the date of conversion. The remaining 35,478
shares of preferred stock issued and outstanding are nondividend Convertible
Preferred Stock with a $250 liquidation preference, each share convertible
into 100 shares of common stock of the Company.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). As of December 31, 1995, 1996 and March 31, 1997, the
Company had net operating loss carryforwards of approximately $3.2 million,
$5.9 million and $6.5 million, respectively. The tax net operating losses
begin to expire in 2005. As of December 31, 1995, 1996 and March 31, 1997,
no tax benefit has been recognized for these loss carryforwards.
NET LOSS PER SHARE
Net loss per share is computed based upon the weighted average number of
common shares outstanding during the periods presented. Stock options and
Convertible Preferred Stock have not been included in the calculation of net
loss per share as their effect would be antidilutive.
F-10
<PAGE> 55
STATEMENT OF CASH FLOWS
The Company considers investments purchased with an original maturity of
three months or less to be cash equivalents. Supplemental cash flow
information includes the following:
<TABLE>
DECEMBER 31 MARCH 31,
1994 1995 1996 1997
--------- -------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Supplemental schedule of cash flow
information-
Cash paid during the year for interest $170,215 $618,119 $1,493,761 $ 147,858
Supplemental schedule of noncash activities-
Issuance of stock for services - - 4,600 -
Issuance of stock for note receivable - - 25,180 -
Issuance of note payable for acquisition - - 3,721,131 1,053,000
Holdback notes reduced due to account
attrition 74,000 182,348 245,000 -
Purchase of contract rights with notes 353,517 909,581 636,900 363,322
======== ======== ========== ==========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's long-term debt, which approximates the
carrying value, is estimated based on the current rates offered to the
Company for debt of the same remaining maturities. The carrying value of
current assets and current liabilities approximates fair value due to the
short-term maturities of these items.
3. ACQUISITIONS
On September 5, 1996, an outside investor purchased a 49% interest in the
Company, by receiving 3,525,682 shares of common stock and $3,441,649 of
debt, with an interest rate of 6% for a total contribution of $5 million.
This stock and debt was converted to redeemable and convertible preferred
stock on December 31, 1996, and a new credit facility of $5 million was
provided to the Company. The proceeds from this transaction were used by
Security Associates International, Inc., either directly or through its
subsidiaries, to purchase the equity interests in five companies. The terms
of the transactions were as follows:
MCAP--The Company purchased 100% of the equity of MCAP for $261,020 in
cash, the assumption of liabilities of $2,600 and options to purchase
310,000 shares of the Company's common stock at $0.442 per share (which
approximated fair value). The Company received assets with a fair value
of $1,309 and recorded goodwill of $262,311. As a result of this
transaction, the Company obtained indirect ownership of the 25.2% of MSG
owned by MCAP.
WINNETKA--The Company purchased 100% of the equity of Winnetka for
$159,980 in cash, the assumption of liabilities of $2,600 and options to
purchase 190,000 shares of the Company's common stock at $0.442 per
share (which approximated fair value). The Company received assets with
a fair value of $1,344 and recorded goodwill of $161,236. As a result
of this transaction, the Company obtained indirect ownership of the
14.8% of MSG owned by Winnetka.
Pursuant to the MCAP and Winnetka transactions the Company obtained
indirect ownership of 40% of MSG. It directly owned the remaining 60%
of MSG prior to the acquisitions of MCAP and Winnetka.
SACC AND ALL-SECURITY--On October 23, 1990, SAI entered into a joint
venture agreement with Johnson Electric Company, d.b.a. Midstate
Security ("MS"), to form Security Associates Command Center. In July,
1995, SAI transferred its interest in the joint venture to MSG. On
August 23, 1995, MSG and MS contributed all their partnership interests
in Security Associates Command Center to SACC. SACC was
F-11
<PAGE> 56
owned 50% by MSG and 50% by MS, who maintained controlling interests.
MSG accounted for its investment in SACC under the equity method.
On September 5, 1996, the Company purchased the remaining 50% of the
membership interests in SACC. The consideration for the purchase was
$1,500,000 in cash and the assumption of $732,874 in SACC bank debt.
The Company received assets with a fair value of $1,075,877 and recorded
additional goodwill of $1,156,997.
As a result of these transactions, the Company now directly owns 50% of
SACC and indirectly owns the remaining 50% through its direct and
indirect ownership of MSG (see MCAP and Winnetka above). The Company
also now owns 100% of All-Security either directly or indirectly through
its ownership of SACC.
AMJ--On December 19, 1996, the Company purchased the assets of AMJ
Central Station Corporation, a Florida corporation, which were
transferred to a newly formed and wholly owned subsidiary, AMJ Central
Station Corporation, Inc. The purchase price was $3,745,684 in cash and
the assumption of certain liabilities totaling $465,461. The Company
received assets with a fair value of $448,421 and recorded goodwill of
$3,762,724.
4. LONG-TERM NOTES PAYABLE
On September 5, 1996, subsequently amended December 31, 1996, the Company
entered into a Subordinated Loan Agreement with its major stockholder
allowing for borrowings of up to $5,000,000. As of December 31, 1996, and
March 31, 1997, the Company had borrowings of $500,000 and $4,700,000,
respectively, outstanding under this loan agreement. Interest is charged on
outstanding balances at 12% per year. Accrued interest thereon is payable
semiannually, and all outstanding borrowings are payable at the earlier of
January 2, 2003, or when the Company raises $15,000,000 in new equity.
On December 31, 1996, the Company entered into a Loan Agreement with Finova
Capital Corporation under which the Company borrowed $7,304,000 on the
closing date. Proceeds were used to pay existing debt, pay costs of the
transaction and for working capital. Under the agreement, $7,696,000
remains available for advances through December 31, 1997, with proceeds to
be used for account acquisitions, acquisition of third-party monitoring
stations and transaction costs. The loan is secured by virtually all the
assets of the Company. Interest is charged on outstanding advances at
Citicorp's Base rate plus 2% per year (10.25% at December 31, 1996) and is
payable monthly. A fee of 1/2% is payable on the unused balance of the
facility.
The principal balance is repayable as follows:
3.5% per quarter, beginning January, 1998
4.0% per quarter, beginning January, 1999
4.5% per quarter, beginning January, 2000
5.0% per quarter, beginning January, 2001
Remaining balance due last business day of 2001
F-12
<PAGE> 57
Long-term debt consists of the following notes payable:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996 1997
----------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Note payable to bank, bearing interest at 10.25% $ - $7,304,000 $10,834,730
Notes payable to alarm dealers, 6%-12% interest 1,033,492 1,098,819 1,392,838
Notes payable to individuals, 12% interest,
secured by contract rights to monitor security
systems, payable monthly through December, 1996 432,826 - -
Notes payable to unrelated investors, 6%-8%
interest, payable monthly, secured by all
assets of MSG, payable in 1998 800,000 - -
Notes payable to an individual, 12% interest,
payable in quarterly installments through July,
1997 267,000 - -
Notes payable to individuals, 14% interest,
payable semiannually through July, 1997,
secured by a junior interest in the Company's
assets, convertible to 85,000 shares at $2 per
share 170,000 - -
Notes payable to outside parties, 18%-20%
interest, payable monthly through 2000 3,819,935 - -
Other 104,312 29,756 20,814
----------- ---------- -----------
6,627,565 8,432,575 12,248,382
Current maturities (1,858,992) (413,227) (569,010)
----------- ---------- -----------
Total long-term debt $ 4,768,573 $8,019,348 $11,679,372
=========== ========== ===========
Notes payable to a related party, 8.5%
interest, $2,000 of principal paid monthly
until paid, or 1996 $ 9,065 $ - $ -
Note payable to a related party, at no
interest, $1,500 of principal paid monthly
until paid, or 1997 12,000 - -
Notes payable to related parties, 12% interest,
secured by contract rights to monitor security
systems, payable through December, 1996 71,177 - -
Note payable to a related party at no interest,
$500 of principal paid monthly until March,
1997 7,500 1,000 -
Commitment to related parties, paid in 1997 135,000 135,000 -
Note payable to stockholder, bearing interest
at 12%, payable in full with accrued interest
in January, 2003 - 500,000 4,700,000
----------- ---------- -----------
234,742 636,000 4,700,000
Current maturities--related parties (96,748) (136,000) -
----------- ---------- -----------
Total long-term debt-related parties $ 137,994 $ 500,000 $ 4,700,000
=========== ========== ===========
</TABLE>
Future maturities of long-term debt, as of December 31, 1996 are as follows:
1997 $ 549,227
1998 2,058,293
1999 1,348,255
2000 1,314,720
2001 3,798,080
----------
$9,068,575
==========
F-13
<PAGE> 58
5. RELATED-PARTY TRANSACTIONS
On December 31, 1993, SAI issued 254,717 shares of its common stock to SAI
Partners, Inc.("SPI") in satisfaction of the total commission expense owed
by SAI. In December, 1993, SAI terminated this commission agreement with
SPI and undertook the following obligations: (a) to pay SPI $45,000 on each
of January 1, 1997, 1998 and 1999 ($135,000 paid in 1997 pursuant to an
amended agreement); (b) to pay to SPI $50,168 and $49,500 in notes with
interest ranging from prime to prime plus 2%; and (c) to issue warrants to
purchase 200,000 shares of SAI's common stock at $1.00 per share, said
warrants exercisable through December 31, 1999. These warrants are
redeemable by SAI after January 1, 1996, so long as the average trade price
of SAI's stock exceeds $3.00 for the previous calendar month. As of March
31, 1997, the Company has not elected to redeem these warrants.
SAI and MSG have entered into a service agreement whereby SAI will solicit
and investigate monitoring service accounts exclusively on behalf of MSG for
purchase by MSG. In return SAI will receive a monthly account service fee
not to exceed $0.75 for each account owned by MSG plus a service fee
calculated pursuant to the service agreement, as defined. In accordance
with this agreement, service fees paid by MSG to SAI were $480,000,
$1,054,000, and $1,138,000, for the years ended December 31, 1994 and 1995,
and for the period January 1, 1996, to September 5, 1996, respectively.
This agreement was terminated effective September 5, 1996.
In accordance with the joint venture agreement, SACC provides monitoring
services to accounts owned by SAI and MSG. Pursuant to the terms of the
agreements, SAI and MSG incurred monitoring service expenses of $252,000,
$550,000, and $621,954 for the years ended December 31, 1994 and 1995, and
for the period January 1, 1996, to September 5, 1996, respectively. SAI had
payables outstanding to SACC of $0 and MSG had payables outstanding to SACC
of $184,000 as of December 31, 1996. On September 5, 1996, the Company
purchased the remaining 50% interest in SACC from MS.
As of December 31, 1995, 1996 and March 31, 1997, the Company has
approximately $235,000, $636,000 and $4,700,000, respectively, of debt
outstanding to related parties.
6. STOCK OPTIONS AND WARRANTS
At the discretion of management and approval by the Board of Directors, the
Company may grant options and warrants to purchase shares of the Company's
common stock and convertible preferred stock to certain individuals. The
exercise price may not be less than fair market value of the common stock at
the date of grant. Vesting and expiration periods are determined by
management and the Board of Directors at the time of grant.
The Company applies APB Opinion No. 25 in accounting for options and
warrants. Accordingly, no compensation cost has been recognized for the
stock options and warrants granted. Had compensation costs for the stock
options and warrants issued been determined based on the fair value at their
grant date consistent with the method of FASB Statement No. 123 ("SFAS
123"), the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31, MARCH 31,
1995 1996 1996 1997
------------ ---------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss-
As reported $ (947,278) $(1,718,259) $(127,941) $(627,257)
Pro forma (1,047,653) (1,796,189) (147,441) (646,757)
Primary earnings per share-
As reported $ (.26) $ (.47) $ (.03) $ (.15)
Pro forma $ (.28) $ (.49) $ (.04) $ (.15)
=========== ============ ========== ==========
</TABLE>
F-14
<PAGE> 59
Because the method of accounting prescribed in SFAS 123 has not been applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions;
risk-free interest rates between 5.17% and 6.30%; zero dividend yield;
expected lives through the expiration dates; and volatility between 39.11%
and 144.19%.
The following summarizes the stock options and warrants for common stock as
of December 31, 1994, 1995, 1996 and March 31, 1997 (unaudited), and the
changes during the years and the three months ending on those dates,
respectively:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------------------- ------------------ ------------------ ----------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- ---------- -------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of year 1,208,673 $ .64 1,291,173 $ .69 1,463,673 $.75 1,833,155 $.74
Granted 82,500 1.45 172,500 1.14 611,000 .65 - -
Exercised - - 22,088 .57 499,500 .44
Canceled - - 219,430 .57 - -
--------- --------- --------- ---------
End of year 1,291,173 $ .69 1,463,673 $ .75 1,833,155 $.74 1,333,655 $.85
========= ========= ========= =========
Exercisable as of
end of year/period 1,216,173 1,388,673 1,758,155 1,258,655
========= ========= ========= =========
</TABLE>
The future expiration of the common stock options as of December 31, 1996,
are as follows:
1997 500,000
1998 85,000
1999 320,000
2000 928,155
=======
F-15
<PAGE> 60
The Company has granted stock options and warrants to purchase shares of
convertible preferred stock which mirror the Common Stock options and
warrants listed above and are only exercisable upon exercise of the
respective Common Stock options and warrants. Additionally, the Company
granted warrants for 15,000 shares of convertible preferred stock which are
fully exercisable and expire in the year 2003.
The following summarizes the stock options and warrants for convertible
preferred stock as of December 31, 1996, and March 31, 1997 (unaudited) and
the changes during the year and the three months then ended:
<TABLE>
<CAPTION>
1996 1997
----------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Beginning of year - $ - 33,332 $153.65
Granted 33,553 153.01 - -
Exercised 221 57.00 - -
Canceled - - - -
------- -------- ----------- -----------
End of year/period 33,332 $153.65 33,332 $153.65
======= ======== =========== ===========
</TABLE>
7. SUBSEQUENT EVENTS
In February 1997, the Company acquired a monitoring station for $1,053,000.
Total net assets of the acquired monitoring station were approximately
$200,000.
In April 1997, the Company adopted an executive deferred compensation plan.
Under this plan, awards of the Company's common stock may be made to plan
participants based upon performance against the Company's goals and
objectives and approval by the Board of Directors. Shares will vest ratably
over a five-year period.
In April 1997, the Company also adopted a 401(k) and profit sharing plan.
Effective June 1, 1997, employees, meeting certain criteria, may participate
by making contributions to the plan with the Company providing a matching
contribution of up to 25% of the first 4% of each employee's compensation
that is contributed by such employee.
F-16
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AMJ Central Station Corporation:
We have audited the accompanying balance sheets of AMJ CENTRAL STATION
CORPORATION as of December 31, 1995, and December 19, 1996, and the related
statements of operations and retained earnings and cash flows for the year
ended December 31, 1995 and for the period January 1, 1996, to December 19,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMJ Central Station
Corporation as of December 31, 1995, and December 19, 1996, and the results of
its operations and its cash flows for the year ended December 31, 1995, and the
period January 1, 1996, to December 19, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 2, 1997
F-17
<PAGE> 62
AMJ CENTRAL STATION CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 19,
ASSETS 1995 1996
---------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,995 $ 1,426
Accounts receivable, net 583,505 521,788
Notes receivable - shareholders 20,481 15,648
Prepaid expenses 9,619 7,513
--------- --------
Total current assets 615,600 546,375
FIXED ASSETS, NET 159,735 146,051
--------- --------
Total assets $775,335 $692,426
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Cash overdraft $ 6,353 $ 30,364
Line of credit 74,839 75,489
Accounts payable 285,427 133,367
Accrued expenses 56,763 55,224
Current maturities of leases payable 15,361 15,361
Unearned revenue 231,901 302,456
--------- --------
Total current liabilities 670,644 612,261
LEASES PAYABLE, net of current maturities 44,128 30,048
--------- --------
Total liabilities 714,772 642,309
STOCKHOLDER'S EQUITY:
Common stock, 1,000 shares authorized,
500 shares issued and outstanding, $1.00
par value 500 500
Additional paid-in capital 500 500
Retained earnings 59,563 49,117
--------- --------
Total stockholder's equity 60,563 50,117
--------- --------
Total liabilities and stockholder's equity $775,335 $692,426
========= ========
</TABLE>
The notes to financial statements are an integral part of these balance sheets.
F-18
<PAGE> 63
AMJ CENTRAL STATION CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED JANUARY 1, TO
DECEMBER 31, DECEMBER 19,
1995 1996
----------- -----------
<S> <C> <C>
REVENUES FROM MONITORING FEES $2,293,305 $2,103,857
OPERATING EXPENSES:
General, selling and administrative 2,393,119 1,934,573
Amortization and depreciation 23,767 22,776
----------- -----------
Total operating expenses 2,416,886 1,957,349
Income (loss) from operations (123,581) 146,508
INTEREST EXPENSE 18,496 19,001
----------- -----------
Net income (loss) (142,077) 127,507
RETAINED EARNINGS, BEGINNING OF PERIOD 201,640 59,563
DISTRIBUTIONS TO STOCKHOLDER - (137,953)
----------- -----------
RETAINED EARNINGS, END OF PERIOD $ 59,563 $ 49,117
=========== ===========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-19
<PAGE> 64
AMJ CENTRAL STATION CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR PERIOD
ENDED JANUARY 1, TO
DECEMBER 31, DECEMBER 19,
1995 1996
-------------------- -------------------
<S> <C> <C>
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES:
Net income (loss) $(142,077) $ 127,507
Adjustments to reconcile net income (loss) to cash
provided by operating activities-
Depreciation and amortization 23,767 22,776
Changes in current assets and liabilities-
Accounts receivable, net (45,727) 61,717
Prepaid expenses (1,505) 2,106
Cash overdraft (44,603) 24,011
Accounts payable 73,386 (152,060)
Accrued expenses 51,930 (1,539)
Unearned revenue 24,656 70,555
----------- --------
Net cash provided by (used for) operating activities (60,173) 155,073
----------- --------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES:
Purchases of fixed assets (2,517) (9,092)
----------- --------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES:
Line of credit, net change 74,839 650
Proceeds (repayments) from notes payable - shareholder (293) 4,833
Repayments of debt (15,061) (14,080)
Distributions to stockholder - (137,953)
----------- --------
Cash provided by (used for ) financing activities 59,485 (146,550)
----------- --------
DECREASE IN CASH (3,205) (569)
CASH, beginning of period 5,200 1,995
----------- --------
CASH, end of period $ 1,995 $ 1,426
=========== =========
Cash paid for interest $ 18,496 $ 19,001
=========== =========
</TABLE>
The notes to financial statements are an integral part of these statements.
F-20
<PAGE> 65
AMJ CENTRAL STATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND DECEMBER 19, 1996
1. DESCRIPTION OF THE BUSINESS
COMPANY BACKGROUND
AMJ Central Station Corporation (the "Company") (a Florida Company) owns
and operates a central monitoring station in Pompano Beach, Florida to
provide security monitoring for security dealers throughout the continental
United States.
2. SUMMARY OF MAJOR ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Monitoring fee revenue is recognized as earned over the related contract
period. Services may be billed in advance on a monthly, quarterly, or
annual basis and any amounts not earned are included as unearned revenue.
CASH
For purposes of the statement of cash flows, cash includes bank deposits
and petty cash funds of the Company.
ACCOUNTS RECEIVABLE
The Company grants unsecured trade credit to customers in the normal course
of business. Receivables in the accompanying balance sheets are net of
reserves for doubtful accounts of approximately $80,000.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is calculated using
accelerated methods for both financial statement and income tax purposes.
The depreciable lives by major class of assets are as follows:
Equipment 3-7years
Furniture and fixtures 5-7years
Leasehold improvements 15 years
F-21
<PAGE> 66
Fixed assets at December 31, 1995, and December 19, 1996, consists of the
following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Equipment $223,772 $232,864
Furniture and Fixtures 50,857 50,857
Leasehold Improvements 20,020 20,020
-------- --------
294,649 303,741
Less - accumulated depreciation 134,914 157,690
-------- --------
Fixed assets, net $159,735 $146,051
======== ========
</TABLE>
LEASES
The Company operates primarily in leased facilities. Effective December 1,
1996 the Company entered into a new lease agreement through July, 2000 for
$10,000 a month. Total rent expense related to these facilities for the
year ended December 31, 1995 and the period January 1, 1996, to December
19, 1996, was approximately $108,000 and $109,000, respectively.
Additionally, the Company leases certain equipment used in their
operations. Total lease expense under these leases was approximately
$59,000 for the period January 1, 1996, to December 19, 1996, and $32,000
for the year ended December 31, 1995.
Future minimum lease payments at December 19, 1996 is as follows:
For the year ended December 19 -
1997 $120,000
1998 120,000
1999 120,000
2000 70,000
========
INCOME TAXES
The Company elected to have its income taxed with that of its shareholders
for federal income tax purposes (an S Corporation election). Consequently,
there are no federal income taxes payable by the Company.
3. RELATED-PARTY TRANSACTIONS
The Company had notes receivable from a shareholder at December 31, 1995
and December 19, 1996. The notes are due on demand and are unsecured.
4. LINE OF CREDIT
The Company has an unsecured line of credit with a bank bearing interest at
10.25%. Subsequent to December 19, 1996 this line was paid in full.
F-22
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Security Associates Command Center II, L.L.C.:
We have audited the accompanying consolidated balance sheet of SECURITY
ASSOCIATES COMMAND CENTER II, L.L.C., as of September 5, 1996, and the related
consolidated statements of operations and members' equity and cash flows for
the period January 1, 1996 to September 5, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Associates Command
Center II, L.L.C. as of September 5, 1996, and the results of its operations
and its cash flows for the period January 1, 1996 to September 5, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 2, 1997
F-23
<PAGE> 68
SECURITY ASSOCIATES COMMAND CENTER II, L.L.C.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
ASSETS SEPTEMBER 5, 1996
- ------ -----------------
<S> <C>
CURRENT ASSETS:
Cash $ 155,807
Accounts receivable, net 916,019
Prepaid expenses 22,945
----------
Total current assets 1,094,771
----------
FIXED ASSETS, net 163,462
OTHER ASSETS, NET 1,462,789
----------
Total assets $2,721,022
==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 87,760
Advance billings 434,121
Current maturities of long-term debt 1,489,724
Notes payable - related party 16,162
----------
Total current liabilities 2,027,767
LONG-TERM DEBT, net of current maturities 7,413
MINORITY INTEREST 2,377
----------
Total liabilities 2,037,557
----------
MEMBERS' EQUITY: 683,465
----------
Total liabilities and members' equity $2,721,022
==========
</TABLE>
The notes to financial statements are an integral part of this balance sheet.
F-24
<PAGE> 69
SECURITY ASSOCIATES COMMAND CENTER II, L.L.C.
CONSOLIDATED STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
January 1, 1996 to
September 5, 1996
--------------------
<S> <C>
REVENUES FROM MONITORING FEES $2,346,077
OPERATING EXPENSES:
General, selling and administrative 1,668,487
Amortization and depreciation 101,316
----------
Total operating expenses 1,769,803
----------
Income from operations 576,274
INTEREST INCOME 43,477
INTEREST EXPENSE (104,857)
----------
Income before minority interest 514,894
----------
MINORITY INTEREST 2,538
----------
Net Income 512,356
MEMBERS EQUITY, BEGINNING OF PERIOD 171,109
DISTRIBUTIONS -
----------
MEMBERS EQUITY, END OF PERIOD $ 683,465
==========
</TABLE>
The notes to financial statements are an integral part of this statement.
F-25
<PAGE> 70
SECURITY ASSOCIATES COMMAND CENTER II, L.L.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
January 1, 1996 to
CASH FLOWS FROM OPERATING ACTIVITIES: September 5, 1996
------------------
<S> <C>
Net income $ 512,356
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 101,316
Minority interest 2,538
Changes in current assets and liabilities-
Accounts receivable, net (237,304)
Prepaid expenses (5,191)
Other assets, net 904
Accounts payable and accrued expenses (73,880)
Advance billings (231,851)
-----------
Cash provided by operating activities 68,888
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (43,391)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note receivable from related party 190,288
Repayment of note payable to related party (366,408)
Proceeds from note payable to related party 16,162
Repayment of debt (486,022)
Proceeds from debt 625,000
-----------
Total cash used in financing activities (20,980)
-----------
INCREASE IN CASH 4,517
CASH, beginning of period 151,290
-----------
CASH, end of period $ 155,807
===========
</TABLE>
The notes to the financial statements are an integral part of this statement.
F-26
<PAGE> 71
SECURITY ASSOCIATES COMMAND CENTER II, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 5, 1996
1. DESCRIPTION OF THE BUSINESS
COMPANY BACKGROUND
Security Associates Command Center II, L.L.C. ("Company") owns and operates
a central monitoring station in Grand Rapids, Michigan to provide alarm
monitoring for security alarm dealers throughout the continental United
States. For the period January 1, 1996 to September 5, 1996, approximately
30% of the Company's revenues were from related parties (Note 2). The
Company became a limited liability company during 1995. The members'
liability is limited to their capital account.
The Company's subsidiary, All-Security Monitoring Services, L.L.C.,
("Subsidiary") owns and operates a central monitoring station in Chicago,
Illinois to provide alarm monitoring for security alarm dealers throughout
the continental United States. The Subsidiary was formed on August 23, 1995
as a limited liability company. The members' liability is limited to their
capital account. The Subsidiary acquired the net assets of All Security
Products and Services, Inc. d/b/a All-Security Monitoring Services, Inc.,
L.L.C. on August 23, 1995. The net assets were recorded by the Subsidiary
at the acquisition cost. Such acquisition cost included a premium of
$1,510,647 above the estimated fair values of the net assets acquired, which
has been reflected on the subsidiary's balance sheet as goodwill.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Security
Associates Command Center II, L.L.C. and All-Security Monitoring Services,
L.L.C. The Company owns 98% of All-Security Monitoring Services, L.L.C.
All significant intercompany accounts, transactions and unrealized profits
have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Monitoring fee revenue is recognized as earned over the related contract
period. Services may be billed in advance on a monthly, quarterly or annual
basis and any amounts not earned are reflected as unearned revenue in the
accompanying balance sheet.
ACCOUNTS RECEIVABLE
The Company grants unsecured trade credit to customers in the normal course
of business. Receivables in the accompanying balance sheet is net of
reserves for doubtful accounts of approximately $32,000.
F-27
<PAGE> 72
CASH
Cash includes bank deposits and petty cash funds of the Company.
OTHER ASSETS
Goodwill is being amortized on a straight-line basis over a 15-year period.
Organizational costs consist of legal and professional fees associated with
the start-up of the Company's subsidiary, All-Security Monitoring Services,
L.L.C. These costs are being amortized on a straight-line basis over 5
years.
Other assets are comprised of the following:
<TABLE>
<S> <C>
Goodwill, net of amortization of $100,710 $1,409,937
Organization Costs, net of amortization of $12,756 35,356
Deposits 17,496
----------
Total other assets $1,462,789
==========
</TABLE>
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is calculated using
accelerated methods for both financial statement and income tax purposes.
The following is a summary of fixed assets by major class of assets:
<TABLE>
<S> <C>
Automobiles $ 20,188
Leasehold Improvements 38,336
Furniture and Equipment 266,303
--------
324,827
Less-accumulated depreciation 161,365
--------
Fixed assets, net $163,462
========
</TABLE>
The depreciable lives by major class of assets are as follows:
Automobiles 5 years
Leasehold Improvements 15 years
Furniture and Equipment 5-7 years
LEASES
The Company operates primarily in leased facilities. Total rent expense
related to these facilities for the period January 1, 1996 to September 5,
1996 was $49,560.
Additionally, the Company leases certain equipment used in their operations.
Total lease expense under these leases was $47,319 for the period January 1,
1996 to September 5, 1996.
F-28
<PAGE> 73
Future minimum rental obligations at September 5, 1996 for all operating
leases is as follows:
For the year ended September 5:
1997 $187,804
1998 158,891
1999 86,142
2000 59,399
========
INCOME TAXES
The Company and its Subsidiary ("Companies") are formed as limited liability
companies. The Companies are treated as partnerships for tax purposes and
each member is taxed on their proportionate share of the Companies' taxable
income. Therefore, these statements do not include any provision for income
taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's long-term debt, which approximates the
carrying value, is estimated based on the current rates offered to the
Company for debt of the same remaining maturities.
3. LONG-TERM DEBT
Long-term debt at September 5 consists of:
<TABLE>
<S> <C>
Bank note payable, secured by all assets of the Company,
interest at 1% over prime, payable in monthly installments of
$10,500 including interest, paid in full in September, 1996 $ 115,706
Bank note payable, secured by vehicle, interest at 8.95%,
payable in monthly installments of $605 including interest
through September, 1998. 13,705
Bank note payable, secured by all assets of the Company,
interest at 8.75%, payable in monthly installments of $17,375
plus interest through May 31, 1999, paid in full in September,
1996 590,250
Other, secured by all assets of All Security Monitoring
Services, Inc., L.L.C., interest at 10.75%, payable in monthly
installments of $20,000 including interest through 2000 plus a
single installment of $273,111 due February 1996, paid in full
in December, 1996 777,476
---------
1,497,137
---------
Current maturities 1,489,724
---------
Total long-term debt $ 7,413
=========
</TABLE>
F-29
<PAGE> 74
Long-term debt maturities at September 5, 1996 are:
For the year ended September, 5:
1997 $1,489,724
1998 7,413
==========
4. NOTE PAYABLE TO RELATED PARTY
At September 5, 1996, the Company had a note payable to Midstate Security (a
member) secured by all personal property including accounts receivable,
goods, machinery, equipment, vehicles, fixtures, cash, negotiable
instruments, general intangibles, securities, leases, dealer agreements, and
accounts covered by dealer agreements and contract rights. Interest is
payable at the lending rate available to Midstate Security through its
commercial lending institution. At September 5, 1996, this rate was 8.5%.
The Company has agreed to make payments on the note to the extent that there
is positive cash flow from operations and positive net worth as defined.
Midstate Security has agreed not to demand payment unless the above
conditions are met.
5. RELATED PARTY TRANSACTIONS
The Company is a limited liability company which is owned equally by
Security Associates International, Inc. and Subsidiaries and Intec Company,
Inc. doing business as Midstate Security, both of which are provided
monitoring services by the Company.
Revenues for services provided to related parties for the period January 1,
1996 to September 5, 1996, are as follows:
<TABLE>
<S> <C>
Security Associates International, Inc. and Subsidiaries $621,954
Midstate Security 77,427
--------
$699,381
========
</TABLE>
The Company had trade accounts receivable with related parties at December
31 as follows:
<TABLE>
<S> <C>
Security Associates International, Inc. and Subsidiaries $184,000
Midstate Security 2,482
--------
$186,482
========
</TABLE>
The Company does not employ all of its personnel, but reimburses Midstate
Security for actual costs including fringe benefits of individuals providing
services for the Company. Substantially all personnel that provide services
for the Company are included in a defined contribution plan of Midstate
Security. Contributions to the plan are determined by the Board of
Directors of Midstate Security at the conclusion of its fiscal year, which
is May 31. There were no contributions made to the plan for the fiscal year
ended May 31, 1996.
F-30
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereby. All the amounts
shown are estimated, except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee ..... $2,393.57
Blue Sky filing fees and expenses
Printing expenses
Legal fees and expenses *
Auditors' accounting fees and expenses ............... *
Transfer Agent and Registrar fees and expenses ....... *
Officers and directors liability insurance premiums .. *
Miscellaneous expenses ... *
---------
Total ....................
</TABLE>
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL empowers a Delaware corporation
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened because
such person is or was a director, officer, employee or agent of the corporation
or was serving as such with respect to another corporation or other entity at
the request of such corporation.
In accordance with Section 102(b)(7) of the DGCL, Article IX of the
Company's Amended and Restated Certificate of Incorporation provides that "a
director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit."
The Company's Certificate of Incorporation and By-Laws contain provisions
that require the Company to indemnify its directors and officers to the fullest
extent permitted by Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 30, 1994, the Company has issued the following securities that
were not registered under the Securities Act:
II-1
<PAGE> 76
Sale of Convertible Notes and Options
On August 9, 1994, Metro Suburban Pediatrics Pension Plan was issued a 14%
Convertible Secured Note due July 31, 1997 plus options to purchase 12,500
shares of Common Stock at $0.57 per share expiring December 31, 1998 for total
consideration of $25,000.
On August 9, 1994, Bernard and Samuel Sered was issued a 14% Convertible
Secured Note July 31, 1997 plus options to purchase 12,500 shares of Common
Stock at $0.57 per share expiring December 31, 1998 for total consideration of
$25,000.
On August 9, 1994, Fred Figge was issued a 14% Convertible Secured Note
July 31, 1997 plus options to purchase 12,500 shares of Common Stock at $0.57
per share expiring December 31, 1998 for total consideration of $25,000.
On May 22, 1995, Infinity Partnership II was issued a 14% Convertible
Secured Note July 31, 1997 plus options to purchase 10,000 shares of Common
Stock at $0.57 per share expiring December 31, 1998 for total consideration of
$20,000.
On June 7, 1995, Brady E. Turner was issued a 14% Convertible Secured Note
July 31, 1997 plus options to purchase 12,500 shares of Common Stock at $0.57
per share expiring December 31, 1998 for total consideration of $25,000.
On October 19, 1995, Sidney Dechter IRA was issued a 14% Convertible
Secured Note July 31, 1997 plus options to purchase 25,000 shares of Common
Stock at $0.57 per share expiring December 31, 1998 for total consideration of
$50,000.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. Sales were made
to a very limited number of purchasers. All of the Notes have since been
repaid.
II. Issuance for Services
In August 1995, Star Security Systems, Inc. was issued options to purchase
25,000 shares of Common Stock at $1.00 per share expiring October 1, 2000 in
return for services.
In August 1995, Metronet Installations, Inc. was issued options to
purchase 25,000 shares of Common Stock at $1.00 per share expiring October 1,
2000 in return for services.
In August 1995, Jack and Gillian Schultz was issued options to purchase
25,000 shares of Common Stock at $1.00 per share expiring October 1, 2000 in
return for services.
On October 1, 1995, Fred Figge. was issued options to purchase 50,000
shares of Common Stock at $0.53 per share expiring April 1, 2000 in return for
services.
On January 21, 1996, Fred Figge was issued options to purchase 19,000
shares of Common Stock at $0.53 per share expiring April 1, 2000 in return for
services.
On August 1, 1996, Fred Figge was issued options to purchase 17,000 shares
of Common Stock at $0.53 per share expiring April 1, 2000 in return for
services.
On October 10, 1996, Buttonwood Advisory Group was issued options to
purchase 25,000 shares of Common Stock at $1.25 per share expiring October 10,
1999 in return for services.
II-2
<PAGE> 77
On October 10, 1996, Buttonwood Advisory Group was issued options to
purchase 25,000 shares of Common Stock at $2.00 per share expiring October 10,
1999 in return for services.
On October 10, 1996, Buttonwood Advisory Group. was issued options to
purchase 25,000 shares of Common Stock at $3.00 per share expiring October 10,
1999 in return for services.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. Sales were made
to a very limited number of purchasers. No cash consideration was received by
the Company.
III. TJS Partners' Investment
On September 5, 1996, TJS Partners, Ltd. purchased 3,525,682 shares of
Common Stock for $1,558,351 and was granted certain options pursuant to a
Standby Option and Warrant Agreement and lent the Company $3,441,649 pursuant
to a Convertible Subordinate Promissory Note.
TJS Partners investment in the Company was restructured effective December
31, 1996 (the "TJS Amendment") Pursuant to the TJS Amendment the shares of
Common Stock issued on 9/5/96 and the Convertible Subordinated Note were
canceled. In lieu thereof, the Company issued to TJS Partners 35,257 shares of
Convertible Preferred Stock (each convertible into 100 shares of Common Stock),
344,165 shares of 12% Redeemable Preferred Stock and a Warrant to purchase
15,000 shares of Convertible Preferred Stock. The Standby Option and Warrant
Agreement was amended so that upon exercise of any standby option or Warrant
TJS would receive shares of Convertible Preferred Stock rather than Common
Stock at a purchase price per share equal to 100 times the purchase price per
share of Common Stock prior to the amendment.
Under the terms of the Standby Option and Warrant Agreement dated
September 5, 1996, and the Amendment thereto effective December 31, 1996, TJS
Partners, L.P. may purchase the number of shares of Convertible Preferred Stock
determined by dividing the number of shares purchased by the exercising option
or warrant holder by 100 whenever other current holders (as of the date of the
Agreement) of an option or warrant to purchase the Company's Common Stock
exercises that option or warrant.
In connection with the foregoing sale of securities, ProFinance Associates,
Inc. was paid a fee of $109,110. No underwriters were engaged in connection
with the foregoing sales of securities. Such sales were made in reliance upon
the exemption from registration set forth in Section 4(2) of the Securities
Act. Sales were made to only one purchaser.
IV. Buyout of Winnetka Investors, Inc. and MCAP Investors, Inc.
On September 5, 1996 the Company purchased all of the outstanding capital
stock of two Delaware corporations, Winnetka Investors, Inc. ("Winnetka") and
MCAP Investors, Inc. ("MCAP"). Both Winnetka and MCAP were companies involved
in joint ventures with the Company in the account acquisition business and in
the provision of monitoring services through joint ownership of the
subsidiaries that purchased the accounts and owned the Company's central
monitoring station. The total cash consideration for the Winnetka purchase was
$159,980 or $210.50 per share. The total cash consideration for the MCAP
purchase was $261,020 or $210.50 per share. In addition, the Company assumed
or paid off the liabilities of both Winnetka and MCAP and those of the two
joint venture companies through which the Company pursued its arrangements with
Winnetka and MCAP.
The parties agreed that the Winnetka and MCAP investors would also retain
options, exercisable for a period of one year to purchase shares of the
Company's Common Stock at $0.442 per share, the same price at which TJS
purchased Common Stock in a contemporaneous transaction. At the time of the
transaction the parties ascribed a "zero" or de minimis value to the options.
The name of the parties receiving the options and the number of shares of
Winnetka and MCAP stock previously owned is set forth below.
II-3
<PAGE> 78
Options Name Winnetka/MCAP Shares
------- -------------------------- ----------------------
1. 20,000 Bonnie Conrad 80 Shares of Winnetka
2. 20,000 Anita M. Dalmar 80 Shares of Winnetka
3. 50,000 Robert H. Dilworth 200 Shares of Winnetka
4. 25,000 Dianne Freeman 100 Shares of Winnetka
5. 75,000 Phyllis V. Greinwald 300 Shares of Winnetka
6. 25,000 Robert Brown 100 Shares of MCAP
7. 2,000 Phyllis V. Greinwald 8 Shares of MCAP
8. 250 Cheryl Grolle 1 Share of MCAP
9. 250 Lorraine Small 1 Share of MCAP
10. 120,000 Inversiones Aparacio, C.A. 480 Shares of MCAP
11. 62,500 Inversiones Alanje, C.A. 250 Shares of MCAP
12. 100,000 Inversiones Erlanger, C.A. 400 Shares of MCAP
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. Sales were made
to a very limited number of purchasers. All of the parties had previous
business relationships with the Company through the joint ventures with the
Company which their respective companies had engaged in for several years.
V. Exercise of Options
On December 31, 1996, Lee Jones exercised options to purchase 22,088
shares of Common Stock for a total consideration of $12,590.60.
On March 18, 1997, Robert Brown exercised options to purchase 25,000
shares of Common Stock for a total consideration of $11,050.
On March 18, 1997, Bobbie Conrad exercised options to purchase 20,000
shares of Common Stock for a total consideration of $8,840.
On March 18, 1997, Anita M. Delmar exercised options to purchase 20,000
shares of Common Stock for a total consideration of $8,840.
On March 18, 1997, Robert H. Dilworth exercised options to purchase 50,000
shares of Common Stock for a total consideration of $22,100.
On March 18, 1997, Dianne G. Freeman exercised options to purchase 25,000
shares of Common Stock for a total consideration of $11,050.
II-4
<PAGE> 79
On March 31, 1997, Phyllis Greinwald exercised options to purchase 77,000
shares of Common Stock for a total consideration of $34,034.
On March 31, 1997, Inversiones Alanje, C.A. exercised options to purchase
62,500 shares of Common Stock for a total consideration of $27,625.
On March 31, 1997, Inversiones Aparicio, C.A. exercised options to
purchase 120,000 shares of Common Stock for a total consideration of $53,040.
On March 31, 1997, Inversiones Erlanger, C.A. exercised options to
purchase 100,000 shares of Common Stock for a total consideration of $44,200.
On April 22, 1997, TJS Partners, L.P. exercised options to purchase
5,215.88 shares of Convertible Preferred Stock for a total consideration of
$233,369.60.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. Sales were made
to a very limited number of purchasers. Mr. Jones' options were issued in 1991
in return for services.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 By-Laws of the Company
3.3 Certificate of Designations, Rights, Preferences and Limitations of 12% Redeemable Preferred Stock,
$10.00 Par Value Per Share, of Security Associates International, Inc.
3.4 Certificate of Designations, Rights, Preferences and Limitations of Convertible Preferred Stock,
$10.00 Par Value Per Share, of Security Associates International, Inc.
4.1 Specimen Common Stock certificate
5.1 Opinion of Sachnoff & Weaver, Ltd.
10.1 Employment Agreement between Registrant and James S. Brannen dated August 29, 1996
10.2 Employment Agreement between Registrant and Ronald I. Davis dated August 29, 1996
10.3 Employment Agreement between Registrant and Stephen Rubin dated August 30, 1996
10.4 Adoption Agreement for the Datair Mass-Submitter Prototype Standardized Cash or
Deferred Profit Sharing Plan & Trust
10.5 Supplemental Employees' Retirement Plan
10.6 Purchase of Stock of Winnetka Investors, Inc. by Registrant dated September 5, 1996
10.7 Purchase of Stock of MCAP Investors, Inc. by Registrant dated September 5, 1996
10.8 Common Stock Subscription and Purchase Agreement between Registrant and TJS
Partners, L.P., dated September 5, 1996
10.9 Amendment to Common Stock Subscription and Purchase Agreement between Registrant
and TJS Partners, L.P., dated December 31, 1996
10.10 Purchase of Membership Interests of Limited Liability Agreements between
Registrant and Intec Company, Inc. dated September 5, 1996
10.11 Asset Purchase Agreement between Registrant and AMJ Central Station Corporation
dated December 19, 1996
10.12 Asset Purchase Agreement between All-Security Monitoring Services, L.L.C. and
Northern Central Station, Inc. dated February 25, 1997
10.13 Loan Agreement among Registrant, Security Associates Command Center II, L.L.C.,
Monitor Service Group, L.L.C., All-Security Monitoring Services, L.L.C. and Finova
Capital Corporation dated
</TABLE>
II-5
<PAGE> 80
<TABLE>
<S> <C>
December 31, 1996
10.14 Amendment to Loan Instruments among Registrant, Security Associates Command Center
II, L.L.C., Monitor Service Group, L.L.C., All-Security Monitoring Services,
L.L.C. and Finova Capital Corporation dated February 28, 1997
10.15 Lease Agreement between American National Bank and Trust Company of Chicago as
Trustee under Trust No. 59948 and Registrant dated November 21, 1995
10.16 Amendment to Lease Agreement between American National Bank and Trust Company of
Chicago as Trustee under Trust No. 59948 and Registrant dated December 9, 1996
10.17 Lease between Intec Company, Inc. and Security Associates Command Center II,
L.L.C. dated September 4, 1996
10.18 Sublease Agreement between William Jackson and Elizabeth Jackson and Registrant
dated December 29, 1996
10.19 First Amendment to Lease between William Jackson and Elizabeth Jackson and
Registrant dated February 7, 1997
10.20 Subordinated Loan Agreement between Registrant and TJS Partners, L.P.
10.21 Standby Option and Warrant Agreement between Registrant and TJS Partners, Ltd.
dated September 5, 1996
10.22 Amended Standby Option and Warrant Agreement between Registrant and TJS
Partners, Ltd. dated December 31, 1996
10.23 Warrant dated December 31, 1996 issued to TJS Partners, Ltd.
10.24 Form of Warrant
21.1 Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sachnoff & Weaver, Ltd. (to be included in Exhibit 5.1)
24.1 Power of Attorney (included herein on signature page)
27.1 Financial Data Schedule
</TABLE>
- ----------------
(b) Financial Statement Schedule(s).
Schedule Description
-------- ---------------------------------
II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liability (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Company hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-6
<PAGE> 81
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
II-7
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Arlington Heights, State
of Illinois, on July 18, 1997.
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
----------------------
James S. Brannen
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS JAMES S. BRANNEN AND HOWARD SCHICKLER
AND EACH OF THEM SINGLY, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS
WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME,
PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN THE REGISTRATION STATEMENT
FILED HEREWITH AND ANY OR ALL AMENDMENTS TO SAID REGISTRATION STATEMENT
(INCLUDING POST-EFFECTIVE AMENDMENTS AND REGISTRATION STATEMENTS FILED PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AND ANY OR ALL AMENDMENTS
THERETO, AS AMENDED AND OTHERWISE), AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS THE FULL
POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE
AND NECESSARY TO BE DONE IN AND ABOUT THE FOREGOING, AS FULL TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL
THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR HIS OR HER
SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities on the 18th day of July 1997.
SIGNATURE TITLE
/s/ James S. Brannen President (Principal Executive Officer
- ------------------------ and Principal Financial and Accounting
James S. Brannen Officer) and Director
/s/ Ronald I. Davis
- ------------------------
Ronald I. Davis Director
/s/ Thomas J. Salvatore
- ------------------------
Thomas J. Salvatore Director
/s/ Douglas Oberlander
- ------------------------
Douglas Oberlander Director
II-8
<PAGE> 83
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the stockholders of Security Associates International, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Security Associates International,
Inc. and Subsidiaries included in this Registration Statement and issued our
report thereon dated April 11, 1997. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule of Valuation and Qualifying Accounts is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not a part
of the basic financial statements. This schedule has been subject to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 11, 1997
II-9
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Security Associates Command Center II, L.L.C. and
the Board of Directors of AMJ Central Station Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements of AMJ Central Station Corporation and the
consolidated financial statements of Security Associates Command Center II,
L.L.C. included in this Registration Statement and issued our reports thereon
dated July 2, 1997 and July 2, 1997, respectively. Our audits were made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule of Valuation and Qualifying Accounts is presented for
purposes of complying with the Securities and Exchange Commissions rules and is
not a part of the basic financial statements. This schedule has been subject
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 2, 1997
II-10
<PAGE> 85
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(FOR EACH INCOME STATEMENT PRESENTED)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO BALANCE AT END OF
DESCRIPTION PERIOD EXPENSE OTHER ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------- -------------------- ---------- -------------- ---------- -----------------
Allowances deducted from related
accounts
receivable balance sheet accounts of:
Security Associates International, Inc.
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994 5,000 10,000 - -- 15,000
Year ended December 31, 1995 15,000 14,000 - - 29,000
Year ended December 31, 1996 29,000 177,000 -- -- 206,000
AMJ Central Station Corporation
Year ended December 31, 1995 80,000 - - - 80,000
Period January 1, 1996 to
December 19, 1996 80,000 -- -- -- 80,000
Security Associates Command
Center II, L.L.C.
Period January 1, 1996 to
September 5, 1996 26,000 6,000 -- -- 32,000
</TABLE>
II-11
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------- -----------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company *
3.2 By-Laws of the Company *
3.3 Certificate of Designations, Rights, Preferences and Limitations of 12% Redeemable *
Preferred Stock, $10.00 Par Value Per Share, of Security Associates,
International, Inc.
3.4 Certificate of Designations, Rights, Preferences and Limitations of Convertible *
Preferred Stock, $10.00 Par Value Per Share, of Security Associates,
International, Inc.
4.1 Specimen Common Stock certificate *
5.1 Opinion of Sachnoff & Weaver, Ltd. *
10.1 Employment Agreement between Registrant and James S. Brannen dated August 29, 1996 *
10.2 Employment Agreement between Registrant and Ronald I. Davis dated August 29, 1996 *
10.3 Employment Agreement between Registrant and Stephen Rubin dated August 30, 1996 *
10.4 Adoption Agreement for the Datair Mass-Submitter Prototype Standardized Cash or *
Deferred Profit Sharing Plan & Trust
10.5 Supplemental Employees' Retirement Plan *
10.6 Purchase of Stock of Winnetka Investors, Inc. by Registrant dated September 5, 1996 *
10.7 Purchase of Stock of MCAP Investors, Inc. by Registrant dated September 5, 1996 *
10.8 Common Stock Subscription and Purchase Agreement between Registrant and TJS *
Partners, L.P., dated September 5, 1996
10.9 Amendment to Common Stock Subscription and Purchase Agreement between Registrant *
and TJS Partners, L.P., dated December 31, 1996
10.10 Purchase of Membership Interests of Limited Liability Agreements between *
Registrant and Intec Company, Inc. dated September 5, 1996
10.11 Asset Purchase Agreement between Registrant and AMJ Central Station Corporation *
dated December 19, 1996
10.12 Asset Purchase Agreement between All-Security Monitoring Services, L.L.C. and *
Northern Central Station, Inc. dated February 25, 1997
</TABLE>
<PAGE> 87
<TABLE>
<S> <C> <C>
10.13 Loan Agreement among Registrant, Security Associates Command Center II, L.L.C., *
Monitor Service Group, L.L.C., All-Security Monitoring Services, L.L.C. and Finova
Capital Corporation dated December 31, 1996
10.14 Amendment to Loan Instruments among Registrant, Security Associates Command Center *
II, L.L.C., Monitor Service Group, L.L.C., All-Security Monitoring Services,
L.L.C. and Finova Capital Corporation dated February 28, 1997
10.15 Lease Agreement between American National Bank and Trust Company of Chicago as *
Trustee under Trust No. 59948 and Registrant dated November 21, 1995
10.16 Amendment to Lease Agreement between American National Bank and Trust Company of *
Chicago as Trustee under Trust No. 59948 and Registrant dated December 9, 1996
10.17 Lease between Intec Company, Inc. and Security Associates Command Center II, *
L.L.C. dated September 4, 1996
10.18 Sublease Agreement between William Jackson and Elizabeth Jackson and Registrant *
dated December 29, 1996
10.19 First Amendment to Lease between William Jackson and Elizabeth Jackson and *
Registrant dated February 7, 1997
10.20 Subordinated Loan Agreement between Registrant and TJS Partners, L.P. *
10.21 Standby Option and Warrant Agreement between Registrant and TJS Partners, Ltd. *
dated September 5, 1996
10.22 Amended Standby Option and Warrant Agreement between Registrant and TJS Partners, *
Ltd. dated December 31, 1996
10.23 Warrant dated December 31, 1996 issued to TJS Partners, Ltd. *
10.24 Form of Warrant *
21.1 Subsidiaries of Registrant *
23.1 Consent of Arthur Andersen LLP *
23.2 Consent of Sachnoff & Weaver, Ltd. (to be included in Exhibit 5.1) *
24.1 Power of Attorney (included herein on signature page) *
27.1 Financial Data Schedule *
</TABLE>
- ---------------------
* Filed herewith.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
EXESS, INC.
The undersigned incorporator hereby forms a corporation pursuant to the
General Corporation Law of the State of Delaware.
ARTICLE
I.
The name of the Corporation is EXESS, INC.
ARTICLE
II.
The registered office of the Corporation in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, County of
New Castle. The registered agent in charge thereof at such address is The
Corporation Trust Company.
ARTICLE
III.
The nature of the business and the objects and purposes proposed to be
transacted, promoted, and carried on, are to do any or all things herein
mentioned, as fully and to the same extent as natural persons might or could
do, and in any part of the world, viz.:
"The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Law of Delaware".
ARTICLE
IV.
The amount of the total authorized capital stock of this Corporation shall
consist of One-Hundred Thousand Dollars ($100,000) divided into 100,000,000
shares of $.001 par value each. All shares shall be designated as Common
Stock. Shareholders shall not have pre-emptive rights or be entitled to
cumulative voting in connection with the shares of the Company's Common Stock.
<PAGE> 2
ARTICLE
V.
The name and mailing address of the incorporator of the Company is:
A.O. Headman, Jr. 420 East South Temple
Suite 334
Salt Lake City, Utah 84111
ARTICLE
VI.
The powers of the incorporator(s) shall terminate upon the filing of this
Certificate of Incorporation, and the names and mailing addresses of the
persons to serve as directors until the first annual meeting of stockholders or
until successors are elected and qualify are:
NAME OF DIRECTOR MAILING ADDRESS
---------------- ---------------
William Lewis Knudson 105 Skyline Drive
Brigham City, UT 84302
Paul Krambule 5572 South 1000 East
Ogden, UT 84405
Jearold A. Nelson 2470 South 400 West
Perry, UT 84302
The number of members of the Board of Directors shall be fixed from time
to time by the Board of Directors. If any vacancy occurs, the remaining
directors, by an affirmative vote of a majority thereof, may elect a director
to fill the vacancy until the next annual meeting of stockholders.
ARTICLE
VII.
No contract or transaction between the Corporation and one or more of its
directors or officers or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, or solely because the
director or officer is present at or participates in the meeting of the board
of committee thereof which
2
<PAGE> 3
authorizes the contract or transaction, or solely because his or their votes
are counted for such purpose, if:
1. The material facts as to his interest and as to the contract or
transaction are disclosed or are known tot he Board of Directors or the
Committee, and the Board or committee, in good faith, authorizes the contract
or transaction by a vote sufficient for such purpose without counting the vote
of the interested director or directors; or
2. The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or
3. The contract or transaction is fair as to the Corporation as of the time
it is authorized, approved, or ratified, by the Board of Directors, a committee
thereof, or the stockholders.
Interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
ARTICLE
VIII.
The Board of Directors shall have the power to make, adopt, amend, or
repeal the Bylaws of the Corporation.
ARTICLE
IX.
Section 1. Elimination of Certain Liability of Directors. A director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith of which involve intentional misconduct or a knowing violation of law,
(iii) under Section 74 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
Section 2. Indemnification and Insurance.
A. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party or is involved any action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative, (hereinafter a "proceeding"), by reason of the fact that
he or she, or a person of whom he or she is the legal representative, is
or was a director or officer of the Corporation or is or was serving at
the request of the
3
<PAGE> 4
Corporation as a director, officer, employee, or agent of another
corporation or of a partnership, joint venture, trust, or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee, or agent or in any other capacity while serving as a
director, officer, employee, or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability, and loss (including attorney's fees, judgments, fines, ERISA excise
taxes, or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of his or her
theirs, executors, and administrators; provided, however, that, except as
provided in paragraph B hereof, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
B. Right of Claimant to Bring Suit. If a claim under paragraph A of this
Section is not paid in full by the Corporation within 30 days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination
4
<PAGE> 5
prior to the commencement of such action that indemnification of the
claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an action determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the claimant has not met such applicable standard or conduct, shall
be a defense to the action or create a presumption that the claimant has
not met the applicable standard or conduct.
C. Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, Bylaw, agreement
vote of stockholders or disinterested directors, or otherwise.
D. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee, or agent
of the corporation or another corporation, partnership, joint venture,
trust, or other enterprise against any such expense, liability, or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability, or loss under the Delaware General
Corporation Law.
The undersigned, for the purpose of forming a corporation under the laws
of the State of Delaware, do make, file, and record this certificate, and do
certify that the facts stated herein are true; and have executed this
Certificate of Incorporation.
Dated: April 11, 1988.
/s/ A.O. Headman, Jr.
-----------------------------
A.O. Headman, Jr.
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
On the 11th day of April, 1988, personally appeared before me, A.O.
Headman, Jr., who being by me first duly sworn, declared that he is the person
who signed the foregoing document as an incorporator and that the statements
therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 8th day of
April, 1988.
/s/ Kristin Brown
-----------------------------
NOTARY PUBLIC
Residing at Salt Lake City, Utah
My Commission expires:
November 1991
5
<PAGE> 6
CERTIFICATE OF MERGER
OF
SECURITY ASSOCIATES, INC.
AN ILLINOIS CORPORATION
INTO
EXESS, INC.
A DELAWARE CORPORATION
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
Does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
Security Associates, Inc. Illinois
Exess, Inc. Delaware
</TABLE>
SECOND: That an Agreement of Merger between the parties to the merger has
been approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Section 252 of
the General Corporation Law of Delaware.
THIRD: That the name of the surviving corporation of the merger is Exess,
Inc., which shall herewith be changed to Security Associates International,
Inc., a Delaware corporation.
FOURTH: That the Certificate of Incorporation of Exess, Inc., a Delaware
corporation which is surviving the merger, shall be the Certificate of
Incorporation of the surviving corporation.
FIFTH: That the executed Agreement of Merger is on file at the principal
place of business of the surviving corporation, the address of which is 1865
Miner Street, Des Plaines, Illinois 60016.
SIXTH: That a copy of the Agreement of Merger will be furnished on request
and without cost, to any stockholder of any constituent corporation.
SEVENTH: The authorized capital stock of each foreign corporation which is
a party to the merger is as follows:
6
<PAGE> 7
<TABLE>
<CAPTION>
Par Value Per Share
Number or statement that
of shares are without
Corporation Class Shares par value
- ----------- ----- ------ -------------------
<S> <C> <C> <C>
Security Associates, Inc. Common stock 10,000,000 no par value
</TABLE>
EIGHTH: That this Certificate of Merger shall be effective immediately
upon its filing with the Secretary of State of Delaware.
Dated: August 21, 1992
EXESS, INC.
By: /s/ Lewis Knudson
--------------------
President
ATTEST:
By: /s/ Jearold A. Nelson
---------------------
Secretary
7
<PAGE> 8
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
SECURITY ASSOCIATES INTERNATIONAL, INC.
James S. Brannen and Stephen Rubin, being the President and Secretary, of
SECURITY ASSOCIATES INTERNATIONAL, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), do hereby certify as follows:
1. That the Board of Directors of the Corporation at a meeting held on
October 23, 1992, in accordance with Sections 141 and 242 of the General
Corporation Law of the State of Delaware, adopted the resolution set forth as
Exhibit A proposing an amendment to the Certificate of Incorporation of the
Corporation (the "Amendment") and further directed that the Amendment be
submitted to the stockholders of the Corporation entitled to vote thereon for
their consideration and approval.
2. That the stockholders of the Corporation approved and adopted the
Amendment in accordance with Section 242 of the General Corporation Law of the
State of Delaware, by requisite affirmative vote of the stockholders entitled
to vote thereon at a meeting of such stockholders duly called and convened
pursuant to the laws of the State of Delaware.
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned, being the President and Secretary
hereinabove named, for the purpose of amending the Certificate of Incorporation
of the Corporation pursuant to the General Corporation Law of the State of
Delaware, under penalties of perjury do hereby declare and certify that this is
the act and deed of the Corporation and the facts stated herein are true, and
accordingly have hereunto signed this Certificate of Amendment to Certificate
of Incorporation this 17th day of December, 1992.
By: /s/ James S. Brannen
---------------------------
James S. Brannen, President
ATTEST:
By: /s/Stephen Rubin
-----------------------------
Stephen Rubin, Secretary
9
<PAGE> 10
EXHIBIT A
NOW THEREFORE BE IT RESOLVED, that the Certificate of Incorporation of
Security Associates International, Inc. be and hereby is amended (the
"Amendment") by deleting Article IV in its entirety and substituting therefor a
new Article IV thereby effecting the following: (i) a 10 into 1 reverse stock
split of the Corporation's shares of Common Stock (the "Reverse Split"); (ii) a
decrease in the total number of authorized shares of Common Stock to
10,000,000; and (iii) the authorization to issue 500,000 shares of Preferred
Stock
ARTICLE IV
The total number of shares of stock which the Corporation shall have
authority to issue is 10,500,000 shares, which shall be classified as follows:
(i) 10,000,000 shares of Common Stock, $0.001 par value per share
("Common Stock");
(ii) 500,000 shares of Preferred Stock, $10.00 par value per share
("Preferred Stock"), which may be issued from time to time in one or more
series. The number of shares, the stated value and interest rate, if
any, of each such series and the preferences and relative, participating
and special rights and the qualifications, limitations and restrictions
shall be fixed in the case of each series by resolution of the Board of
Directors at the time of issuance subject in all cases to the laws of the
State of Delaware applicable thereto, and set forth in a certificate of
designation filed and recorded with respect to each series in accordance
with the laws of the State of Delaware."; and
FURTHER RESOLVED: that in order to effectuate the foregoing, each ten (10)
shares of the Corporation's common stock, par value $0.001 per share, which
have heretofore been issued and outstanding (the "Pre-Split Shares") shall,
upon the effectiveness of the Amendment (the "Effective Time"), be and become
converted into one (1) share of the Corporation's validly issued, fully paid
and nonassessable Common Stock, par value $0.001 per share (a "New Share"); and
FURTHER RESOLVED: that no scrip or certificates for fractional New Shares
will be issued by reason of the Amendment but, in lieu thereof, fractional New
Shares (other than fractional New Shares issuable to holders of ten or more
Pre-Split Shares, which fractional New Shares shall be canceled without payment
therefor) shall be converted into the right to receive an amount in cash equal
the higher of (i) the average of the daily high and low sales prices of the
Common Stock as reported in the Pink Sheets published by the National Quotation
Bureau, Incorporated (the "Pink Sheets") for the 30 consecutive trading days
during the period immediately preceding the Effective Time, or (ii) the average
of the high and low sales prices of the Common Stock on the day preceding the
Effective Time, as reported in the Pink Sheets (the "Cancellation Price"); and
10
<PAGE> 11
FURTHER RESOLVED: that at the Effective Time, the holders of certificates
representing Pre-split Shares (other than holders of more than ten Pre-Split
Shares) shall cease to have any rights as shareholders of the Corporation and
their sole right shall be the right to receive the cash into which their
Pre-Split Shares have been converted by the reverse stock split as provided
therein; and
FURTHER RESOLVED: that a property officer of the Corporation is hereby
directed to enter into a Exchange Agent Agreement with Fidelity Transfer of
Salt Lake City, Utah (the "Exchange Agent"), pursuant to which shareholder may
present their certificates representing Pre-Split Shares to the Exchange Agent,
and the Exchange Agent will cancel such certificates and issue to such
shareholders the Cancellation Price and/or certificates representing New
Shares; and
FURTHER RESOLVED: that, further to effectuate the foregoing, the proper
officers of the Corporation be and they are hereby authorized and directed to
execute and file with the Secretary of State of Delaware and any other
appropriate governmental office appropriate articles of amendment of the
Certificate of Incorporation of the Corporation, and authorized and empowered
to take all such other action as any of them may deem necessary or desirable to
effectuate the foregoing.
11
<PAGE> 12
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CERTIFICATE OF
INCORPORATION
Security Associates International, Inc. a corporation organized under the
laws of Delaware, the Certificate of Incorporation of which was filed in the
office of the Secretary of State on the 20th day of April, 1988 and thereafter
voided for non-payment of taxes, now desiring to procure a revival of its
Certificate of Incorporation, hereby certifies as follows:
1. The name of the corporation is Security Associates International, Inc.
2. Its registered office in the State of Delaware is located at Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, and
the name of its registered agent at such address is The Corporation Trust
Company.
3. The date when revival of the Certificate of Incorporation of this
corporation is to commence is the 28th day of February, same being prior to the
date the Certificate of Incorporation became void. Revival of the Certificate
of Incorporation is to be perpetual.
4. This corporation was duly organized under the laws of Delaware and
carried on the business authorized by its Certificate of Incorporation until
the first day of March, 1995, at which time its Certificate of Incorporation
became inoperative and void for non-payment of taxes and this Certificate for
Renewal and Revival is filed by authority of the duly elected directors of the
corporation with the laws of Delaware.
IN WITNESS WHEREOF, said Security Associates International, Inc., in
compliance with Section 312 of Title 8 of the Delaware Code has caused this
Certificate to be signed by James S. Brannen its last and acting President,
this 12th day of August, 1996.
Security Associates International, Inc.
By: /s/ James S. Brannen, President
-------------------------------
(Last and Acting Title)
James S. Brannen
12
<PAGE> 13
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
SECURITY ASSOCIATES INTERNATIONAL, INC.
James S. Brannen and Stephen Rubin, being the President and Secretary of
Security Associates International, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), do hereby certify as follows:
1. That the Board of Directors of the Corporation at a meeting held on
Decem1ber 19, 1996, in accordance with Sections 141 and 242 of the General
Corporation Law of the State of Delaware, adopted the resolution set forth on
Exhibit A proposing an amendment to the Certificate of Incorporation of the
Corporation (the "Amendment") and further directed that the Amendment be
submitted to the stockholders of the Corporation entitled to vote thereon for
their consideration and approval.
2. That the stockholders of the Corporation approved and adopted the
Amendment in accordance with Section 242 of the General Corporation Law of the
State of Delaware, by requisite affirmative vote of the stockholders entitled
to vote thereon at a meeting of such stockholders duly called and convened
pursuant to the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being the President and Secretary
hereinabove named, for the purpose of amending the Certificate of Incorporation
of the Corporation pursuant to the General Law of the State of Delaware, under
penalties of perjury do hereby declare and certify that this is the act and
deed of the Corporation and the facts stated
13
<PAGE> 14
herein are true, and accordingly have hereunto signed this Certificate of
Amendment to Certificate of Incorporation this 13th day of January, 1997.
By: /s/ James S. Brannen
---------------------------
James S. Brannen, President
ATTEST:
By: /s/ Stephen Rubin
----------------------------
Stephen Rubin, Secretary
14
<PAGE> 15
EXHIBIT "A"
-----------
NOW, THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation of
Security Associates International, Inc., be and hereby is amended (the
"Amendment") by deleting Article IV(i) and (ii) in its entirety and
substituting therefor a new Article IV(i) and (ii) as follows:
ARTICLE IV
The total number of shares of stock which the Corporation shall have
authority to issue is 50,500,000 shares, which shall be classified as follows:
(i) 50,000,000 shares of Common Stock, $0.001 par value per share ("Common
Stock")
(ii) 500,000 shares of Preferred Stock, $10.00 pare value per share
("Preferred Stock"), which may be issued from time to time in one or more
series. The number of shares, the stated value and interest rate, if any, of
each such series and the preferences and relative, participating and special
rights and the qualifications, limitations and restrictions shall be fixed in
the case of each series by resolution of the Board of Directors at the time of
issuance subject in all cases to the laws of the State of Delaware applicable
thereto, and set forth in a certificate of designations filed and recorded with
respect to each series in accordance with the laws of the State of Delaware,
and
FURTHER RESOLVED, that, further to effectuate the foregoing, the proper
officers of the Corporation be and they are hereby authorized and directed to
execute and file with the Secretary of State of Delaware and any other
appropriate governmental office appropriate articles of amendment of the
Certificate of Incorporation of the Corporation, and authorized and empowered
to take all such action as any of them may deem necessary or desirable to
effectuate the foregoing.
15
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
SECURITY ASSOCIATES INTERNATIONAL, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. STOCKHOLDERS........................................................... 1
1.1. PLACE OF MEETINGS................................................ 1
1.2. ANNUAL MEETINGS.................................................. 1
1.3. SPECIAL MEETINGS................................................. 1
1.4. NOTICE OF MEETINGS............................................... 1
1.5. VOTING LIST...................................................... 1
1.6. QUORUM........................................................... 2
1.7. ADJOURNMENTS..................................................... 2
1.8. VOTING AND PROXIES............................................... 2
1.9. ACTION AT MEETING................................................ 2
1.10. ACTION WITHOUT MEETING........................................... 2
2. DIRECTORS.............................................................. 3
2.1. GENERAL POWERS................................................... 3
2.2. NUMBER; ELECTION AND QUALIFICATION............................... 3
2.3. ENLARGEMENT OF THE BOARD......................................... 3
2.4. TENURE........................................................... 3
2.5. VACANCIES........................................................ 3
2.6. RESIGNATION...................................................... 3
2.7. REGULAR MEETINGS................................................. 3
2.8. SPECIAL MEETINGS................................................. 4
2.9. NOTICE OF SPECIAL MEETINGS....................................... 4
2.10. MEETINGS BY TELEPHONE CONFERENCE CALLS........................... 4
2.11. QUORUM........................................................... 4
2.12. ACTION AT MEETING................................................ 4
2.13. ACTION BY CONSENT................................................ 4
2.14. REMOVAL.......................................................... 4
2.15. COMMITTEES....................................................... 5
2.16. COMPENSATION OF DIRECTORS........................................ 5
3. OFFICERS............................................................... 6
3.1. GENERAL.......................................................... 6
3.2. ELECTION......................................................... 6
3.3. QUALIFICATION.................................................... 6
3.4. TENURE........................................................... 6
3.5. RESIGNATION AND REMOVAL.......................................... 6
3.6. VACANCIES........................................................ 6
3.7. CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD............. 7
3.8. PRESIDENT........................................................ 7
3.9. VICE PRESIDENTS.................................................. 7
3.10. SECRETARY AND ASSISTANT SECRETARIES.............................. 7
3.11. TREASURER AND ASSISTANT TREASURERS............................... 8
3.12. SALARIES......................................................... 8
4. CAPITAL STOCK.......................................................... 8
4.1. ISSUANCE OF STOCK................................................ 8
4.2. CERTIFICATES OF STOCK............................................ 8
4.3. TRANSFERS........................................................ 9
4.4. LOST, STOLEN OR DESTROYED CERTIFICATES........................... 9
4.5. RECORD DATE...................................................... 9
5. INDEMNIFICATION OF OFFICERS AND DIRECTORS ............................. 10
5.1. ACTIONS AGAINST A PERSON......................................... 10
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
5.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.................... 10
5.3. INDEMNIFICATION IN EVENT OF SUCCESSFUL DEFENSE................... 11
5.4. BOARD OF DIRECTORS' APPROVAL..................................... 11
5.5. ADVANCE INDEMNITY PAYMENTS....................................... 11
5.6. NON-EXCLUSIVITY.................................................. 11
5.7. INDEMNITY INSURANCE.............................................. 11
5.8. CONSOLIDATION.................................................... 11
6. GENERAL PROVISIONS..................................................... 12
6.1. FISCAL YEAR...................................................... 12
6.2. CORPORATE SEAL................................................... 12
6.3. WRITTEN NOTICE OF MEETINGS....................................... 12
6.4. WAIVER OF NOTICE................................................. 12
6.5. VOTING OF SECURITIES............................................. 13
6.6. EVIDENCE OF AUTHORITY............................................ 13
6.7. CERTIFICATE OF INCORPORATION..................................... 13
6.8. TRANSACTIONS WITH INTERESTED PARTIES............................. 13
6.9. SEVERABILITY..................................................... 14
6.10. PRONOUNS......................................................... 14
7. AMENDMENTS............................................................. 14
7.1. BY THE BOARD OF DIRECTORS........................................ 14
7.2. BY THE STOCKHOLDERS.............................................. 14
</TABLE>
ii
<PAGE> 4
Amended and Restated
Bylaws
Security Associates International, Inc.
ARTICLE
1
Stockholders
------------
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the board of directors or the president or, if not so designated, at
the registered office of the corporation.
1.2 Annual Meetings. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting, shall be held on the second Tuesday of the third
month after the end of the Corporation's fiscal year, at a time fixed by the
board of directors or the president. If this date shall fall upon a legal
holiday, then such meeting shall be held on the next succeeding business day at
the same hour. If no annual meeting is held in accordance with the foregoing
provisions, the board of directors shall cause the meeting to be held as soon
thereafter as convenient or a special meeting may be held in lieu of the annual
meeting, and any action taken at that special meeting shall have the same
effect as if it had been taken at the annual meeting, and in such case all
references in these Bylaws to the annual meeting of the stockholders shall be
deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the chairman of the board of directors, by the board of directors
or by the holders of not less than one-fourth (1/4) of all the shares entitled
to vote at the meeting. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called.
1.5 Voting List. The officer who has charge of the stock ledger of the
Corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder.
<PAGE> 5
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding are entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be
held under these Bylaws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no
stockholders is present, by any officer entitled to preside at or to act as
secretary of such meeting. If the adjournment is for more than 30 days, or if
after the adjournment, a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting, the Corporation may
transaction any business which might have been transacted at the original
meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to
vote at a meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may vote or express such
consent or dissent in person or may authorize another person or persons to vote
or act for him by written proxy executed by the stockholder or his authorized
agent and delivered to the secretary of the Corporation. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. No proxy shall be voted or acted upon after three years
from the date of its execution, unless the proxy expressly provides for a
longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on a
matter) shall decide any matter to be voted upon by the stockholders at such
meeting, except when a different vote is required by express provision of law,
the Certificate of Incorporation or these Bylaws. Any election by stockholders
shall be determined by a plurality of the votes case by the stockholders
entitled to vote at the election.
1.10 Action Without Meeting. Any action required or permitted to be taken
at any annual or special meeting of stockholders of the Corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders which have not consented in
writing.
2
<PAGE> 6
ARTICLE
2
Directors
---------
2.1 General Powers. The business and affairs of the Corporation shall be
managed by or under the direction of a board of directors, who may exercise of
all other powers of the Corporation except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws. In the event of a vacancy on the
board of directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full board of directors until the vacancy
is filled.
2.2 Number; Election and Qualification. The number of directors of the
Corporation shall not be less than three (3) nor more than seven (7) as
determined by resolution of the Board of Directors from time to time. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote in such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased at
any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual meeting
and until such time as his successor is elected and qualified, or until his
earlier death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy in
the board of directors, however occurring, including a vacancy resulting from
an increase in the number of directors, may be filled by vote of a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, and a director chosen to fill
a position resulting from an increase in the number of directors shall hold
office until the next annual meeting of stockholders and until his successor is
elected and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the Corporation at its principal office or to the secretary.
Such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
2.7 Regular Meetings. Regular meetings of the board of directors may
beheld without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the board of
directors, provided that any director who is absent from such a determination
is made shall be given notice of the determination. A regular meeting
3
<PAGE> 7
of the board of directors may be held without notice immediately after and at
the same place as the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the board of directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the chairman of the Board, president or two or more directors, or
by one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the secretary or one of the directors call
the meeting. Notice shall be duly given to each director (i) by giving notice
to such director in person or by telephone at least 48 hours in advance of the
meeting, (ii) by sending a telegram or telex, or delivering written notice by
hand to his last known business or home address at least 48 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the board of directors need not specify the purpose of
the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
board of directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
2.11 Quorum. A majority of the whole board of directors shall constitute a
quorum at all meetings of the board of directors. In the event one or more of
the directors shall be disqualified to vote at any meeting, then the required
quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case shall less than one-third (1/3) of the whole
board of directors constitute a quorum. In the absence of a quorum at any such
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice other than announcement at the meeting, until a
quorum shall be present.
2.12 Action at Meeting. At any meeting of the board of directors at which
a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these Bylaws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the board of directors or of any committee of the board of
directors may be taken without a meeting, if all members of the board of
directors or committee, as the case may be, consent to the action in writing,
and the written consents are filed with the minutes of proceedings of the board
of directors or committee.
2.14 Removal. Any one or more or all of the directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors, except that (i) the directors elected by the
holders of a particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding
4
<PAGE> 8
shares of such class or series and (ii) in the case of a corporation having
cumulative voting, if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors.
2.15 Committees. The board of directors may, by resolution passed by a
majority of the whole board of directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member of any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have any may exercise all the powers and authority of the board
of directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for
the issuance of shares of stock adopted by the board of directors as provided
in subsection (a) of Section 151 of the General Corporation Law of the State of
Delaware, fix the designations and any of the preferences of rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes of stock holder the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation' property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending Bylaws of the Corporation; and, unless
the resolution, Bylaws or Certificate of Incorporation expressly so provides,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Each such committee shall keep minutes and make such reports as the
board of directors may from time to time request. Except as the board of
directors may otherwise determine, any committee may make rules fro the conduct
of its business, but any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these Bylaws for the board of directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at
meetings as the board of directors may from time to time determine. No such
payment shall preclude any director from serving the Corporation or any of its
parent or subsidiary corporations in any other capacity and receiving
compensation for such service.
5
<PAGE> 9
ARTICLE
3
Officers
--------
3.1 General. The officers of the Corporation shall consist of a chairman
of the board, a president, a secretary, a treasurer and such other officers
with such other titles as the board of directors may determine, including a
vice chairman of the board, and one or more vice presidents, assistant
treasurers, and assistant secretaries. The board of directors may appoint such
other officers with such other powers and duties as it may deem appropriate.
3.2 Election. The chairman of the board, president, treasurer and
secretary shall be elected annually by the board of directors at its first
meeting following the annual meeting of stockholders. Other officers may be
appointed by the board of directors at such meeting or at any other meeting.
3.3 Qualification. No officer need by a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the Corporation at its principal office or to the
president or secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
Any officer may be removed at any time, with or without cause, by vote of
a majority of the entire number of directors then in office.
Except as the board of directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the
year or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The board of directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of president, treasurer
and secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
6
<PAGE> 10
3.7 Chairman of the Board and Vice Chairman of the Board. The chairman of
the board of directors shall perform such duties and possess such powers as are
assigned to him from time to time by the board of directors. Unless otherwise
provided by the board of directors, the chairman of the board of directors
shall preside at all meetings of the stockholders and the board of directors.
The board of directors may appoint a vice chairman of the board of directors
who may, in the absence or disability of the chairman, perform the duties and
exercise the powers of the chairman and perform such other duties and possess
such other powers as from time to time are authorized by the board of
directors.
3.8 President. The president shall be the chief executive officer of the
Corporation, shall have charge and supervision of the business operations of
the Corporation, and shall have full authority to take all lawful actions
necessary to implement corporate and business policy established by the board
of directors. Unless the board of directors shall otherwise direct, all
executive officers of the Corporation shall report, directly or through their
immediate superior officers, to the president. The president shall perform
such other duties and shall have such other powers as the board of directors
may from time to time prescribe and shall be subject at all times to the
authority of the board of directors in the performance of his duties.
3.9 Vice Presidents. The vice president shall perform such duties and
shall have such powers as the board of directors, chairman of the board of
directors or the present may from time to time prescribe. The vice president
shall discharge the duties of the present when the president, for any reason,
cannot discharge the duties of his office. He shall have such other powers and
perform such other duties as shall be prescribed by the directors.
Any assistant vice presidents shall perform such duties and possess such
powers as the board of directors, the chairman of the board of directors, the
present or the vice president may from time to time prescribe.
3.10 Secretary and Assistant Secretaries. The secretary shall perform such
duties and shall have such powers as the board of directors, chairman of the
board of directors or the present may from time to time prescribe. In
addition, the secretary shall perform such duties and have such powers as are
incident to the office of the secretary, including without limitation, the duty
and power to giving notices of all meetings of stockholders and special
meetings of the board of directors, to attend all meetings of stockholders and
the board of directors and keep a record of the proceedings, to maintain a
stock ledger and prepare lists of stockholders and their addresses as required,
to be custodian of corporate records and the corporate seal, if any, and to
affix and attest to the same on documents.
Any assistant secretary shall perform such duties and possess such powers
as the board of directors, the chairman of the board of directors, the
president or the secretary may from time to time prescribe. In the event of
the absence, inability or refusal to act of the secretary, the assistant
secretary (or if there be more than one, the assigned secretaries in the order
determined by the board of directors) shall perform the duties and exercise the
powers of the secretary.
7
<PAGE> 11
In the absence of the secretary or any assistant secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The treasurer shall perform such
duties and shall have such powers as from time to time be assigned to him by
the board of directors, the chairman of the board of directors or the
president. In addition, the treasurer shall perform such duties and have such
powers as are incident to the office of treasurer, including without limitation
the duty and power to keep and be responsible for all funds and securities of
the Corporation, to deposit funds of the Corporation in depositories selected
in accordance with these Bylaws, to disburse such funds as ordered by the board
of directors, the chairman of the board of directors, the president or any vice
president of the Corporation so authorized to act by specific authorization of
the board of directors or chairman of the Directors, to make proper accounts of
such funds, and to render, as required by the board of directors, chairman of
the board of directors or president, statements of all such transactions and of
the financial condition of the Corporation.
The assistant treasurers shall perform such duties and possess such powers
as the board of directors, the chairman of the board of directors, the
president or the treasurer may from time to time prescribe. In the event of
the absence, inability or refusal to act of the treasurer, the assistant
treasurer (or if there shall be more than one, the assistant treasurer (or if
there shall be more than one, the assistant treasurers in the order determined
by the board of directors) shall perform the duties and exercise the powers of
the treasurer.
3.12 Salaries. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the board of directors.
ARTICLE
4
Capital Stock
-------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any unissued balance of the authorized capital
stock of the Corporation held in its treasury may be issued, sold, transferred
or otherwise disposed of by vote of the board of directors in such manner, for
such consideration and on such terms as the board of directors may determine.
4.2 Certificates of Stock. Every holder of stock of the Corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the board of directors, certifying the number and class of shares owned by
him in the Corporation. Each such certificate shall be signed by, or in the
name of the Corporation by the chairman or vice chairman, if any, of
8
<PAGE> 12
the board of directors, or the president or a vice president, and the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of the
Corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the Bylaws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the Corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the board of directors, and subject to applicable laws, shares of
stock may be transferred on the books of the Corporation by the surrender to
the Corporation or its transfer agent of the certificate representing such
shares properly endorsed or accompanied by a written assignment or power of
attorney properly executed, and with such proof authority or the authenticity
of signature as the Corporation or its transfer agent may reasonable require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these Bylaws, the Corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these Bylaws.
4.4 Lost, Stolen or Destroyed Certificates. The Corporation may issue a
new certificate of stock in place of any previously issued certificate of stock
in place of any previously issued certificate alleged to have been lost, stolen
or destroyed, upon such terms and conditions as the board of directors may
prescribe, including the presentation of reasonable evidence of such loss,
theft or destruction and the giving such indemnity as the board of directors
may require for the protection of the Corporation or any transfer agent or
registrar.
4.5 Record Date. The board of directors may fix in advance a date as
record date for the determination of the stockholders entitled notice of or to
vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 60 days prior to any
other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of
9
<PAGE> 13
business on the date on which the board of directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
providing, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
ARTICLE
5
Indemnification of Officers and Directors
-----------------------------------------
5.1 Actions Against a Person. The Corporation shall indemnify any person
who or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
(Corporation) by reason of the fact that he is or was a director or officer
employee or agent, of the corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
5.2 Actions by or in the Right of the Corporation. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
10
<PAGE> 14
5.3 Indemnification in Event of Successful Defense. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in sections 5.1 and 5.2 hereof, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
5.4 Board Of Directors' Approval. Any indemnification under Sections 5.1
and 5.2 of these By-Laws (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Sections 5.1 and 5.2 hereof. Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable but a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
5.5 Advance Indemnity Payments. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent, to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this Article.
5.6 Non-Exclusivity. The indemnification and advancement of expenses
provided by or granted pursuant to, Article SIXTH, Section 2(A) of the
Corporation's Certificate of Incorporation, the Delaware General Corporation
Law and this Article shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
and By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
5.7 Indemnity Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer, of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not he is indemnified against such liability under the provisions of
this Article.
5.8 Consolidation. For the purposes of this Article, references to "the
Corporation" include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was serving as a director, officer,
employee or agent, of such constituent corporation or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint
11
<PAGE> 15
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
For the purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer,
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
ARTICLE
6
General Provisions
------------------
6.1 Fiscal Year. The fiscal year of the Corporation shall be determined by
the board of directors.
6.2 Corporate Seal. The corporate seal, if any, shall be in such form as
shall be approved by the board of directors.
6.3 Written Notice of Meetings. Whenever written notice is required to be
given to any person pursuant to law, the Certificate of Incorporation or these
Bylaws, it may be given to such person, either personally or by sending a copy
thereof by first class mail, or by telegram, charges prepaid, to his address
appearing on the books of the Corporation, or to his business or other address
supplied by him to the Corporation for the purpose of notice. If the notice is
sent by first class mail or by telegraph, it shall be deemed to have been given
to the person entitled thereto when deposited in the United States mail or with
a telegraph office for transmission to such person. Such notice shall specify
the place, day and hour of the meeting and, in case of a special meeting of the
shareholders, the general nature of the business to be transacted.
6.4 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a waiver
of such notice either in writing signed by the person entitled to such notice
or such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in
12
<PAGE> 16
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
6.5 Voting of Securities. Except as the directors may otherwise designate,
the president or treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at any meeting of stockholders or
shareholders of any other Corporation or organization, the securities of which
may be held by this Corporation.
6.6 Evidence of Authority. A certificate by the secretary, or an assistant
secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer of representative of the
Corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
6.7 Certificate of Incorporation. All references in these Bylaws to the
certificate of Incorporation shall be deemed to refer to the certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
6.8 Transactions with Interested Parties. No contract or transaction
between the Corporation and one or more of the directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of the directors or officers are
directors or officers, or have a financial interest, shall be void or violable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the board of directors or a committee of the
board of directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
The material facts as to his relationship or interest as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorized the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum;
The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitle
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
The contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified by the board of directors, a committee
of the board of directors, or the stockholders,
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the board of directors or of a committee which
authorizes the contract or transaction.
13
<PAGE> 17
6.9 Severability. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
6.10 Pronouns. All pronouns used in these Bylaws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of
the person or persons may require.
ARTICLE
7
Amendments
----------
7.1 By the Board of Directors. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the board of
directors at which a quorum is present.
7.2 By the Stockholders. These Bylaws may be altered, amended or repealed
or new Bylaws may be adopted by the affirmative vote of the holders of a
majority of the shares of the capital stock of the Corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alternation,
amendment, repeal or adoption of new Bylaws shall have been stated in the
notice of such special meeting.
ADOPTED THIS 30th day of November, 1996
____
/s/ James S. Brannen
----------------------------
President
ATTEST:
/s/ Stephen Rubin
- -------------------------
Secretary
14
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES
AND LIMITATIONS OF 12% REDEEMABLE PREFERRED STOCK,
$10.00 PAR VALUE PER SHARE, OF
SECURITY ASSOCIATES INTERNATIONAL, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECURITY ASSOCIATES INTERNATIONAL, INC. (the "Corporation"), a Corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify:
That pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation, as amended, of the Corporation, and pursuant to
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors, acting by unanimous written consent dated to
be effective as of December 31, 1996, adopted and approved a resolution
providing for the designation and issuance of three hundred forty four thousand
one hundred and sixty five (344,165) shares of 12% Redeemable Preferred Stock,
$10.00 par value per share, which resolution is as follows:
RESOLVED, pursuant to the authority expressly granted and vested in the
Board of Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, as amended, the Board of Directors hereby
designates three hundred forty four thousand one hundred and sixty five
(344,165) shares of the Corporation's authorized and unissued preferred stock,
$10.00 par value per share, as 12% Redeemable Preferred Stock (the "Redeemable
Preferred Stock") which shall have the following powers, designations,
preferences, and relative participating, optional or other special rights, and
qualifications, limitations or restrictions:
1. Rank. As to distributions upon liquidation, dissolution and winding up,
the shares of Redeemable Preferred Stock shall rank senior to the Corporation's
outstanding Convertible Preferred Stock and senior to the Corporation's Common
Stock.
2. Voting Rights. Except as otherwise required by law or expressly
provided herein the holders of shares of Redeemable Preferred Stock shall not
be entitled to vote on any matters submitted to a vote of the Stockholders of
the Corporation or expressly provided herein. Notwithstanding the foregoing
the holders of the Redeemable Preferred Stock shall be entitled to vote as a
class upon any amendment to the Corporation's Certificate of Incorporation that
would have the effect of canceling or otherwise affecting the rights of the
holders of Redeemable Preferred Stock to receive dividends which have accrued
but which have not been declared.
<PAGE> 2
3. Dividends and Distributions.
a. Holders of record of shares of Redeemable Preferred, out of funds
legally available therefor, shall be entitled to receive dividends on their
shares, which dividends shall accrue at the rate per share of 12% per annum
(initially $1.20 per share per year) of the Stated Value (initially $10.00 per
share) commencing January 1, 1997, in cash. Dividends on shares of Redeemable
Preferred Stock shall be cumulative, and no dividends or other distributions
shall be paid or declared and set aside for payment on the Common Stock or any
other capital stock of the Corporation ranking junior to the Redeemable
Preferred Stock unless such dividends shall have been paid or declared and set
aside for payment. Dividends shall be payable in arrears, at the initial rate
of $1.20 per share for each full calendar year ending December 31, to the
holders of record of the Redeemable Preferred Stock as they appear on the stock
record books of the Corporation on such record dates not more than sixty (60)
nor less than ten (10) days preceding the payment dates thereof, as shall be
fixed by the Board of Directors of the Corporation or a duly authorized
committee thereof; provided, however, that the initial dividend for the
Redeemable Preferred Stock shall accrue for the period commencing January 1,
1997 through December 31, 1997. If, in any year, insufficient funds are
available to pay such dividends as are then due and payable with respect to the
Redeemable Preferred Stock and all other classes and series of capital stock
ranking in parity therewith (or such payment is otherwise prohibited by the
terms of the Corporation's indebtedness or provisions of the General
Corporation Law of Delaware as then in effect), such funds as are legally
available to pay such dividends shall be paid to the holders of the Redeemable
Preferred Stock and to the holders of such other classes and series of capital
stock, on a pro rata basis as provided in Section 4, in accordance with the
rights of each such holder, and the balance of accrued but undeclared and/or
unpaid dividends shall be declared and paid on the next succeeding dividend
date to the extent that funds are then legally available for such purpose.
Each reference herein to the Common Stock includes each other class or series
of capital stock, if any, ranking junior to Preferred Redeemable Stock that may
be authorized from time to time.
b. In the event that the Corporation (which for this purpose shall
include all subsidiaries of the Corporation) shall raise new equity after
January 1, 1997, through the sale of shares of capital stock and/or membership
interests, in a cumulative amount in excess of Ten Million Dollars
($10,000,000.00), excluding any intercorporate investments among the
Corporation and its subsidiaries, all dividends accrued and unpaid with respect
to the Redeemable Preferred Stock, whether or not declared, shall become
immediately due and payable. If for any reason the Corporation is unable to
pay any dividends accrued and owing pursuant to this Section 3.b, the
Corporation will pay such dividends to the holder as soon thereafter as funds
of the Corporation are legally available for such payment. The Corporation
will take or cause to be taken such actions as are necessary to transfer any
funds held by the
<PAGE> 3
subsidiaries of the Corporation to the Corporation in order to allow the
Corporation to meet its obligations under this Section 3(b).
c. In the event that the Corporation (which for this purpose shall
include all subsidiaries of the Corporation) shall raise new equity after
January 1, 1997 through the sale of shares of capital stock and/or membership
interests in a cumulative amount in excess of Fifteen Million Dollars
($15,000,000.00) excluding any intercorporate investments among the Corporation
and its subsidiaries (a "Refinancing"), then immediately upon the achievement
of the Refinancing, the dividend rate of the Redeemable Preferred Stock shall
be increased to one hundred fifty percent (150%) of the dividend rate then in
effect.
4. Liquidation Rights.
a. Preferences and Participations Upon Liquidation.
Upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Redeemable Preferred Stock
shall be entitled to receive out of the assets of the Corporation available for
distribution to stockholders, the Stated Value (as defined below) per share
before any payment or distribution shall be made in respect of the Convertible
Preferred Stock or the Common Stock. For purposes hereof, the "Stated Value"
shall equal $10.00 per share, such amount to be adjusted to reflect stock
splits, stock dividends, subdivisions, combinations or reclassifications which
occur subsequent to the date hereof. If, upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the assets
shall be insufficient to permit the payment to the holders of the Redeemable
Preferred Stock of the full preferential amount aforesaid, all of the assets of
the Corporation available for distribution to the holders of Redeemable
Preferred Stock shall be distributed ratably in accordance with the amount
payable with respect to each such share.
b. As Converted Liquidating Distributions.
For purposes of this Section 4, the merger or consolidation of the
Corporation or the sale of all or substantially all of the Corporation's assets
shall, in and of themselves, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
5. Conversion.
a. Initially, the Redeemable Preferred Stock shall not be convertible.
Immediately upon the achievement of a Refinancing the Redeemable Preferred
Stock shall be convertible in the manner set forth in Section 5(b) below.
<PAGE> 4
b. Conversion Procedure.
Commencing on the date that a Refinancing is accomplished:
(1) Any holder of shares of Redeemable Preferred Stock may at any time,
upon written notice to the Corporation, convert all or any number of such
shares held by such holder ("CONVERSION") into a number of fully paid and
non-assessable shares of the Corporation's Common Stock equal to the then in
effect Conversion Ratio, as defined below, multiplied by the number of shares
of Redeemable Preferred Stock being converted. In addition, any holder may
elect to include in such Conversion an amount equal to all or any portion of
the accrued but unpaid dividends and interest to the date of Conversion. At
the time of Conversion, the Corporation, to the extent it has funds legally
available therefor, shall pay in cash to each holder of Redeemable Preferred
Stock an amount equal to all accrued but unpaid dividends and interest to the
date of Conversion, which such holder has not elected to convert into Common
Stock. In the event of Conversion, the Corporation shall forthwith transmit
to such holder of Redeemable Preferred Stock upon surrender of the
certificate(s) representing such shares, stock certificates for the shares of
Common Stock issued as a result thereof, dated the date of Conversion, and such
holder shall be deemed for all purposes to be the holder of such Common Stock
as of the date of Conversion.
(2) Upon the accomplishment of a Refinancing, each share of Redeemable
Preferred Stock shall be convertible into such number of shares of Common Stock
as is determined by dividing the then Stated Value of a share of Redeemable
Preferred Stock (plus the amount of accrued and unpaid dividends which the
holder has elected to convert to Common Stock) by eighty percent (80%) of the
Market Value Per Share of Common Stock, as defined below (the "CONVERSION
RATIO"). In the event of any split, stock dividend, subdivision, combination
or reclassification of shares of Common Stock, or other recapitalization of the
Corporation, having the effect of increasing or decreasing the issued and
outstanding Common Stock held by each holder thereof, the Conversion Ratio
shall be adjusted so that the number of shares of Common Stock into which each
share of Redeemable Preferred Stock may be converted is equal to that number of
shares of Common Stock that represents the same proportionate ownership
interest in the Corporation as would have resulted if the conversion had taken
place immediately prior to the event causing such adjustment.
(3) As soon as practicable after the date of conversion (but in any
event within ten business days following surrender of certificates representing
the shares of Redeemable Preferred Stock that have been or are to be converted),
the Corporation will deliver to the converting holder:
<PAGE> 5
(A) a certificate or certificates representing the number of whole
shares (cash shall be paid in lieu of fractional shares)of Common Stock
issuable by reason of such conversion registered in such name or names (subject
to applicable securities laws regulations) and in such denomination or
denominations as the converting holder has specified;
(B) payment, from funds legally available therefore, in an amount equal
to all dividends accrued, unpaid and owing pursuant to Section 3 hereof with
respect to each share converted which have not been paid prior to the date of
conversion plus cash for all fractional shares; and
(C) a certificate representing any shares of Redeemable Preferred Stock
(including fractional shares) which were represented by the certificate(s)
delivered to the Corporation in connection with such conversion but which were
not converted.
(5) If for any reason the Corporation is unable to pay any dividends
declared, unpaid and owing pursuant to Section 3 on the shares of Redeemable
Preferred Stock being converted, the Corporation will pay such dividends, plus
interest on the unpaid dividends for the period in excess of thirty (30) days
during which such dividends shall remain unpaid, calculated at the rate of 12%
per annum for the period prior to the occurrence of a Refinancing and at 18%
per annum thereafter, to the converting holder as soon thereafter as funds of
the Corporation are legally available for such payment. At the request of any
such converting holder, the Corporation will provide such holder with written
evidence of such obligation.
(6) For purposes of this Section 5, "Market Value Per Share of Common
Stock" shall mean (i) the last reported sale price of the Common Stock averaged
over the ten (10) business days immediately prior to the date a notice of
conversion is deemed received, as reported on the primary stock exchange on
which the Common Stock is traded if the Common Stock is traded on a national
stock exchange, or the NASDAQ Stock Market, Inc. ("NASDAQ") if the Common Stock
is quoted on NASDAQ or (ii) if such last sales price information is not
available, the average of the closing bid and asked prices as reported by the
National Quotation Bureau, Inc., averaged over the ten (10) business days
immediately prior to the date a notice of conversion is deemed received.
c. Limitation on Exercise of Conversion Privilege.
In the event that exercise of the conversion privileges set forth in
this Section 5 would result in significant diminution of the ability of the
Corporation to advantageously utilize its net operating loss carryforwards
("NOLS") for federal income tax purposes, in the judgment of
<PAGE> 6
the Corporation's certified public accountants, the right to exercise the
conversion privileges with respect to any holders shares of Redeemable
Preferred Stock shall be limited to the right to convert such number of shares
of Redeemable Preferred Stock such that the shares of Common Stock to be
received upon such conversion equals the maximum number of shares of Common
Stock that may be issued upon conversion without the Corporation losing its
ability to utilize its NOLS. The Corporation shall promptly notify the
holders of shares of Redeemable Preferred Stock in writing of any determination
by its certified public accountants that all or part of any remaining portion
of the Redeemable Preferred Stock may be converted without jeopardizing SAI's
ability to use its NOLS. The time period for the conversion of any portion of
the Redeemable Preferred Stock (or any part thereof) the exercise of which was
previously prohibited pursuant to the provisions of this Section shall be
extended for a period of sixty (60) days following the receipt of written
notice from SAI that the conditions that gave rise to the prohibition on
exercise no longer apply.
d. Authorization and Issuance of Common Stock. The Corporation covenants
and agrees that:
(1) The Corporation will at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of issuance upon the conversion of the Redeemable Preferred Stock as provided
in this Section 5, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Redeemable Preferred
Stock. Commencing with the meeting of the Corporation's Board of Directors (the
"Board") following the meeting held in April, 1997, the Board will estimate the
number of shares issuable upon exercise of the conversion rights of the
Redeemable Preferred Stock and reserve and keep available for issuance upon
conversion of the Redeemable Preferred Stock such number of shares of Common
Stock. The Corporation covenants that all shares of Common Stock which shall
be so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation will
take all such actions as may be necessary to assure that all shares of Common
Stock may be so issued without violation of any applicable law or regulation or
any requirements of any domestic stock exchange or market upon which any shares
of Common Stock may be listed.
(2) The Corporation will not take any action which results in any
adjustment of the number of shares of Common Stock issuable upon conversion of
a share of Redeemable Preferred Stock if the total number of shares of Common
Stock issuable upon conversion of the Redeemable Preferred Stock then
outstanding, together with the total number of shares of Common Stock then
outstanding and the total number of shares of Common Stock reserved for any
purpose other than issuance upon conversion of Redeemable Preferred Stock,
<PAGE> 7
would exceed the total number of shares of Common Stock then authorized by the
Corporation's Certificate of Incorporation, as amended.
(3) The issuance of certificates for shares of Common Stock upon
conversion of shares of Redeemable Preferred Stock will be made without charge
to the holders of such shares of Preferred Stock for any issuance tax in
respect thereof.
(4) The Corporation will not close its books against the transfer of
shares of Redeemable Preferred Stock or of Common Stock issued or issuable upon
conversion of shares of Redeemable Preferred Stock in any manner which
interferes with the timely conversion of shares of Convertible Preferred Stock.
e. Reorganization, Reclassification, Consolidation, Merger or Sale.
Any capital reorganization, reclassification, consolidation merger or sale of
all or substantially all of the Corporation's assets to another person or
entity which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is
referred to herein as an "ORGANIC CHANGE." Prior to the consummation of any
Organic Change, the Corporation will make appropriate provisions to insure that
each of the holders of Redeemable Preferred Stock will thereafter have the
right to acquire and receive such shares of stock, securities or assets as such
holder would have received if such holder had converted the Redeemable
Preferred Stock but only if the convertible immediately prior to such Organic
Change. In any such Organic Change, the Corporation will make appropriate
provisions to insure that the provisions of this Section 5 will thereafter be
applicable as nearly as may be to the Redeemable Preferred Stock. The
Corporation will not effect any consolidation, merger or sale, unless prior to
the consummation thereof, the successor corporation resulting from
consolidation or merger or the corporation purchasing such assets assumes the
obligation to deliver to such holder of Redeemable Preferred Stock such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
f. Notices.
(1) The Corporation will give written notice to all holders of shares
of Redeemable Preferred Stock as soon as practicable but in any event at least
ten days prior to the date on which the Corporation closes its books or takes a
record on with respect to any dividend or distribution upon Common Stock or
upon any other class of the Corporation's capital stock or with respect to any
proposed Organic Change.
<PAGE> 8
(2) Any notice required by the provisions of this Certificate of
Designations to be given to the Corporation or any holder of shares of
Redeemable Preferred Stock shall be deemed given upon the first to occur of (x)
the date when personally delivered to such holder of (y) on the first business
day following the date on which it was delivered, properly addressed, to the
agent of a reputable commercial overnight delivery service or (z) five (5)
business days after the same has been deposited properly addressed in the
United States mail, certified or registered mail, return receipt requested,
postage prepaid.
g. Taxes and charges. The Corporation will pay all taxes and other
governmental charges, if any, that may be imposed in respect of the issuance or
delivery of shares of Common Stock upon conversion of shares of Redeemable
Preferred Stock.
6. Redemption. Any time after the accomplishment of a Refinancing, the
Corporation may, in its role discretion, elect to redeem all, but not less than
all of the outstanding Redeemable Preferred Stock, upon no less than ten (10)
days prior written notice to the holders of Redeemable Preferred Stock. The
notice shall state that on the date stated therein the conversion rights
pursuant to Section 5 shall expire (the "Expiration Date"), and that any shares
of Redeemable Preferred stock as to which notice of the holder's election to
convert has not been received by such date by the Corporation shall expire (the
"Expiration Date"). All rights of the holders of Redeemable Preferred Stock as
to which notice of conversion has not been received prior to the close of
business on the Expiration Date shall terminate except for the right to receive
the Redemption Payment (as defined below), as set forth herein. Within five
(5) business days of the Expiration Date, the Corporation shall pay to each
holder of shares of Redeemable Preferred Stock an amount determined by
multiplying the sum of (i) the then Stated Value of each share of Redeemable
Preferred Stock and (ii) the accrued but unpaid dividends per share of
Redeemable Preferred Stock as of the Expiration Date by (x) the number of such
holder's shares of Redeemable Preferred Stock which were not converted prior to
the close of business on the Expiration Date (the "Redemption Payment"). Each
holder of shares of Redeemable Preferred Stock so redeemed shall surrender the
certificates representing such shares to the Corporation for cancellation.
Notwithstanding any failure of any such holder to surrender such shares for
cancellation, all rights with respect to such shares other than the right to
receive the Redemption Payment shall cease at the close of business on the
Expiration Date.
7. Prohibition on Certain Financing Transactions. The Corporation and
its subsidiaries shall not enter into any transaction or related series of
transactions, in any eighteen (18) month period, other than funding pursuant
to the Senior Loan Agreement (as defined in Section 9 hereof), the effect of
which is a net cash infusion into the Corporation or its subsidiaries greater
than or equal to Fifteen Million Dollars ($15,000,000) without the prior
<PAGE> 9
written consent of the holders of a majority of the shares of Redeemable
Preferred Stock then outstanding.
8. Amendment. Any of the terms of the Redeemable Preferred Stock may be
amended or waived if the Corporation has obtained the affirmative vote of or
written consent by the holders of a majority of the shares of Redeemable
Preferred Stock then outstanding.
This Certificate of Designations, Rights, Preferences and Limitations of
Redeemable Preferred Stock herein certified has been duly adopted in accordance
with the provisions of Section 151 of the General Corporation Law of the State
of Delaware.
9. Restrictions. This Certificate of Designations, Rights,
Preferences and Limitations of Redeemable Preferred Stock (this "Certificate")
is subject to the terms, conditions, limitations set forth in that certain Loan
Agreement dated as of December 31, 1996 (as the same may be amended, restated,
supplemented or otherwise modified from time to time (the "Senior Loan
Agreement"), among the Corporation, certain affiliates of the Corporation and
FINOVA Capital Corporation, a Delaware corporation, in its individual capacity
as agent for all lenders ("Senior Lender"), including, without limitation, the
restrictions on (i) payment of dividends, (ii) redemption of shares and (iii)
modification, amendment or change to this Certificate, in each case and in
every other case as contained in the Senior Loan Agreement.
10. Conflicts. In the event of any conflict between any term,
covenant, or condition of this Certificate and any term, covenant or condition
of the Senior Loan Agreement, the provisions of the Senior Loan Agreement shall
govern.
Signed on June 25, 1997
-------------------
/s/ James S. Brannen
--------------------------
James S. Brannen, President
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES
AND LIMITATIONS OF CONVERTIBLE PREFERRED STOCK,
$10.00 PAR VALUE PER SHARE, OF
SECURITY ASSOCIATES INTERNATIONAL, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECURITY ASSOCIATES INTERNATIONAL, INC. (the "Corporation"), a Corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify:
That pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation, as amended, of the Corporation, and pursuant to
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors, acting by unanimous written consent dated to
be effective as of December 31, 1996, adopted and approved a resolution
providing for: (i) the designation of sixty eight thousand eight hundred and
ten (68,810) shares of Convertible Preferred Stock, $10.00 par value per share
which resolution is as follows:
RESOLVED, pursuant to the authority expressly granted and vested in the
Board of Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, as amended, the Board of Directors hereby
designates sixty eight thousand eight hundred and ten (68,810) shares of the
Corporation's authorized and unissued preferred stock, $10.00 par value per
share, as Convertible Preferred Stock (the "Convertible Preferred Stock") which
shall have the following powers, designations, preferences, and relative
participating, optional or other special rights, and qualifications,
limitations or restrictions:
1. Rank. As to distributions upon liquidation, dissolution and winding up,
the shares of Convertible Preferred Stock shall rank junior to the
Corporation's outstanding 12% Redeemable Preferred Stock and rank senior to the
Corporation's Common Stock.
2. Voting Rights. Except as otherwise required by law or expressly
provided herein, each share of Convertible Preferred Stock shall entitle the
holder thereof to vote on all matters submitted to a vote of the Stockholders
of the Corporation and to have the number of votes equal to the number of
shares of Common Stock into which such share of Convertible Preferred Stock is
then convertible pursuant to the provisions hereof, at the record date for the
determination of stockholders entitled to vote on such matters, or if no such
record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise required by law or
expressly provided herein, the holders of shares of Convertible Preferred Stock
and Common Stock shall vote together as a single class and not as separate
classes.
<PAGE> 2
3. Dividends and Distributions. In the event any dividend or other
distribution payable in cash or other property (including shares of Common
Stock) is declared on the Common Stock, each holder of shares of Convertible
Preferred Stock on the record date for such dividend or distribution shall be
entitled to receive on the date of payment or distribution of such dividend or
other distribution the same cash or other property which such holder would have
received if on such record date such holder were the holder of record of the
number of shares of Common Stock into which the shares of Convertible Preferred
Stock then held by such holder are then convertible (the "Participating
Dividend").
4. Liquidation Rights.
a. Preferences and Participations Upon Liquidation.
Upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Convertible Preferred
Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, the Stated Value (as defined below)
per share before any payment or distribution shall be made in respect of the
Common Stock. For purposes hereof, the "Stated Value" shall equal $250.00 per
share, such amount to be adjusted to reflect stock splits, stock dividends,
subdivisions, combinations or reclassifications which occur subsequent to the
date hereof. If, upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets shall be insufficient
to permit the payment to the holders of the Convertible Preferred Stock of the
full preferential amount aforesaid after payment to the holders of the 12%
Redeemable Preferred Stock the entire preferential amount due them, all of the
assets of the Corporation available for distribution to the holders of
Convertible Preferred Stock shall be distributed ratably in accordance with the
amount payable with respect to each such share.
b. As Converted Liquidating Distributions.
For purposes of this Section 4, the merger or consolidation of the
Corporation or the sale of all or substantially all of the Corporation's asset
shall, in and of themselves, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
5. Conversion.
a. Conversion Procedure.
(1) Any holder of shares of Convertible Preferred Stock may at any
time, upon written notice to the Corporation, convert all or any number of such
shares held by
<PAGE> 3
such holder ("OPTIONAL CONVERSION") into a number of fully paid and
non-assessable shares of the Corporation's Common Stock equal to the then in
effect Conversion Ratio, as defined below, multiplied by the number of shares
of Convertible Preferred Stock being converted. At the time of Optional
Conversion, the Corporation, to the extent it has funds legally available
therefor, shall pay in cash to each holder of Convertible Preferred Stock an
amount equal to all accrued and unpaid Participating Dividends to the date of
Optional Conversion. In the event of Optional Conversion, the Corporation
shall forthwith transmit to such holder of Convertible Preferred Stock upon
surrender of the certificate(s) representing such shares, stock certificates
for the shares of Common Stock issued as a result thereof, dated the date of
Optional Conversion, and such holder shall be deemed for all purposes to be the
holder of such Common Stock as of the date of Optional Conversion.
(2) Upon the first sale of Common Stock by the Corporation to underwriters
for the account of the Corporation pursuant to a registration statement under
the Securities Act of 1933, as amended ("SECURITIES ACT"), filed with and
declared effective by the Securities and Exchange Commission, provided the
offering results in the receipt by the Corporation of proceeds of not less than
$15.0 million at not less than $10.00 per share of Common Stock (as adjusted to
reflect stock splits, stock dividends, subdivisions, combinations or
reclassifications, subsequent to the date hereof) (such sale being herein
called the "INITIAL PUBLIC OFFERING"), all of the remaining shares of
Convertible Preferred Stock outstanding, if any, shall be converted without any
further action on the part of the Corporation or the holders of such
Convertible Preferred Stock ("MANDATORY CONVERSION") into a number of shares of
Common Stock equal to the then in effect Conversion Ratio, as defined below,
multiplied by the number of shares of Convertible Preferred Stock being
converted. In the event of Mandatory Conversion, the Corporation shall
forthwith transmit to each holder of Convertible Preferred Stock upon surrender
of the certificates representing such shares, stock certificates for the shares
of Common Stock issued as a result thereof, dated the date of Mandatory
Conversion whether or not certificates for shares of Convertible Preferred
Stock have been submitted for exchange.
(3) Initially each share of Convertible Preferred Stock shall be
convertible into one hundred shares of Common Stock (the "CONVERSION RATIO").
In the event of any split, stock dividend, subdivision, combination or
reclassification of shares of Common Stock, or other recapitalization of the
Corporation, having the effect of increasing or decreasing the issued and
outstanding Common Stock held by each holder thereof, the Conversion Ratio
shall be adjusted so that the number of shares of Common Stock into which each
share of Convertible Preferred Stock may be converted is equal to that number
of shares of Common Stock that represents the same proportionate ownership
interest in the Corporation as would have resulted if the conversion had taken
place immediately prior to the event causing such adjustment.
<PAGE> 4
(4) As soon as practicable after the date of conversion (but in any event
within ten business days following surrender of certificates representing the
shares of Convertible Preferred Stock that have been or are to be converted),
the Corporation will deliver to the converting holder:
(A) a certificate or certificates representing the number of whole
shares (cash shall be paid in lieu of fractional shares) of Common Stock
issuable by reason of such conversion registered in such name or names (subject
to applicable securities laws and regulations) and in such denomination or
denominations as the converting holder has specified;
(B) payment, from funds legally available therefore, in an amount equal
to all Participating Dividends declared, unpaid and owing pursuant to Section 3
hereof with respect to each share converted which have not been paid prior to
the date of conversion plus cash for all fractional shares; and
(C) a certificate representing any shares of Convertible Preferred
Stock (including fractional shares) which were represented by the
certificate(s) delivered to the Corporation in connection with such conversion
but which were not converted.
(5) If for any reason the Corporation is unable to pay any Participating
Dividends accrued, unpaid and owing pursuant to Section 3 on the shares of
Convertible Preferred Stock being converted, the Corporation will pay such
Participating Dividends to the converting holder, plus interest on the unpaid
dividends for the period in excess of thirty (30) days during which such
dividends shall remain unpaid, calculated at the rate of 12% per annum for the
period prior to the occurrence of a Refinancing (as defined in the Certificate
of Designations, Rights, Preferences and Limitations of the Corporation's 12%
Redeemable Preferred Stock) and at 18% per annum thereafter, to the converting
holder as soon thereafter as funds of the Corporation are legally available for
such payment. as soon thereafter as funds of the Corporation are legally
available for such payment. At the request of any such converting holder, the
Corporation will provide such holder with written evidence of such obligation.
b. Authorization and Issuance of Common Stock. The Corporation covenants
and agrees that:
(1) The Corporation will at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the Convertible Preferred Stock as provided in
this Section 5, such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding shares
<PAGE> 5
of Convertible Preferred Stock. The Corporation covenants that all shares of
Common Stock which shall be so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Corporation will take all such actions as may be necessary to
assure that all shares of Common Stock may be so issued without violation of
any applicable law or regulation or any requirements of any domestic stock
exchange or market upon which any shares of Common Stock may be listed.
(2) The Corporation will not take any action which results in any
adjustment of the number of shares of Common Stock issuable upon conversion of
a share of Convertible Preferred Stock if the total number of shares of Common
Stock issuable upon conversion of the Convertible Preferred Stock then
outstanding, together with the total number of shares of Common Stock then
outstanding and the total number of shares of Common Stock reserved for any
purpose other than issuance upon conversion of Convertible Preferred Stock,
would exceed the total number of shares of Common Stock then authorized by the
Corporation's Certificate of Incorporation, as amended.
(3) The issuance of certificates for shares of Common Stock upon
conversion of shares of Convertible Preferred Stock will be made without charge
to the holders of such shares of Convertible Preferred Stock for any issuance
tax in respect thereof.
(4) The Corporation will not close its books against the transfer of
shares of Convertible Preferred Stock or of Common Stock issued or issuable
upon conversion of shares of Convertible Preferred Stock in any manner which
interferes with the timely conversion of shares of Convertible Preferred Stock.
c. Reorganization, Reclassification, Consolidation, Merger or Sale.
Any capital reorganization, reclassification, consolidation merger or sale of
all or substantially all of the Corporation's assets to another person or
entity which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is
referred to herein as an "ORGANIC CHANGE." Prior to the consummation of any
Organic Change, the Corporation will make appropriate provisions to insure that
each of the holders of Convertible Preferred Stock will thereafter have the
right to acquire and receive such shares of stock, securities or assets as such
holder would have received if such holder had converted the Convertible
Preferred Stock immediately prior to such Organic Change. In any such Organic
Change, the Corporation will make appropriate provisions to insure that the
provisions of this Section 5 will thereafter be applicable as nearly as may be
to the Convertible Preferred Stock. The Corporation will not effect any
consolidation, merger or sale, unless prior to the consummation thereof, the
successor
<PAGE> 6
corporation resulting from consolidation or merger or the corporation
purchasing such assets assumes the obligation to deliver to such holder of
Convertible Preferred Stock such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
d. Notices.
(1) The Corporation will give written notice to all holders of shares of
Convertible Preferred Stock as soon as practicable but in any event at least
ten days prior to the date on which the Corporation closes its books or takes a
record on with respect to any dividend or distribution upon Common Stock or
upon any other class of the Corporation's capital stock or with respect to any
proposed Organic Change.
(2) Any notice required by the provisions of this Certificate of
Designations to be given to the Corporation or any holder of shares of
Convertible Preferred Stock shall be deemed given upon the first to occur of
(x) the date when personally delivered to such holder of (y) on the first
business day following the date on which it was delivered properly addressed to
the agent of a reputable commercial overnight delivery service or (z) five (5)
business days after the same has been deposited properly addressed in the
United States mail, certified or registered mail, return receipt requested,
postage prepaid.
e. Taxes and charges. The Corporation will pay all taxes and other
governmental charges, if any, that may be imposed in respect of the issuance or
delivery of shares of Common Stock upon conversion of shares of Convertible
Preferred Stock.
6. Amendment. Any of the terms of the Convertible Preferred Stock may be
amended or waived if the Corporation has obtained the affirmative vote of or
written consent by the holders of a majority of the shares of Convertible
Preferred Stock then outstanding.
7. Restrictions. This Certificate of Designations, Rights,
Preferences and Limitations of Convertible Preferred Stock (this "Certificate")
is subject to the terms, conditions, limitations set forth in that certain Loan
Agreement dated as of December 31, 1996 (as the same may be amended, restated,
supplemented or otherwise modified from time to time (the "Senior Loan
Agreement")), among the Corporation, certain affiliates of the Corporation and
FINOVA Capital Corporation, a Delaware corporation, in its individual capacity
as agent for all lenders ("Senior Lender"), including, without limitation, the
restrictions on (i) payment of dividends, (ii) redemption of shares and (iii)
modification, amendment or change to this Certificate, in each case and in
every other case as contained in the Senior Loan Agreement.
<PAGE> 7
8. Conflicts. In the event of any conflict between any term,
covenant, or condition of this Certificate and any term, covenant or condition
of the Senior Loan Agreement, the provisions of the Senior Loan Agreement shall
govern.
This Certificate of Designations, Rights, Preferences and Limitations of
Convertible Preferred Stock herein certified has been duly adopted in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware.
Signed on June 25, 1997
-------------------
/s/ James S. Brannen
---------------------------------
James S. Brannen, President
<PAGE> 1
EXHIBIT 4.1
================================================================================
NUMBER SHARES
------ ------
INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAD NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1833, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS A COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT
HAS BEEN MADE OR UNLESS AVAILABILITY OF AN EXCEPTION FROM SUCH REGISTRATION
PROVISIONS HAS BEEN ESTABLISHED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933.
SECURITY ASSOCIATES INTERNATIONAL, INC.
dba SECURITY ASSOCIATES, INC.
10,000,000 AUTHORIZED SHARES NON-ASSESSABLE
THIS CERTIFICATE REPRESENTS SHARES
OF THE CORPORATION ADJUSTED TO A
1 FOR 10 SPLIT EFFECTIVE
12/17/92.
THIS CERTIFIES THAT CUSIP NO.813764 30 5
--------------------
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK $.001 PAR VALUE OF
SECURITY ASSOCIATES INTERNATIONAL, INC. - dba SECURITY ASSOCIATES, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its authorized offices.
Dated:
COUNTERSIGNED
FIDELITY TRANSFER COMPANY
Salt Lake City, Utah
By: [Signature]
------------------------
[Signature]
- ----------------- ----------------------------
Secretary [SEAL] President
================================================================================
<PAGE> 2
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a savings
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-_________________ Custodian________________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_______________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________
________________________________
__________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF
ASSIGNEE)
__________________________________________________________________
__________________________________________________________________
___________________________________________________________ Shares
of the capital stock represented by the within certificate, and do
hereby irrevocably constitute and appoint
_________________________________________________________ Attorney
to transfer the said stock on the books of the within named Coporation
with full power of substitution in the premises.
Dated _________ /__________ / __________
__________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS A COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF SUCH ACT HAS BEEN MADE OR UNLESS
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION PROVISIONS HAS
BEEN ESTABLISHED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF SACHNOFF & WEAVER, LTD.]
July 22, 1997
Security Associates International, Inc.
2101 Arlington Heights Road
Arlington Heights, Illinois 60005
Ladies and Gentlemen:
We have acted as counsel to Security Associates International, Inc. a
Delaware corporation (the "Company"), in connection with the Registration
Statement of Form S-1 (the "Registration Statement"), filed by the Company
under the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Commission"), relating to the sale of up to 2,000,000 shares
(the "Shares") of the Company's Common Stock, par value $0.001 per share and
warrants to purchase 2,000,000 shares of Common Stock (the "Warrants"). We
have examined the Registration Statement and have reviewed such other documents
and have made such further investigations as we have deemed necessary to enable
us to express the opinion hereinafter set forth.
We hereby advise you that in our opinion the Shares and Warrants have
been duly authorized by the Company and, upon payment and delivery in the
manner described in the Registration Statement, will be validly issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations of
the Securities and Exchange Commission.
Very truly yours,
/s/ Sachnoff & Weaver, Ltd.
SACHNOFF & WEAVER, LTD.
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as of
the 29th day of August, 1996, by and between Security Associates
International, Inc., and its subsidiaries and affiliates (collectively, the
"EMPLOYER"), and James S. Brannen ("BRANNEN").
RECITALS
A. The Employer desires that Brannen continue to provide services for the
benefit of the Employer and Brannen desires to accept such continued employment
with the Employer.
B. The Employer and Brannen acknowledge that Brannen is, and will continue
to be, a member of the senior management team of the Employer and, as such,
will participate in implementing the Employer's business plan.
NOW, THEREFORE, in consideration of the above premises and the following
mutual covenants and conditions, the parties agree as follows:
1. Employment. The Employer shall continue to employ Brannen as its
President, and Brannen hereby accepts such continued employment on the
following terms and conditions.
2. Duties. Brannen shall work for the Employer in a full-time capacity.
Brannen shall, during the term of this Agreement, continue to have the duties,
responsibilities, powers, and authority customarily associated with the
position of President. Brannen shall report to, and follow the direction of,
the Board of Directors of the Employer (the "BOARD"). Brannen shall
diligently, competently, and faithfully perform all duties, and shall devote
his entire business time, energy, attention, and skill to the performance of
duties for the Employer and will use his best efforts to promote the legitimate
business interests of the Employer. It shall not be considered a violation of
the foregoing for Brannen to serve on corporate, industry, religious, civic, or
charitable boards or committees, so long as such activities do not
significantly interfere with the performance of Brannen's responsibilities as
an employee of the Employer in accordance with this Agreement.
3. Term of Employment. This Agreement shall be entered into for a period
of three (3) years, commencing on the date hereof and ending on August 29, 1999
(the "INITIAL TERM"). The term of employment shall be renewed automatically
for successive periods of one (1) year each (a "RENEWAL TERM") after the
expiration of the Initial Term and any subsequent Renewal Term, unless the
Board provides Brannen, or Brannen provides the Board, with written notice to
the contrary at least six (6) months prior to the end of the Initial Term or
any Renewal Term, as the case may be.
<PAGE> 2
4. Compensation.
A. Salary. The Employer shall pay Brannen an annual salary of
$125,000 (the "BASE SALARY"), payable in substantially equal periodic
installments in accordance with the Employer's payroll policy from time to
time in effect. The Base Salary shall be subject to any payroll or other
deductions as may be required to be made pursuant to law, government
order, or by agreement with, or consent of, Brannen. Increases to the Base
Salary shall be made following an annual salary review, the first of which
shall take place in or around September, 1997, and all subsequent reviews
shall occur in or around September of each year thereafter. The Base
Salary shall not be reduced, and the term Base Salary shall refer
thereafter to the Base Salary, as it may be increased from time to time.
B. Performance Bonus. In accordance with the Employer's practice
from time to time in effect, the Employer shall award Brannen an annual
bonus in an amount to be determined by the Employer based upon Brannen's
and the Employer's performance and the achievement of other goals and
objectives set by the Employer (the "Performance Bonus").
C. Long-Term Incentive Plan. After entering into this Agreement, the
Employer shall grant the Executive incentive stock options (in
accordance with Section 422 of the Internal Revenue Code of 1986, as
amended) under the Employer's Stock Option Plan to purchase shares of the
Employer's common stock, the number of shares of which shall be agreed
upon by the parties. The stock options shall be granted at an exercise
price equal to the "fair market value" of such common stock on the date of
the grant. The stock options shall vest and become exercisable on August
1, 1999. The stock options granted hereunder shall expire by their terms
on the first to occur of (i) ten (10) years from the date of their grant,
(ii) three (3) months after the Executive's employment is terminated under
Paragraph 6A, 6D, 6E or 6F (twelve (12) months in the event employment
terminates under Paragraph 6B), or (iii) the Executive's termination of
employment under Paragraph 6C. If the incentive stock options shall, at
any time, be determined not to qualify as incentive stock options under
Section 422 of the Code, such options shall automatically convert into,
and be treated as, non-qualified stock options. The actual terms and
conditions of the Stock Option Plan shall be established by the Employer,
and shall be memorialized in a written document to be prepared by the
Employer and which will be incorporated herein by reference.
D. Other Benefits. During the term of this Agreement, the Employer
shall:
(1) include Brannen in any life insurance, disability
insurance, medical, prescription, dental or health insurance
(including dependent coverage) (which premiums for the medical,
prescription, dental and health insurance coverage shall be entirely
paid for by the Employer), savings, pension and
2
<PAGE> 3
retirement plans and other benefit plans or programs
(including, if applicable, any excess benefit or supplemental
executive retirement plans) maintained by the Employer for the
benefit of its executives;
(2) include Brannen in such perquisites as the Employer may
establish from time to time that are commensurate with his position
and at least comparable to those received by other executives of
the Employer;
(3) provide Brannen with six (6) weeks paid vacation/time off
per annum; and
(4) provide Brannen with an automobile expense reimbursement
allowance of one thousand dollars ($1,000.00) per month to
reimburse him for the use of an automobile and the operating
expenses thereof.
5. Expenses. The Employer shall reimburse Brannen for all reasonable and
necessary business expenses, provided Brannen submits paid receipts or other
documentation acceptable to the Employer.
6. Termination. Notwithstanding anything in Paragraph 3 of this
Agreement to the contrary, the term of this Agreement shall terminate
upon the first to occur of the following events:
A. At the end of the term of this Agreement, including any Renewal
Terms, provided advance notice of such termination is given in accordance
with Paragraph 3 hereof.
B. Upon Brannen's death or the date Brannen is given written notice
that he has been determined to be disabled by the Employer. For purposes
of this Agreement, Brannen shall be deemed to be disabled if Brannen, as
a result of illness or incapacity, shall be unable to perform
substantially his required duties for a period of four (4) consecutive
months or for any aggregate period of six (6) months in any twelve (12)
consecutive month period. A termination of Brannen's employment by the
Employer for disability shall be communicated to Brannen by written
notice and shall be effective on the thirtieth (30th) day after receipt
of such notice by Brannen, unless Brannen returns to full-time
performance of his duties before such thirtieth (30th) day.
C. On the date the Employer provides Brannen with written notice
that he is being terminated for "CAUSE." For purposes of this Agreement,
Brannen shall be deemed terminated for Cause if the Employer terminates
Brannen after Brannen:
3
<PAGE> 4
(1) shall have been convicted of any felony including, but not
limited to, a felony involving fraud, theft, misappropriation,
dishonesty, or embezzlement;
(2) shall have committed willful acts that materially impair
the goodwill or business of the Employer or cause material damage
to its property, goodwill, or business; and
(3) shall have refused to, or willfully failed to, perform his
material duties hereunder.
No act or failure to act on the part of Brannen shall be considered
"willful" unless it is done, or omitted to be done, by Brannen in bad
faith or without reasonable belief that his action or omission was in the
best interests of the Employer. A termination of Brannen's employment for
Cause shall be effected in accordance with the following procedures. The
Employer shall give Brannen written notice ("NOTICE OF TERMINATION FOR
CAUSE") of its intention to terminate Brannen's employment for Cause,
setting forth in reasonable detail the specific conduct of Brannen that it
considers to constitute Cause and the specific provision(s) of this
Agreement on which it relies, and stating the date, time and place of the
Board Meeting for Cause. The "BOARD MEETING FOR CAUSE" means a meeting of
the Board at which Brannen's termination for Cause will be considered,
that takes place not less than ten (10) and not more than twenty (20)
business days after Brannen receives the Notice of Termination for Cause.
Brannen shall be given an opportunity, together with counsel, to be heard
at the Board Meeting for Cause. Brannen's termination for Cause shall be
effective when and if a resolution is duly adopted at the Board Meeting
for Cause by a two-thirds vote of the entire membership of the Board,
stating that in the good faith opinion of the Board, Brannen is guilty of
the conduct described in the Notice of Termination for Cause, and that
such conduct constitutes Cause under this Agreement.
D. On the date Brannen terminates his employment for "Good Reason."
For purposes of this Agreement, "GOOD REASON" means:
(1) the assignment to Brannen of any duties inconsistent in
any respect with Paragraph 2 of this Agreement, or any other action
by the Employer that results in a diminution in Brannen's position,
authority, duties or responsibilities, other than an isolated,
insubstantial and inadvertent action that is not taken in bad
faith and is remedied by the Employer after receipt of notice
thereof from Brannen;
(2) any requirement by the Employer that Brannen's services be
rendered primarily at a location or locations other than within the
greater Chicago metropolitan area and for other than a de minimis
period of time;
4
<PAGE> 5
(3) any breach of this Agreement by the Employer that is not
remedied by the Employer promptly after receipt of notice thereof
from Brannen;
(4) any failure by the Employer to comply with any provision
of Paragraph 4 of this Agreement, other than an isolated,
insubstantial and inadvertent failure that is not taken in bad
faith and is remedied by the Employer promptly after receipt of
notice thereof from Brannen;
(5) any purported termination of Brannen's employment by the
Employer for a reason or in a manner not expressly permitted by
this Agreement; or
(6) the resignation by Brannen following a "CHANGE IN
CONTROL." A "Change in Control" shall be deemed to occur on
the earliest of (a) the acquisition by any entity, person, or group
of beneficial ownership, as that term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934, of more than 30% of the
outstanding capital stock of the Employer entitled to vote for the
election of directors ("VOTING STOCK"); (b) the commencement by any
entity, person, or group (other than the Employer or a subsidiary of
the Employer) of a tender offer or an exchange offer for more than
20% of the outstanding Voting Stock of the Employer; (c) the
effective time of (1) a merger or consolidation of the Employer with
one or more corporations as a result of which the holders of the
outstanding Voting Stock of the Employer immediately prior to such
merger hold less than 80% of the Voting Stock of the surviving or
resulting corporation, or (2) a transfer of substantially all of the
property or assets of the Employer other than to an entity of which
the Employer owns at least 80% of the Voting Stock; and (d) the
election to the Board, without the recommendation or approval of the
incumbent Board, of the lesser of (1) three directors, or (2)
directors constituting a majority of the number of directors of the
Employer then in office.
A termination of employment by Brannen for Good Reason shall be
effectuated by giving the Employer written notice ("NOTICE OF TERMINATION
FOR GOOD REASON") of the termination within three (3) months (six (6)
months in the event of a Change in Control) of the event constituting Good
Reason, setting forth in reasonable detail the specific conduct of the
Employer that constitutes Good Reason and the specific provisions of this
Agreement on which Brannen relies. A termination of employment by Brannen
for Good Reason shall be effective on the fifth (5th) business day
following the date when the Notice of Termination for Good Reason is
given, unless the notice sets forth a later date (which date shall in no
event be later than thirty (30) days after the notice is given).
5
<PAGE> 6
E. On the date Brannen terminates his employment for any reason,
other than a reason set forth in Paragraph 6D, provided that Brannen
shall give the Employer six (6) months written notice prior to such date
of his intention to terminate this Agreement.
F. On the date the Employer terminates Brannen's employment for any
reason, other than a reason set forth in Paragraph 6C, provided that the
Employer shall give Brannen six (6) months written notice prior to such
date of its intention to terminate this Agreement.
7. Compensation Upon Termination. If Brannen's services are terminated
pursuant to Paragraph 6, Brannen shall be entitled to his Base Salary through
his final date of active employment, plus any accrued but unused vacation/time
off pay. Additionally, if Brannen's services are terminated pursuant to
Paragraphs 6A, 6B, 6D or 6F, Brannen or, in the case of his death, his
designated beneficiary (or, if there is no such beneficiary, Brannen's spouse
or, if there is no spouse, his estate or legal representative) shall be
entitled to (a) severance pay, payable in accordance with the Employer's
payroll policy from time to time in effect, in an amount equal to 2.99 times
his Base Salary and the Performance Bonus awarded for the most recently
completed annual period, and (b) immediately exercise all incentive stock
options previously granted to him under Paragraph 4C, whether or not such
options would otherwise have been exercisable on the date of termination.
Brannen also shall be entitled to any benefits mandated under the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA) (for which the Employer shall
be obligated to pay all premiums and other costs associated with such COBRA
continuation coverage), or required under the terms of any death, insurance, or
retirement plan, program, or agreement provided by the Employer and to which
Brannen is a party or in which Brannen is a participant, including, but not
limited to, any short-term or long-term disability plan or program, if
applicable.
8. Notices. Any and all notices required in connection with this
Agreement shall be deemed adequately given only if in writing and (a)
personally delivered, or sent by first class, registered or certified mail,
postage prepaid, return receipt requested, or by recognized overnight courier,
(b) sent by facsimile, provided a hard copy is mailed on that date to the party
for whom such notices are intended, or (c) sent by other means at least as fast
and reliable as first class mail. A written notice shall be deemed to have
been given to the recipient party on the earlier of (a) the date it shall be
delivered to the address required by this Agreement; (b) the date delivery
shall have been refused at the address required by this Agreement; (c) with
respect to notices sent by mail or overnight courier, the date as of which the
Postal Service or overnight courier, as the case may be, shall have indicated
such notice to be undeliverable at the address required by this Agreement; or
(d) with respect to a facsimile, the date on which the facsimile is sent and
receipt of which is confirmed. Any and all notices referred to in this
Agreement, or which either party desires to give to the other, shall be
addressed to his residence in the case of Brannen, or to its principal office
in the case of the Employer.
6
<PAGE> 7
9. Waiver of Breach. A waiver by either party of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver or estoppel of any subsequent breach. No waiver shall be valid unless
in writing and signed by the party to be charged.
10. Entire Agreement. This Agreement sets forth the entire and final
agreement and understanding of the parties and contains all of the agreements
made between the parties with respect to the subject matter hereof. This
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto, with respect to the subject matter hereof. No
change or modification of this Agreement shall be valid unless in writing and
signed by the Employer and Brannen. If any provision of this Agreement shall
be found invalid or unenforceable for any reason, in whole or in part, then
such provision shall be deemed modified, restricted, or reformulated to the
extent and in the manner necessary to render the same valid and enforceable, or
shall be deemed excised from this Agreement, as the case may require, and this
Agreement shall be construed and enforced to the maximum extent permitted by
law, as if such provision had been originally incorporated herein as so
modified, restricted, or reformulated or as if such provision had not been
originally incorporated herein, as the case may be.
11. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered a construction of the provisions hereof.
12. Execution of Agreement. This Agreement may be executed in several
counterparts, each of which shall be considered an original, but which when
taken together, shall constitute one agreement.
13. Attorneys' Fees. The Employer shall pay for all legal fees and
expenses associated with the preparation of this Agreement.
14. Successors.
A. This Agreement is personal to Brannen and, without the prior
written consent of the Employer, shall not be assignable by Brannen.
This Agreement shall inure to the benefit of and be enforceable by
Brannen's legal representatives.
B. This Agreement shall inure to the benefit of and be binding upon
the Employer and its successors and assigns.
C. The Employer shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Employer expressly
to assume and agree to perform this Agreement in the same manner and to
the same extent that the Employer would have been required to
7
<PAGE> 8
perform it if no such succession had taken place. As used in this
Agreement, "Employer" shall mean both the Employer as defined above and
any such successor that assumes and agrees to perform this Agreement, by
operation of law or otherwise.
15. Recitals. The recitals to this Agreement are incorporated herein as
an integral part hereof and shall be considered as substantive and not
precatory language.
16. Due Authorization. The Employer hereby warrants and represents that
(a) the execution, delivery, and performance of this Agreement has been duly
authorized by all necessary corporate action on the part of the Employer, (b)
the Employer has the requisite power and authority to execute, deliver, and
perform this Agreement, and (c) this Agreement is a valid and legally binding
obligation of the Employer, enforceable against the Employer in accordance with
its terms.
17. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without reference to its
conflict of law provisions.
IN WITNESS WHEREOF, the parties have set their signatures on the date
first written above.
SECURITY ASSOCIATES
INTERNATIONAL, INC.
By: /s/ James S. Brannen /s/ James S. Brannen
-------------------- --------------------
Its: President JAMES S. BRANNEN
--------------------
8
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as of
the 29th day of August, 1996, by and between Security Associates International,
Inc., and its subsidiaries and affiliates (collectively, the "EMPLOYER"), and
Ronald I. Davis ("DAVIS").
RECITALS
A. The Employer desires that Davis continue to provide services for the
benefit of the Employer and Davis desires to accept such continued employment
with the Employer.
B. The Employer and Davis acknowledge that Davis is, and will continue to
be, a member of the senior management team of the Employer and, as such, will
participate in implementing the Employer's business plan.
NOW, THEREFORE, in consideration of the above premises and the following
mutual covenants and conditions, the parties agree as follows:
1. Employment. The Employer shall continue to employ Davis as its
Chairman, and Davis hereby accepts such continued employment on the following
terms and conditions.
2. Duties. Davis shall work for the Employer in a full-time capacity.
Davis shall, during the term of this Agreement, continue to have the duties,
responsibilities, powers, and authority customarily associated with the
position of Chairman. Davis shall report to, and follow the direction of, the
Board of Directors of the Employer (the "BOARD"). Davis shall diligently,
competently, and faithfully perform all duties, and shall devote his entire
business time, energy, attention, and skill to the performance of duties for
the Employer and will use his best efforts to promote the legitimate business
interests of the Employer. It shall not be considered a violation of the
foregoing for Davis to serve on corporate, industry, religious, civic, or
charitable boards or committees or to accept outside speaking engagements, so
long as such activities do not significantly interfere with the performance of
Davis's responsibilities as an employee of the Employer in accordance with this
Agreement.
3. Term of Employment. This Agreement shall be entered into for a period
of three (3) years, commencing on the date hereof and ending on 29th August,
1999 (the "INITIAL TERM"). The term of employment shall be renewed
automatically for successive periods of one (1) year each (a "RENEWAL TERM")
after the expiration of the Initial Term and any subsequent Renewal Term,
unless the Board provides Davis, or Davis provides the Board, with written
notice to the contrary at least six (6) months prior to the end of the Initial
Term or any Renewal Term, as the case may be.
<PAGE> 2
4. Compensation.
A. Salary. The Employer shall pay Davis an annual salary of
$125,000 (the "BASE SALARY"), payable in substantially equal periodic
installments in accordance with the Employer's payroll policy from time to
time in effect. The Base Salary shall be subject to any payroll or other
deductions as may be required to be made pursuant to law, government
order, or by agreement with, or consent of, Davis. Increases to the Base
Salary shall be made following an annual salary review, the first of which
shall take place in or around September, 1997, and all subsequent reviews
shall occur in or around September of each year thereafter. The Base
Salary shall not be reduced, and the term Base Salary shall refer
thereafter to the Base Salary, as it may be increased from time to time.
B. Performance Bonus. In accordance with the Employer's practice
from time to time in effect, the Employer shall award Davis an annual
bonus in an amount to be determined by the Employer based upon Davis's and
the Employer's performance and the achievement of other goals and
objectives set by the Employer (the "Performance Bonus").
C. Long-Term Incentive Plan. After entering into this Agreement, the
Employer shall grant the Executive incentive stock options (in
accordance with Section 422 of the Internal Revenue Code of 1986, as
amended) under the Employer's Stock Option Plan to purchase shares of the
Employer's common stock, the number of shares of which shall be agreed
upon by the parties. The stock options shall be granted at an exercise
price equal to the "fair market value" of such common stock on the date of
the grant. The stock options shall vest and become exercisable on August
1, 1999. The stock options granted hereunder shall expire by their terms
on the first to occur of (i) ten (10) years from the date of their grant,
(ii) three (3) months after the Executive's employment is terminated under
Paragraph 6A, 6D, 6E or 6F (twelve (12) months in the event employment
terminates under Paragraph 6B), or (iii) the Executive's termination of
employment under Paragraph 6C. If the incentive stock options shall, at
any time, be determined not to qualify as incentive stock options under
Section 422 of the Code, such options shall automatically convert into,
and be treated as, non-qualified stock options. The actual terms and
conditions of the Stock Option Plan shall be established by the Employer,
and shall be memorialized in a written document to be prepared by the
Employer and which will be incorporated herein by reference.
D. Other Benefits. During the term of this Agreement, the Employer
shall:
(1) include Davis in any life insurance, disability insurance,
medical, prescription, dental or health insurance (including
dependent coverage) (which premiums for the medical, prescription,
dental and health insurance coverage shall be entirely paid for by the
Employer), savings, pension and retirement plans and
2
<PAGE> 3
other benefit plans or programs (including, if applicable, any
excess benefit or supplemental executive retirement plans) maintained
by the Employer for the benefit of its executives;
(2) include Davis in such perquisites as the Employer may
establish from time to time that are commensurate with his position
and at least comparable to those received by other executives of
the Employer;
(3) provide Davis with six (6) weeks paid vacation/time off
per annum; and
(4) provide Davis with an automobile expense reimbursement
allowance of one thousand dollars ($1,000.00) per month to
reimburse him for the use of an automobile and the operating
expenses thereof.
5. Expenses. The Employer shall reimburse Davis for all reasonable and
necessary business expenses, provided Davis submits paid receipts or other
documentation acceptable to the Employer.
6. Termination. Notwithstanding anything in Paragraph 3 of this
Agreement to the contrary, the term of this Agreement shall terminate
upon the first to occur of the following events:
A. At the end of the term of this Agreement, including any Renewal
Terms, provided advance notice of such termination is given in
accordance with Paragraph 3 hereof.
B. Upon Davis's death or the date Davis is given written notice that
he has been determined to be disabled by the Employer. For purposes of
this Agreement, Davis shall be deemed to be disabled if Davis, as a result
of illness or incapacity, shall be unable to perform substantially his
required duties for a period of four (4) consecutive months or for any
aggregate period of six (6) months in any twelve (12) consecutive month
period. A termination of Davis's employment by the Employer for
disability shall be communicated to Davis by written notice and shall be
effective on the thirtieth (30th) day after receipt of such notice by
Davis, unless Davis returns to full-time performance of his duties before
such thirtieth (30th) day.
C. On the date the Employer provides Davis with written notice that
he is being terminated for "CAUSE." For purposes of this Agreement,
Davis shall be deemed terminated for Cause if the Employer terminates
Davis after Davis:
3
<PAGE> 4
(1) shall have been convicted of any felony including, but not
limited to, a felony involving fraud, theft, misappropriation,
dishonesty, or embezzlement;
(2) shall have committed willful acts that materially impair
the goodwill or business of the Employer or cause material damage
to its property, goodwill, or business; and
(3) shall have refused to, or willfully failed to, perform his
material duties hereunder.
No act or failure to act on the part of Davis shall be considered
"willful" unless it is done, or omitted to be done, by Davis in bad faith
or without reasonable belief that his action or omission was in the best
interests of the Employer. A termination of Davis's employment for Cause
shall be effected in accordance with the following procedures. The
Employer shall give Davis written notice ("NOTICE OF TERMINATION FOR
CAUSE") of its intention to terminate Davis's employment for Cause,
setting forth in reasonable detail the specific conduct of Davis that it
considers to constitute Cause and the specific provision(s) of this
Agreement on which it relies, and stating the date, time and place of the
Board Meeting for Cause. The "BOARD MEETING FOR CAUSE" means a meeting
of the Board at which Davis's termination for Cause will be considered,
that takes place not less than ten (10) and not more than twenty (20)
business days after Davis receives the Notice of Termination for Cause.
Davis shall be given an opportunity, together with counsel, to be heard
at the Board Meeting for Cause. Davis's termination for Cause shall be
effective when and if a resolution is duly adopted at the Board Meeting
for Cause by a two-thirds vote of the entire membership of the Board,
stating that in the good faith opinion of the Board, Davis is guilty of
the conduct described in the Notice of Termination for Cause, and that
such conduct constitutes Cause under this Agreement.
D. On the date Davis terminates his employment for "Good Reason."
For purposes of this Agreement, "GOOD REASON" means:
(1) the assignment to Davis of any duties inconsistent in any
respect with Paragraph 2 of this Agreement, or any other action by
the Employer that results in a diminution in Davis's position,
authority, duties or responsibilities, other than an isolated,
insubstantial and inadvertent action that is not taken in bad faith
and is remedied by the Employer after receipt of notice thereof
from Davis;
(2) any requirement by the Employer that Davis's services be
rendered primarily at a location or locations other than within the
greater Chicago metropolitan area and for other than a de minimis
period of time;
4
<PAGE> 5
(3) any breach of this Agreement by the Employer that is not
remedied by the Employer promptly after receipt of notice thereof
from Davis;
(4) any failure by the Employer to comply with any provision
of Paragraph 4 of this Agreement, other than an isolated,
insubstantial and inadvertent failure that is not taken in bad
faith and is remedied by the Employer promptly after receipt of
notice thereof from Davis;
(5) any purported termination of Davis's employment by the
Employer for a reason or in a manner not expressly permitted by
this Agreement; or
(6) the resignation by Davis following a "CHANGE IN CONTROL."
A "Change in Control" shall be deemed to occur on the earliest
of (a) the acquisition by any entity, person, or group of beneficial
ownership, as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, of more than 30% of the outstanding capital
stock of the Employer entitled to vote for the election of directors
("VOTING STOCK"); (b) the commencement by any entity, person, or
group (other than the Employer or a subsidiary of the Employer) of a
tender offer or an exchange offer for more than 20% of the
outstanding Voting Stock of the Employer; (c) the effective time of
(1) a merger or consolidation of the Employer with one or more
corporations as a result of which the holders of the outstanding
Voting Stock of the Employer immediately prior to such merger hold
less than 80% of the Voting Stock of the surviving or resulting
corporation, or (2) a transfer of substantially all of the property
or assets of the Employer other than to an entity of which the
Employer owns at least 80% of the Voting Stock; and (d) the election
to the Board, without the recommendation or approval of the incumbent
Board, of the lesser of (1) three directors, or (2) directors
constituting a majority of the number of directors of the Employer
then in office.
A termination of employment by Davis for Good Reason shall be effectuated
by giving the Employer written notice ("NOTICE OF TERMINATION FOR GOOD
REASON") of the termination within three (3) months (six (6) months in
the event of a Change in Control) of the event constituting Good Reason,
setting forth in reasonable detail the specific conduct of the Employer
that constitutes Good Reason and the specific provisions of this
Agreement on which Davis relies. A termination of employment by Davis
for Good Reason shall be effective on the fifth (5th) business day
following the date when the Notice of Termination for Good Reason is
given, unless the notice sets forth a later date (which date shall in no
event be later than thirty (30) days after the notice is given).
E. On the date Davis terminates his employment for any reason, other
than a reason set forth in Paragraph 6D, provided that Davis shall give
the Employer six (6) months written notice prior to such date of his
intention to terminate this Agreement.
5
<PAGE> 6
F. On the date the Employer terminates Davis's employment for any
reason, other than a reason set forth in Paragraph 6C, provided that the
Employer shall give Davis six (6) months written notice prior to such
date of its intention to terminate this Agreement.
7. Compensation Upon Termination. If Davis's services are terminated
pursuant to Paragraph 6, Davis shall be entitled to his Base Salary through his
final date of active employment, plus any accrued but unused vacation/time off
pay. Additionally, if Davis's services are terminated pursuant to Paragraphs
6A, 6B, 6D or 6F, Davis or, in the case of his death, his designated
beneficiary (or, if there is no such beneficiary, Davis's spouse or, if there
is no spouse, his estate or legal representative) shall be entitled to (a)
severance pay, payable in accordance with the Employer's payroll policy from
time to time in effect, in an amount equal to 2.99 times his Base Salary and
the Performance Bonus awarded for the most recently completed annual period,
and (b) immediately exercise all incentive stock options previously granted to
him under Paragraph 4C, whether or not such options would otherwise have been
exercisable on the date of termination. Davis also shall be entitled to any
benefits mandated under the Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA) (for which the Employer shall be obligated to pay all premiums and
other costs associated with such COBRA continuation coverage), or required
under the terms of any death, insurance, or retirement plan, program, or
agreement provided by the Employer and to which Davis is a party or in which
Davis is a participant, including, but not limited to, any short-term or
long-term disability plan or program, if applicable.
8. Notices. Any and all notices required in connection with this
Agreement shall be deemed adequately given only if in writing and (a)
personally delivered, or sent by first class, registered or certified mail,
postage prepaid, return receipt requested, or by recognized overnight courier,
(b) sent by facsimile, provided a hard copy is mailed on that date to the party
for whom such notices are intended, or (c) sent by other means at least as fast
and reliable as first class mail. A written notice shall be deemed to have
been given to the recipient party on the earlier of (a) the date it shall be
delivered to the address required by this Agreement; (b) the date delivery
shall have been refused at the address required by this Agreement; (c) with
respect to notices sent by mail or overnight courier, the date as of which the
Postal Service or overnight courier, as the case may be, shall have indicated
such notice to be undeliverable at the address required by this Agreement; or
(d) with respect to a facsimile, the date on which the facsimile is sent and
receipt of which is confirmed. Any and all notices referred to in this
Agreement, or which either party desires to give to the other, shall be
addressed to his residence in the case of Davis, or to its principal office in
the case of the Employer.
9. Waiver of Breach. A waiver by either party of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver or estoppel of any subsequent breach. No waiver shall be valid unless
in writing and signed by the party to be charged.
6
<PAGE> 7
10. Entire Agreement. This Agreement sets forth the entire and final
agreement and understanding of the parties and contains all of the agreements
made between the parties with respect to the subject matter hereof. This
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto, with respect to the subject matter hereof. No
change or modification of this Agreement shall be valid unless in writing and
signed by the Employer and Davis. If any provision of this Agreement shall be
found invalid or unenforceable for any reason, in whole or in part, then such
provision shall be deemed modified, restricted, or reformulated to the extent
and in the manner necessary to render the same valid and enforceable, or shall
be deemed excised from this Agreement, as the case may require, and this
Agreement shall be construed and enforced to the maximum extent permitted by
law, as if such provision had been originally incorporated herein as so
modified, restricted, or reformulated or as if such provision had not been
originally incorporated herein, as the case may be.
11. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered a construction of the provisions hereof.
12. Execution of Agreement. This Agreement may be executed in several
counterparts, each of which shall be considered an original, but which when
taken together, shall constitute one agreement.
13. Attorneys' Fees. The Employer shall pay for all legal fees and
expenses associated with the preparation of this Agreement.
14. Successors.
A. This Agreement is personal to Davis and, without the prior
written consent of the Employer, shall not be assignable by Davis. This
Agreement shall inure to the benefit of and be enforceable by Davis's
legal representatives.
B. This Agreement shall inure to the benefit of and be binding upon
the Employer and its successors and assigns.
C. The Employer shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Employer expressly
to assume and agree to perform this Agreement in the same manner and to
the same extent that the Employer would have been required to
7
<PAGE> 8
perform it if no such succession had taken place. As used in this
Agreement, "Employer" shall mean both the Employer as defined above and
any such successor that assumes and agrees to perform this Agreement, by
operation of law or otherwise.
15. Recitals. The recitals to this Agreement are incorporated herein as
an integral part hereof and shall be considered as substantive and not
precatory language.
16. Due Authorization. The Employer hereby warrants and represents that
(a) the execution, delivery, and performance of this Agreement has been duly
authorized by all necessary corporate action on the part of the Employer, (b)
the Employer has the requisite power and authority to execute, deliver, and
perform this Agreement, and (c) this Agreement is a valid and legally binding
obligation of the Employer, enforceable against the Employer in accordance with
its terms.
17. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without reference to its
conflict of law provisions.
IN WITNESS WHEREOF, the parties have set their signatures on the date
first written above.
SECURITY ASSOCIATES
INTERNATIONAL, INC.
By: /s/ James S. Brannen /s/ Ronald I. Davis
-------------------- -------------------
Its: President RONALD I. DAVIS
--------------------
8
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as of
the 30th day of August, 1996, by and between Security Associates International,
Inc., and its subsidiaries and affiliates (collectively, the "EMPLOYER"), and
Stephen Rubin ("RUBIN").
RECITALS
A. The Employer desires that Rubin continue to provide services for the
benefit of the Employer and Rubin desires to accept such continued employment
with the Employer.
B. The Employer and Rubin acknowledge that Rubin is, and will continue to
be, a member of the senior management team of the Employer and, as such, will
participate in implementing the Employer's business plan.
NOW, THEREFORE, in consideration of the above premises and the following
mutual covenants and conditions, the parties agree as follows:
1. Employment. The Employer shall continue to employ Rubin as its Vice
President and Secretary, and Rubin hereby accepts such continued employment on
the following terms and conditions.
2. Duties. Rubin shall work for the Employer in a full-time capacity.
Rubin shall, during the term of this Agreement, continue to have the duties,
responsibilities, powers, and authority customarily associated with the
position of Vice President and Secretary. Rubin shall report to, and follow
the direction of, the Board of Directors of the Employer (the "BOARD"). Rubin
shall diligently, competently, and faithfully perform all duties, and shall
devote his entire business time, energy, attention, and skill to the
performance of duties for the Employer and will use his best efforts to promote
the legitimate business interests of the Employer. It shall not be considered
a violation of the foregoing for Rubin to serve on corporate, industry,
religious, civic, or charitable boards or committees, so long as such
activities do not significantly interfere with the performance of Rubin's
responsibilities as an employee of the Employer in accordance with this
Agreement.
3. Term of Employment. This Agreement shall be entered into for a
period of three (3) years, commencing on the date hereof and ending on 29th
August, 1999 (the "INITIAL TERM"). The term of employment shall be renewed
automatically for successive periods of one (1) year each (a "RENEWAL TERM")
after the expiration of the Initial Term and any subsequent Renewal Term,
unless the Board provides Rubin, or Rubin provides the Board, with written
notice to the contrary at least six (6) months prior to the end of the Initial
Term or any Renewal Term, as the case may be.
<PAGE> 2
4. Compensation.
A. Salary. The Employer shall pay Rubin an annual salary of
$105,000 (the "BASE SALARY"), payable in substantially equal periodic
installments in accordance with the Employer's payroll policy from time
to time in effect. The Base Salary shall be subject to any payroll or
other deductions as may be required to be made pursuant to law,
government order, or by agreement with, or consent of, Rubin. Increases
to the Base Salary shall be made following an annual salary review, the
first of which shall take place in or around September, 1997, and all
subsequent reviews shall occur in or around September of each year
thereafter. The Base Salary shall not be reduced, and the term Base
Salary shall refer thereafter to the Base Salary, as it may be increased
from time to time.
B. Performance Bonus. In accordance with the Employer's practice
from time to time in effect, the Employer shall award Rubin an annual
bonus in an amount to be determined by the Employer based upon Rubin's
and the Employer's performance and the achievement of other goals and
objectives set by the Employer (the "Performance Bonus").
C. Long-Term Incentive Plan. After entering into this Agreement, the
Employer shall grant the Executive incentive stock options (in accordance
with Section 422 of the Internal Revenue Code of 1986, as amended) under
the Employer's Stock Option Plan to purchase shares of the Employer's
common stock, the number of shares of which shall be agreed upon by the
parties. The stock options shall be granted at an exercise price equal
to the "fair market value" of such common stock on the date of the grant.
The stock options shall vest and become exercisable on August 1, 1999.
The stock options granted hereunder shall expire by their terms on the
first to occur of (i) ten (10) years from the date of their grant, (ii)
three (3) months after the Executive's employment is terminated under
Paragraph 6A, 6D, 6E or 6F (twelve (12) months in the event employment
terminates under Paragraph 6B), or (iii) the Executive's termination of
employment under Paragraph 6C. If the incentive stock options shall, at
any time, be determined not to qualify as incentive stock options under
Section 422 of the Code, such options shall automatically convert into,
and be treated as, non-qualified stock options. The actual terms and
conditions of the Stock Option Plan shall be established by the Employer,
and shall be memorialized in a written document to be prepared by the
Employer and which will be incorporated herein by reference.
D. Other Benefits. During the term of this Agreement, the Employer
shall:
(1) include Rubin in any life insurance, disability insurance,
medical, prescription, dental or health insurance (including
dependent coverage) (which premiums for the medical, prescription,
dental and health insurance coverage shall be entirely paid for by
the Employer), savings, pension and retirement plans and
2
<PAGE> 3
other benefit plans or programs (including, if applicable, any
excess benefit or supplemental executive retirement plans)
maintained by the Employer for the benefit of its executives;
(2) include Rubin in such perquisites as the Employer may
establish from time to time that are commensurate with his position
and at least comparable to those received by other executives of
the Employer;
(3) provide Rubin with six (6) weeks paid vacation/time off
per annum;
(4) provide Rubin with an automobile expense reimbursement
allowance of one thousand dollars ($1,000.00) per month to
reimburse him for the use of an automobile and the operating
expenses thereof.
5. Expenses. The Employer shall reimburse Rubin for all reasonable and
necessary business expenses, provided Rubin submits paid receipts or other
documentation acceptable to the Employer.
6. Termination. Notwithstanding anything in Paragraph 3 of this Agreement
to the contrary, the term of this Agreement shall terminate upon the first to
occur of the following events:
A. At the end of the term of this Agreement, including any Renewal
Terms, provided advance notice of such termination is given in accordance
with Paragraph 3 hereof.
B. Upon Rubin's death or the date Rubin is given written notice that
he has been determined to be disabled by the Employer. For purposes of
this Agreement, Rubin shall be deemed to be disabled if Rubin, as a
result of illness or incapacity, shall be unable to perform substantially
his required duties for a period of four (4) consecutive months or for
any aggregate period of six (6) months in any twelve (12) consecutive
month period. A termination of Rubin's employment by the Employer for
disability shall be communicated to Rubin by written notice and shall be
effective on the thirtieth (30th) day after receipt of such notice by
Rubin, unless Rubin returns to full-time performance of his duties before
such thirtieth (30th) day.
C. On the date the Employer provides Rubin with written notice that
he is being terminated for "CAUSE." For purposes of this Agreement,
Rubin shall be deemed terminated for Cause if the Employer terminates
Rubin after Rubin:
3
<PAGE> 4
(1) shall have been convicted of any felony including, but not
limited to, a felony involving fraud, theft, misappropriation,
dishonesty, or embezzlement;
(2) shall have committed willful acts that materially impair
the goodwill or business of the Employer or cause material damage
to its property, goodwill, or business; and
(3) shall have refused to, or willfully failed to, perform his
material duties hereunder.
No act or failure to act on the part of Rubin shall be considered
"willful" unless it is done, or omitted to be done, by Rubin in bad faith
or without reasonable belief that his action or omission was in the best
interests of the Employer. A termination of Rubin's employment for Cause
shall be effected in accordance with the following procedures. The
Employer shall give Rubin written notice ("NOTICE OF TERMINATION FOR
CAUSE") of its intention to terminate Rubin's employment for Cause,
setting forth in reasonable detail the specific conduct of Rubin that it
considers to constitute Cause and the specific provision(s) of this
Agreement on which it relies, and stating the date, time and place of the
Board Meeting for Cause. The "BOARD MEETING FOR CAUSE" means a meeting
of the Board at which Rubin's termination for Cause will be considered,
that takes place not less than ten (10) and not more than twenty (20)
business days after Rubin receives the Notice of Termination for Cause.
Rubin shall be given an opportunity, together with counsel, to be heard
at the Board Meeting for Cause. Rubin's termination for Cause shall be
effective when and if a resolution is duly adopted at the Board Meeting
for Cause by a two-thirds vote of the entire membership of the Board,
stating that in the good faith opinion of the Board, Rubin is guilty of
the conduct described in the Notice of Termination for Cause, and that
such conduct constitutes Cause under this Agreement.
D. On the date Rubin terminates his employment for "Good Reason."
For purposes of this Agreement, "GOOD REASON" means:
(1) the assignment to Rubin of any duties inconsistent in any
respect with Paragraph 2 of this Agreement, or any other action by
the Employer that results in a diminution in Rubin's position,
authority, duties or responsibilities, other than an isolated,
insubstantial and inadvertent action that is not taken in bad faith
and is remedied by the Employer after receipt of notice thereof
from Rubin;
(2) any requirement by the Employer that Rubin's services be
rendered primarily at a location or locations other than within the
greater Chicago metropolitan area and for other than a de minimis
period of time;
4
<PAGE> 5
(3) any breach of this Agreement by the Employer that is not
remedied by the Employer promptly after receipt of notice thereof
from Rubin;
(4) any failure by the Employer to comply with any provision
of Paragraph 4 of this Agreement, other than an isolated,
insubstantial and inadvertent failure that is not taken in bad
faith and is remedied by the Employer promptly after receipt of
notice thereof from Rubin;
(5) any purported termination of Rubin's employment by the
Employer for a reason or in a manner not expressly permitted by
this Agreement; or
(6) the resignation by Rubin following a "CHANGE IN CONTROL."
A "Change in Control" shall be deemed to occur on the earliest of
(a) the acquisition by any entity, person, or group of beneficial
ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, of more than 30% of the
outstanding capital stock of the Employer entitled to vote for the
election of directors ("VOTING STOCK"); (b) the commencement by any
entity, person, or group (other than the Employer or a subsidiary
of the Employer) of a tender offer or an exchange offer for more
than 20% of the outstanding Voting Stock of the Employer; (c) the
effective time of (1) a merger or consolidation of the Employer
with one or more corporations as a result of which the holders of
the outstanding Voting Stock of the Employer immediately prior to
such merger hold less than 80% of the Voting Stock of the surviving
or resulting corporation, or (2) a transfer of substantially all of
the property or assets of the Employer other than to an entity of
which the Employer owns at least 80% of the Voting Stock; and (d)
the election to the Board, without the recommendation or approval
of the incumbent Board, of the lesser of (1) three directors, or
(2) directors constituting a majority of the number of directors of
the Employer then in office.
A termination of employment by Rubin for Good Reason shall be effectuated
by giving the Employer written notice ("NOTICE OF TERMINATION FOR GOOD
REASON") of the termination within three (3) months (six (6) months in
the event of a Change in Control) of the event constituting Good Reason,
setting forth in reasonable detail the specific conduct of the Employer
that constitutes Good Reason and the specific provisions of this
Agreement on which Rubin relies. A termination of employment by Rubin
for Good Reason shall be effective on the fifth (5th) business day
following the date when the Notice of Termination for Good Reason is
given, unless the notice sets forth a later date (which date shall in no
event be later than thirty (30) days after the notice is given).
E. On the date Rubin terminates his employment for any reason, other
than a reason set forth in Paragraph 6D, provided that Rubin shall give
the Employer six (6) months written notice prior to such date of his
intention to terminate this Agreement.
5
<PAGE> 6
F. On the date the Employer terminates Rubin's employment for any
reason, other than a reason set forth in Paragraph 6C, provided that the
Employer shall give Rubin six (6) months written notice prior to such
date of its intention to terminate this Agreement.
7. Compensation Upon Termination. If Rubin's services are terminated
pursuant to Paragraph 6, Rubin shall be entitled to his Base Salary through his
final date of active employment, plus any accrued but unused vacation/time off
pay. Additionally, if Rubin's services are terminated pursuant to Paragraphs
6A, 6B, 6D or 6F, Rubin or, in the case of his death, his designated
beneficiary (or, if there is no such beneficiary, Rubin's spouse or, if there
is no spouse, his estate or legal representative) shall be entitled to (a)
severance pay, payable in accordance with the Employer's payroll policy from
time to time in effect, in an amount equal to 2.99 times his Base Salary and
the Performance Bonus awarded for the most recently completed annual period,
and (b) immediately exercise all incentive stock options previously granted to
him under Paragraph 4C, whether or not such options would otherwise have been
exercisable on the date of termination. Rubin also shall be entitled to any
benefits mandated under the Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA) (for which the Employer shall be obligated to pay all premiums and
other costs associated with such COBRA continuation coverage), or required
under the terms of any death, insurance, or retirement plan, program, or
agreement provided by the Employer and to which Rubin is a party or in which
Rubin is a participant, including, but not limited to, any short-term or
long-term disability plan or program, if applicable.
8. Notices. Any and all notices required in connection with this
Agreement shall be deemed adequately given only if in writing and (a)
personally delivered, or sent by first class, registered or certified mail,
postage prepaid, return receipt requested, or by recognized overnight courier,
(b) sent by facsimile, provided a hard copy is mailed on that date to the party
for whom such notices are intended, or (c) sent by other means at least as fast
and reliable as first class mail. A written notice shall be deemed to have
been given to the recipient party on the earlier of (a) the date it shall be
delivered to the address required by this Agreement; (b) the date delivery
shall have been refused at the address required by this Agreement; (c) with
respect to notices sent by mail or overnight courier, the date as of which the
Postal Service or overnight courier, as the case may be, shall have indicated
such notice to be undeliverable at the address required by this Agreement; or
(d) with respect to a facsimile, the date on which the facsimile is sent and
receipt of which is confirmed. Any and all notices referred to in this
Agreement, or which either party desires to give to the other, shall be
addressed to his residence in the case of Rubin, or to its principal office in
the case of the Employer.
9. Waiver of Breach. A waiver by either party of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver or estoppel of any subsequent breach. No waiver shall be valid unless
in writing and signed by the party to be charged.
6
<PAGE> 7
10. Entire Agreement. This Agreement sets forth the entire and final
agreement and understanding of the parties and contains all of the agreements
made between the parties with respect to the subject matter hereof. This
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto, with respect to the subject matter hereof. No
change or modification of this Agreement shall be valid unless in writing and
signed by the Employer and Rubin. If any provision of this Agreement shall be
found invalid or unenforceable for any reason, in whole or in part, then such
provision shall be deemed modified, restricted, or reformulated to the extent
and in the manner necessary to render the same valid and enforceable, or shall
be deemed excised from this Agreement, as the case may require, and this
Agreement shall be construed and enforced to the maximum extent permitted by
law, as if such provision had been originally incorporated herein as so
modified, restricted, or reformulated or as if such provision had not been
originally incorporated herein, as the case may be.
11. Headings. The headings in this Agreement are inserted for convenience
only and are not to be considered a construction of the provisions hereof.
12. Execution of Agreement. This Agreement may be executed in several
counterparts, each of which shall be considered an original, but which when
taken together, shall constitute one agreement.
13. Attorneys' Fees. The Employer shall pay for all legal fees and
expenses associated with the preparation of this Agreement.
14. Successors.
A. This Agreement is personal to Rubin and, without the prior
written consent of the Employer, shall not be assignable by Rubin. This
Agreement shall inure to the benefit of and be enforceable by Rubin's
legal representatives.
B. This Agreement shall inure to the benefit of and be binding upon
the Employer and its successors and assigns.
C. The Employer shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Employer expressly
to assume and agree to perform this Agreement in the same manner and to
the same extent that the Employer would have been required to
7
<PAGE> 8
perform it if no such succession had taken place. As used in this
Agreement, "Employer" shall mean both the Employer as defined above and
any such successor that assumes and agrees to perform this Agreement, by
operation of law or otherwise.
15. Recitals. The recitals to this Agreement are incorporated herein as
an integral part hereof and shall be considered as substantive and not
precatory language.
16. Due Authorization. The Employer hereby warrants and represents that
(a) the execution, delivery, and performance of this Agreement has been duly
authorized by all necessary corporate action on the part of the Employer, (b)
the Employer has the requisite power and authority to execute, deliver, and
perform this Agreement, and (c) this Agreement is a valid and legally binding
obligation of the Employer, enforceable against the Employer in accordance with
its terms.
17. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without reference to its
conflict of law provisions.
IN WITNESS WHEREOF, the parties have set their signatures on the date
first written above.
SECURITY ASSOCIATES
INTERNATIONAL, INC.
By: /s/ James S. Brannen /s/ Stephen Rubin
-------------------- -----------------
Its: President STEPHEN RUBIN
--------------------
8
<PAGE> 1
Exhibit 10.4
________________________________________________________________________________
ADOPTION AGREEMENT
FOR THE DATAIR MASS-SUBMITTER PROTOTYPE
STANDARDIZED CASH OR DEFERRED PROFIT SHARING PLAN AND TRUST
(WITH PAIRING PROVISIONS)
________________________________________________________________________________
<PAGE> 2
ADOPTION AGREEMENT
FOR THE DATAIR MASS-SUBMITTER PROTOTYPE
STANDARDIZED CASH OR DEFERRED PROFIT SHARING PLAN AND TRUST
(WITH PAIRING PROVISIONS)
The DATAIR Mass-Submitter Prototype Standardized Cash or Deferred Profit
Sharing Plan and Trust (the "Plan and Trust") is hereby adopted by:
SECURITY ASSOCIATES INTERNATIONAL, INC. (the "Employer").
The Plan and Trust as applicable to the Employer shall be known as:
SAI PROFIT SHARING PLAN AND TRUST
The Plan and Trust is effective as of: June 1, 1997.
-------------
(Specify, if applicable.)
( ) a. The Plan and Trust is an amendment of a preexisting Plan which was
originally effective as of:
____________________.
( ) b. The Plan and Trust is an amendment and restatement of a preexisting
Plan which was originally effective as of:
____________________.
*** CAUTION ***
FAILURE TO FILL OUT THE ADOPTION AGREEMENT PROPERLY
MAY RESULT IN DISQUALIFICATION OF THE PLAN
PART I. The following identifying information pertains to the Employer
and the Plan and Trust.
1. Employer Address : 2101 S. Arlington Heights Rd., Suite 100
Arlington Heights, IL 60005-4142
2. Employer Telephone : (847) 956-8650
2
<PAGE> 3
3. Employer Tax ID : 87-0467198
4. Employer Fiscal Year : January 1 to December 31
5. Three Digit Plan Number : 001
6. Trust ID Number : Applied For
7. Plan Fiscal Year (must
be 12 consecutive months : January 1 to December 31
8. Short Initial Plan Year : June 1, 1997 to December 31, 1997
9. Plan Agent : Security Associates International, Inc.
2101 S. Arlington Heights Rd., Suite 100
Arlington Heights, IL 60005-4142
10. Plan Administrator : Security Associates International, Inc.
2101 S. Arlington Heights Rd., Suite 100
Arlington Heights, IL 60005-4142
11. Plan Administrator
ID Number : 87-0467198
12. Plan Trustees : James S. Brannen
Ronald I. Davis
Stephen Rubin
2101 S. Arlington Heights Rd., Suite 100
Arlington Heights, IL 60005-4142
13. IRS Determination : N/A
Letter Date
(Leave blank for a new Plan)
14. IRS File Folder Number : N/A
(Leave blank for a new Plan)
15. Legal Organization of Employer
( ) a. Sole Proprietorship
( ) b. Partnership
(x) c. C Corporation
( ) d. S Corporation
( ) e. Not for Profit Corporation
( ) f. Personal Service Corporation
( ) g. Other - Explain :
3
<PAGE> 4
16. Business Code :
17. State of Legal Construction : Illinois
18. Other Members of a Controlled Group or Affiliated Service Group
(If any, each member should sign Adoption Agreement or otherwise
satisfy applicable participation requirements. Leave blank if not
applicable)
Controlled Group
( ) a. Not Applicable.
(x) b. Other Members
Security Associates Command Center II, LLC, All-Security Monitoring
Services, LLC and AMJ Central Station Corporation, Inc.
Affiliated Service Group
(x) a. Not Applicable.
( ) b. Other Members
PART II. The Plan contains certain predetermined design features intended to
provide the statutory requirement or most commonly adopted feature
but permits the selection of alternative features. If an Employer
desires to retain the predetermined design feature, select the
provision designated Plan Provision. If an alternative design
feature is desired, select the appropriate provision. Unless
specifically provided to the contrary, only one selection may be
made for each design category. Section references are to relevant
Plan Sections. Defined terms have the meanings provided in the
Plan.
A. ELIGIBILITY AND SERVICE PROVISIONS
1. ELIGIBLE EMPLOYEES - Section 1.2.23 provides that all employees,
including employees of certain related business and leased employees are
eligible except for certain union members and non-resident aliens.
(Specify all applicable)
(x) a. Plan Provision
( ) b. Include members of collective bargaining unit
2. ELIGIBILITY REQUIREMENTS (SEE SECTION 2.1.1) - An Employee is eligible to
participate in Non-Elective Contribution portions of the Plan if he
satisfies the following requirements during the Eligibility Computation
Period. (Specify one option or any combination other than c and d.
Selecting more than one option
4
<PAGE> 5
means that an Employee must meet all indicated requirements for
eligibility, except for option e. Option e overrides all other
requirements):
( ) a. Date of hire, i.e. no age or service required (no other choices
may be selected)
(x) b. Minimum Age of 21 years (Not to exceed 21, partial years may be
used)
(x) c. Minimum of 6 months service (Cannot require more than 24
months, or more than 12 months if full vesting after not more
than 2 Years of Service is not selected; if periods other than
who years are selected an Employee cannot be required to complete
any specified number of Hours of Service to receive credit for
the fractional year)
( ) d. _____ Hours of Service required during each 12 month
Eligibility Computation Period (cannot exceed 1000)
( ) e. Employed on ____/____/____. (For new plans only, select an
additional option if this provision is selected)
( ) f. Not applicable. Non-Elective Contributions are not permitted.
3. FOR THE PURPOSES OF HAVING ELECTIVE CONTRIBUTIONS made on the Employee's
behalf, Section 2.1.1 provides that, unless the Employer specifies
otherwise in the Adoption Agreement, an Employee must complete 1000 Hours
of Service during the Eligibility Computation Period. For these purposes,
an Employee is eligible if the following requirements are satisfied:
(Select all applicable. Selecting more than one option means that an
Employee must meet all indicated requirements for eligibility, except for
option e. Option e overrides all other requirements):
( ) a. Date of hire, i.e. no age or service requirement (No other
choices may be selected)
(x) b. Minimum Age of 21 years (Not to exceed 21, partial years may
be specified)
(x) c. Minimum of 6 months service (Not to exceed 12, if other than
full years are selected hours may not be specified)
( ) d. _____ Hours of Service required during each 12 month
Eligibility Computation Period (cannot exceed 1000)
( ) e. Employed on ____/____/____. (For new plans only, select an
additional option if this provision is selected)
4. MATCHING ELIGIBILITY REQUIREMENTS (SEE SECTION 2.1.1) - An Employee is
eligible to participate in the Matching Contributions portion of the Plan
if he satisfies the following requirements during the Eligibility
Computation Period. (Specify one option or any combination other than c
and d. Selecting more than one option means that an Employee must meet
all indicated requirements for eligibility, except for option e. Option e
overrides all other requirements):
5
<PAGE> 6
( ) a. Date of hire, i.e. no age or service required (NO other
choices may be selected)
(x) b. Minimum Age of 21 years (Not to exceed 21, partial years may
be used)
(x) c. Minimum of 6 months service (Cannot require more than 24
months, or more than 12 months if full vesting after not more
than 2 Years of Service is not selected; if periods other than
whole years are selected an Employee cannot be required to
complete any specified number of Hours of Service to receive
credit for the fractional year)
( ) d. _____ Hours of Service required during each 12 month Eligibility
Computation Period (cannot exceed 1000)
( ) e. Employed on ____/____/____. (For new plans only, select an
additional option if this provision is selected)
( ) f. Not applicable. Matching Contributions are not permitted.
5. ELIGIBILITY COMPUTATION PERIOD - Section 1.2.22 provides that the initial
eligibility computation period begins on the date of hire and the
subsequent periods commence on each annual anniversary of such date.
(Select one)
(x) a. Plan Provision
( ) b. The eligibility computation periods subsequent to the
initial eligibility computation period are the Plan Year
beginning with the first Plan Year commencing prior to the
first anniversary of the employment commencement date.
6. HOUR OF SERVICE.- Section 1.2.35 provides that service will be credited
on the basis of actual hours for which the employee is paid or entitled to
payment. If records of actual hours are not maintained, credit is given
on the basis of: (Select one)
( ) a. Plan Provision - Records are maintained
( ) b. Days Worked - An Employee will be credited with 10 Hours of
Service if he is credited with at least 1 Hour of Service
during the day
(x) c. Weeks Worked - An employee will be credited with 45 Hours
of Service if he is credited with at least 1 Hour of Service
during the week
( ) d. Semi-Monthly Payroll Period - An Employee will be credited
with 95 Hours of Service if he is credited with at least 1 Hour
of Service during the payroll period
( ) e. Months worked - An Employee will be credited with 190 Hours of
Service if he is credited with at least 1 Hour of Service
during the month
6
<PAGE> 7
7. SERVICE WITH PREDECESSOR EMPLOYERS - Section 1.2.35 provides that service
with predecessor employers is treated as service for the Employer. Where
applicable, identify the predecessor employer(s) and any document(s) which
provides for the crediting of service with such predecessor(s):
( ) a. Not applicable.
(x) b. Service with the following entities shall be credited as service
under this plan:
AMJ CENTRAL STATION CORPORATION, INC.
Service with the above entities has been determined under the
terms of the following documents:
____________________________________
8. ENTRY DATE - Section 2.1.2 provides that an Employee who satisfies any
eligibility requirements enters the Plan on the Entry Date. For this
purpose the Entry Date is the: (Select One)
( ) a. First day of next Plan Year or _____ months (Not to exceed 6)
after satisfying the eligibility requirements, if earlier
( ) b. First day of _____ month (Not more than 6) after satisfying
eligibility requirements or the first day of the next Plan
Year, if earlier
( ) c. Date of satisfying the eligibility requirements
( ) d. First day of Plan Year in which the eligibility requirements are
satisfied
( ) f. Semiannual - ( ) first or ( ) last day of 6 month periods,
beginning with first of Plan Year, coincident with or after
satisfying eligibility requirements
(x) g. Quarterly - (x) first or ( ) last day of 3 month periods,
beginning with first of Plan Year, coincident with or after
satisfying eligibility requirements
( ) h. Monthly - ( ) first or ( ) last day of each month of the Plan
Year coincident with or after satisfying eligibility
requirements
( ) i. First day of the Plan Year coincident with or immediately
following the date the eligibility requirements are satisfied.
(May be selected only if eligibility requirements of Plan do
not require more than 6 months of service (18 months if 100%
immediate vesting) and attainment of age 20 1/2 .)
( ) j. Last day of the Plan Year coincident with or after satisfying
the eligibility requirements. (May be selected only if
eligibility requirements of Plan do not require more than 6
months of service (18 months of 100% immediate vesting) and
attainment of age 20 1/2).
7
<PAGE> 8
NOTE: The Entry Date should be coordinated with the Compensation
Computation Period.
9. BREAK IN SERVICE - Section 1.2.8 provides that a Break in Service occurs
if any Employee fails to complete more than 500 hours of service during
the applicable computation period unless a lesser number is specified.
(Select one)
(x) a. Plan Provision
( ) b. A Break will occur if the Employee fails to complete more than
_____ (Not to exceed 500) Hours of Service
B. DATE PROVISIONS
1. ANNIVERSARY DATE - Section 1.2.5 provides that the Anniversary Date is
the last day of the Plan Year unless another date is specified. (Select
ONE)
(x) a. Plan Provision - No other date is specified.
( ) b. The first day of the Plan Year.
( ) c. Other - Specify. (Must be at least annually)
2. VALUATION DATE - Section 1.2.63 provides that the Valuation Date is the
date or dates specified in the Adoption Agreement. (Select one)
( ) a. Anniversary Date
( ) b. Semiannually on the last day of each 6 month period beginning
with the first of the Plan Year.
(x) c. Quarterly on the last day of each 3 month period beginning with
the first of the Plan Year.
( ) d. Monthly on the last day of each month of the Plan Year
( ) e. Last day of Plan Year (use option (a) if Anniversary Date is
last day of the Plan Year
( ) f. Other - Specify. (Must be at least annually)
3. NORMAL RETIREMENT DATE - Section 1.2.46 permits the adoption of a Normal
Retirement Date. (Select one)
(x) a. Date Normal Retirement Age is attained
( ) b. First day of month in which Normal Retirement Age is attained
( ) c. First day of month nearest date Normal Retirement Age is
attained
( ) d. First day of month coincident with or next following the date
Normal Retirement Age is attained
( ) e. Anniversary Date nearest date Normal Retirement Age is attained
( ) f. Anniversary Date coincident with or next following date Normal
Retirement Age is attained
4. NORMAL RETIREMENT AGE - For each Participant the Normal Retirement Age is:
(x) a. Age 65 (not to exceed 65)
8
<PAGE> 9
( ) b. The later of age _____ (not to exceed 65) or the _____ (not to
exceed the fifth (5th)) anniversary of the participation
commencement date, if later. The participation commencement
date is the first day of the Plan Year in which a Participant
commenced participation in the Plan. Solely for Plan Years
beginning before 1988, if the normal retirement age was
determined by reference to the anniversary of the participation
commencement date, the anniversary for participants who first
commenced participation before the first Plan Year beginning on
or after January 1, 1988 is the earlier of the tenth
anniversary of the date the participant commenced participation
in the Plan (or such anniversary as had been elected by the
Employer if less than ten) or the fifth anniversary of the
first day of the first Plan Year beginning on or after January
1, 1988.
( ) c. Age _____ and the _____ anniversary of the participation
commencement date, if both requirements are met earlier than
the later age of 65 or the fifth (5th) anniversary of
participation.
5. EARLY RETIREMENT DATE - Section 1.2.17 permits the adoption of an Early
Retirement Date: (Select one)
(x) a. The Plan does not provide an early retirement date
( ) b. The actual date the Participant attains the Early Retirement Age
( ) c. The Anniversary Date coincident with or next following the date
the Participant attains the Early Retirement Age
( ) d. The Valuation Date coincident with or next following the date
the Participant attains the Early Retirement Age
( ) e. The ( ) first ( ) last day of the month coincident with or next
following the date the Participant attains the Early Retirement
Age
6. EARLY RETIREMENT AGE - (Select all applicable. If more than one option
is selected, Early Retirement Age is attained on the first date the
requirements of any option are met.)
( ) a. Age _____ (not to exceed 65)
( ) b. Age _____ and _____ Years of Service
( ) c. Age _____ and _____ Years of Service while a Participant
( ) d. _____ years prior to the Normal Retirement Age
( ) e. Sum of age and Years of Service equals _____
(x) f. Not Applicable
NOTE: Cannot discriminate in favor of Highly Compensated Employees.
9
<PAGE> 10
C. COMPENSATION
1. COMPENSATION - See Section 1.2.10. For purposes of the Plan a
Participant's compensation is based on the Compensation Computation Period
and shall: (Select a, b, or c and d if applicable)
( ) a. Equal compensation as defined in Section 3401(a) except as
indicated below
( ) b. Equal compensation as defined in Section 415(c)(3) except as
indicated below
(x) c. Equal compensation as defined for the Wages, Tips, and Other
Compensation Box on Form W-2 except as indicated below
( ) d. Include compensation which is not includable in gross income by
reason of Sections 402(h)(1)(B) (SEP deferrals), 125 (Cafeteria
Plan), 402(a)(8) (401(k) deferrals), 403(b) or 457(b)
2. THE COMPENSATION COMPUTATION PERIOD IS:
(x) a. The Plan Year
( ) b. The calendar year ending with or within the Plan Year
3. FOR THE INITIAL PLAN YEAR OF PARTICIPATION, include Compensation from:
(Select one)
(x) a. Entry Date as a Participant
( ) b. First day of the Compensation Computation Period which ends
during the initial Plan Year of participation
D. CONTRIBUTION AND ALLOCATION
1. NON-ELECTIVE CONTRIBUTION FORMULA - The Employer's Non-Elective
contribution to the Plan shall be: (Select one)
( ) a. Discretionary, out of profits
(x) b. Discretionary, but not limited to profits
( ) c. _____% of each Participant's Compensation. (not to exceed 15%
( ) d. Not applicable. Non-Elective Contributions are not permitted.
2. ALLOCATION METHOD - The Employer Non-Elective contribution is allocated
to Participants: (Select one)
(x) a. Proportionate to Salary. Based upon each Participant's
Compensation in proportion to the Compensation of all
Participants.
( ) b. Integrated with Social Security. See Sections 2.3.1 and 2.3.3.
(Select one of d. through h., below.)
( ) c. Not applicable - No Non-Elective Contributions.
The Social Security Integration Level is equal to:
10
<PAGE> 11
( ) d. The taxable wage base under Section 230 of the Social Security
Act in effect as of the first day of the Plan Year.
( ) e. $__________ (Not to exceed the taxable wage base under Section
230 of the Social Security Act in effect as of the first day
of the Plan Year).
( ) f. _____% (Not to exceed 100) of the taxable wage base under
Section 230 of the Social Security Act in effect as of the
first day of the Plan Year.
( ) g. The greater of $10,000 or 20% of the taxable wage base under
Section 230 of the Social Security Act in effect as of the
first day of the Plan Year.
( ) h. 80% of the taxable wage base under Section 230 of the Social
Security Act in effect as of the first day of the Plan Year
plus $1.00.
3. REQUIREMENT TO SHARE IN CONTRIBUTION ALLOCATION - An allocation of the
Employer's Non-Elective Contribution shall be made to each Participant
during the Plan Year who completes more than 500 Hours of Service during
the Plan Year or is employed as of the last day of the Plan Year.
A participant is also eligible to share in the allocation if: (Select
all applicable)
(x) a. The Employee dies during the Plan Year.
(x) b. The Employee retires during the Plan Year.
(x) c. The Employee becomes totally disabled during the Plan Year.
( ) d. Not applicable.
4. REQUIREMENT TO SHARE IN MATCHING ALLOCATION - An allocation of the
Employer's Matching Contribution shall be made to each Participant during
the Plan Year who completes more than 500 Hours of Service during the Plan
Year or is employed as of the last day of the Plan Year.
A Participant is also eligible to share in the allocation if: (Select
all applicable)
(x) a. The Employee dies during the Plan Year.
(x) b. The Employee retires during the Plan Year.
(x) c. The Employee becomes totally disabled during the Plan Year.
( ) d. Not Applicable - No Matching Contributions.
5. MATCHING CONTRIBUTIONS - The Matching Contribution by the Employer for
the Plan Year in accordance with Section 2.2.1(a)(3)(ii) is
( ) a. Matching Contributions are not permitted
(x) b. Discretionary each Plan Year
( ) c. Based upon the Allocation Method set forth below
( ) d. Based upon the Allocation Method set forth below plus a
supplemental discretionary Matching contribution
11
<PAGE> 12
6. ALLOCATION METHOD FOR MATCHING CONTRIBUTIONS - Matching Contributions
shall be allocated to eligible Participants in an amount:
(x) a. Proportionate to the Elective Contributions made on behalf of a
Participant
( ) b. Equal to _____% of the Elective Contributions made on behalf of
a Participant
( ) c. Graded based on the dollar amount of the Elective Contribution
of each Participant as follows:
_____% of the first $_____ plus
_____% of the next $_____ plus
_____% of the next $_____ plus
_____% of the next $_____.
( ) d. Graded based on the percentage of compensation of the Elective
Contribution of each Participant as follows:
_____% of the first $_____ plus
_____% of the next $_____ plus
_____% of the next $_____ plus
_____% of the next $_____.
( ) e. Graded based on the dollar amount of the Elective Contribution
of each Participant as follows:
_____% if contribution is $_____ or more;
_____% if contribution is $_____ or more;
_____% if contribution is $_____ or more;
_____% if contribution is $_____ or more.
( ) f. Graded based on the percentage of compensation of the Elective
Contribution of each Participant as follows:
_____% if contribution is _____% or more
_____% if contribution is _____% or more
_____% if contribution is _____% or more
_____% if contribution is _____% or more.
( ) g. Not applicable
NOTE: Graded percentages entered in c. through f. must decrease as
percentage or amount of compensation increases.
7. IF A SUPPLEMENTAL DISCRETIONARY MATCHING CONTRIBUTION is made, Matching
Contributions shall be allocated to eligible Participants in an amount:
( ) a. Proportionate to the Elective Contributions made on behalf of a
Participant
( ) b. According to the method selected in 6b. - f. above
(x) c. Not applicable
8. MATCHING CONTRIBUTION ALLOCATION DATE - Matching Contributions are
allocated as of the Anniversary Date unless an alternate date is selected.
For the purposes of this Plan the Matching Contribution is allocated as
of: (Select one)
12
<PAGE> 13
( ) a. Plan Provision - the Anniversary Date
( ) b. The next Valuation Date.
( ) c. Other - Specify. (Must be allocated at least annually)
MATCHING CONTRIBUTIONS ARE ALLOCATED AT EACH PAYROLL DATE AND
REBALANCED AT THE END OF PLAN YEAR.
( ) d. Not applicable
9. LIMITATIONS ON MATCHING CONTRIBUTIONS - The Employer shall not make
Matching Contributions: (Select all applicable)
(x) a. With respect to Elective Contributions in excess of 4 percent
of a Participant's Compensation
( ) b. In excess of $_____ for any Participant
( ) c. To Key Employees
( ) d. Not applicable.
10. ALLOCATION OF QUALIFIED NON-ELECTIVE CONTRIBUTIONS - (Select a or b. If
a is selected, do not complete the remainder of this section)
( ) a. Qualified Non-Elective Contributions are not permitted.
(x) b. Qualified Non-Elective Contributions shall be made at the
Employer's discretion.
Qualified Non-Elective Contributions shall be allocated (complete c and d):
(x) c. On behalf of
( ) All Participants
( ) Solely on behalf of Participants who are not Highly
Compensated Employees
(x) Solely on behalf of Participants who are not Highly
Compensated Employees to the extent necessary to satisfy the
ACP or the ADP test
( ) d. Who are eligible to receive an allocation of
( ) Non-Elective Contributions
( ) Matching Contributions
Qualified Non-Elective Contributions shall be allocated: (Select e or f;
also select g, if applicable)
(x) e. In proportion to a Participant's Compensation.
( ) f. As a uniform dollar amount.
(x) g. To the extent necessary to satisfy the ACP test or the ADP test.
11. LIMITATION YEAR - Section 1.2.40 provides that unless otherwise specified
the Limitation Year for purposes of the limitation imposed by IRC Section
415 is the Plan Year. (Select one)
(x) a. Plan Provision
( ) b. Calendar year coinciding with or ending within the Plan Year
13
<PAGE> 14
( ) c. Twelve consecutive month period ending _____/_____.
E. VESTING PROVISIONS
1. YEARS OF SERVICE - Section 1.2.65 provides that a Year of Service is the
12 consecutive month period specified in the Adoption Agreement in which
at least 1000 Hours of Service are performed unless a lesser number is
specified. (Select all applicable)
(x) a. Use the Plan Year as the computation period
( ) b. Use Eligibility Computation Period as the computation period
( ) c. Use _____ in lieu of 1000 Hours of Service (Not to exceed 1000
hours)
2. EXCLUDED YEARS - Section 1.2.65 provides unless otherwise specified all
Years of Service are taken into account.
( ) a. Plan Provision - Include all Years of Service
( ) b. Exclude Plan Years prior to age 18
(x) c. Exclude Plan years prior to adoption of plan or predecessor plan.
Effective date of (prior) plan: JUNE 1ST, 1997
3. VESTING SCHEDULE - Section 2.4.2(f) provides that benefits will vest in
accordance with the method specified in the Adoption Agreement.
Employer Accounts:
( ) a. At the rate of 20% each year after 3 Years of Service.
(20% vested in third year)
( ) b. At the rate of 20% each year after 2 Years of Service. (20%
vested in second year)
( ) c. 100% vesting upon participation.
(x ) d. 100% vesting after 3 Year(s) of
Service (Not to exceed 5)
( ) e. 100% vesting at Early Retirement Date (Must also select another
alternative)
( ) f. Other: (Optional vesting schedule must be at least as favorable
as a. or d.)
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 ______
1 but less than 2 ______
2 but less than 3 ______
3 but less than 4 ______
4 but less than 5 ______
5 but less than 6 ______
6 but less than 7 ______
7 or more ______
14
<PAGE> 15
( ) g. Not applicable - No Non-Elective Employer Contributions
Matching Accounts:
( ) a. At the rate of 20% each year after 3 Years of Service.
(20% vested in third year)
( ) b. At the rate of 20% each year after 2 Years of
Service. (20% vested in second year)
( ) c. 100% vesting upon participation.
(x) d. 100% vesting after 3 Year(s) of Service (Not to exceed 5)
( ) e. 100% vesting at Early Retirement Date (Must also
select another alternative)
( ) f. Other: Optional vesting schedule must be at least
as favorable as a. or d.)
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 ______
1 but less than 2 ______
2 but less than 3 ______
3 but less than 4 ______
4 but less than 5 ______
5 but less than 6 ______
6 but less than 7 ______
7 or more ______
( ) g. Not applicable - No Matching Contributions
4. PRIOR VESTING SCHEDULE - Section 3.10.3 provides that if the Vesting
schedule has been amended to a less favorable schedule, participants are
entitled to have their vested interest calculated under the prior schedule
under certain instances.
(x) a. Not applicable. Either not amended or new schedule is more
favorable.
( ) b. The prior schedule was
Employer
Year(s) of Service Percent Vesting
---------------------- ---------------
Less than 1 ______
1 but less than 2 ______
2 but less than 3 ______
3 but less than 4 ______
4 but less than 5 ______
5 but less than 6 ______
6 but less than 7 ______
7 or more ______
15
<PAGE> 16
Matching
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 ______
1 but less than 2 ______
2 but less than 3 ______
3 but less than 4 ______
4 but less than 5 ______
5 but less than 6 ______
6 but less than 7 ______
7 or more ______
5. TOP HEAVY VESTING SCHEDULE - Section 2.6.1(c) provides that if the Plan
becomes Top Heavy, unless the Employer specifies otherwise, vesting will
be at a rate of 20% per year beginning with the second Year of Service.
Employer Accounts:
( ) a. Plan Provision
( ) b. 100% vested after _____ Year(s) of Service (Not to exceed 3)
(x ) c. Same as non-Top Heavy vesting schedule (Must be at least as
favorable as a or b)
( ) d. Other: (Optional vesting schedule must be at least as
favorable as a. or b.)
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 ______
1 but less than 2 ______
2 but less than 3 ______
3 but less than 4 ______
4 but less than 5 ______
5 but less than 6 ______
6 but less than 7 ______
7 or more ______
( ) e. Not Applicable - No Employer Non-Elective Contributions
Matching Accounts:
( ) a. Plan Provision
( ) b. 100% vested after _____ Year(s) of Service (Not to exceed 3)
(x ) c. Same as non-Top Heavy vesting schedule (Must be at least as
favorable as a or b)
( ) d. Other: (Optional vesting schedule must be at least as
favorable as a. or b.)
Year(s) of Service Percent Vesting
------------------ ---------------
Less than 1 ______
16
<PAGE> 17
1 but less than 2 ______
2 but less than 3 ______
3 but less than 4 ______
4 but less than 5 ______
5 but less than 6 ______
6 but less than 7 ______
7 or more ______
( ) e. Not Applicable - No Matching Contributions
6. RE-EMPLOYMENT - Section 2.4.4 provides that Years of Service completed
after a Break in Service are not counted for purposes of increasing the
vested percentage attributable to service before the Break unless
reemployed within 5 years.
(x ) a. Plan Provision
( ) b. Count all service after the Break
( ) c. Not applicable - 100% immediate vesting
7. FORFEITURES - Section 2.4.6 provides that forfeitures are determined as
of the last day of the Plan Year in which the Participant's entire
interest is distributed from the Plan.
(x ) a. Plan Provision
( ) b. Determine in Plan Year of 5th consecutive Break in Service.
( ) c. Determination as of the Valuation Date coincident with or next
following the Distribution Date
( ) d. Not applicable - All benefits are fully vested. Leave the
remaining items in this Section E blank.
8. FORFEITURES OF NON-ELECTIVE CONTRIBUTIONS shall be applied to (select all
applicable):
( ) a. Supplement Non-Elective Contributions
(x ) b. Reduce Non-Elective Contributions
( ) c. Reduce Qualified Non-Elective Contributions
( ) d. Supplement Matching Contributions
( ) e. Reduce Matching Contributions
9. FORFEITURES OF NON-ELECTIVE CONTRIBUTIONS shall be reallocated to
participants:
( ) a. In the same manner as Non-Elective Contributions
( ) b. In proportion to each participant's Compensation
(x ) c. Not applicable. Forfeitures are applied to reduce
contributions.
NOTE: If the Plan provides for permitted disparity, forfeitures must
be allocated under the Plan's allocation formula.
10. FORFEITURES OF MATCHING CONTRIBUTIONS SHALL BE APPLIED TO: (Select all
applicable)
17
<PAGE> 18
( ) a. Supplement Matching Contributions
(x) b. Reduce Matching Contributions
( ) c. Reduce Qualified Non-Elective Contributions
( ) d. supplement Non-Elective Contributions
( ) e. Reduce Non-Elective Contributions
11. FORFEITURES OF MATCHING CONTRIBUTIONS SHALL BE REALLOCATED to
participants:
( ) a. In the same manner as Non-Elective Contributions
( ) b. In proportion to each participant's Compensation
( ) c. In proportion to Matching Contributions
( ) d. In proportion to Elective Contributions
(x) e. Not applicable. Forfeitures are applied to reduce contributions.
12. REQUIREMENT TO SHARE IN ALLOCATION OF FORFEITURES - In order to share in
the allocation of Forfeitures which supplement rather than reduce other
contributions, a Participant: (Select all applicable)
( ) a. Must be eligible to receive an allocation of the respective
type of contribution, i.e. Matching or Non-elective
(x) b. Not applicable. Forfeitures reduce contributions.
13. RESTORATION OF FORFEITURES. - If a Participant is entitled to a
restoration of a forfeiture, the amount to be restored shall be restored
by:
( ) a. An additional contribution by the Employer specifically
allocated to the Participant's Account.
(x) b. Allocating other forfeitures arising in the year of restoration
to the Participant's Account to the extent thereof and an
additional contribution by the Employer specifically allocated
to the Participant's Account to the extent that allocable
forfeitures are insufficient.
F. CODA LIMITATION PROVISIONS
1. ACTUAL DEFERRAL PERCENTAGES - Qualified Non-Elective Contributions may be
taken into account for purposes of calculating the ADP-Actual Deferral
Percentages. For purposes of the ADP test in Section 2.7.1, the amount
taken into account shall be:
( ) a. All Qualified Non-Elective Contributions.
(x) b. The Qualified Non-Elective Contributions that are needed to
meet the ADP test.
2. AVERAGE CONTRIBUTION PERCENTAGE - The amount of Elective Deferrals and
Qualified Non-Elective Contributions taken into account as contribution
percentage amounts for the purpose of calculating the ACP-Average
Contribution Percentage, subject to such other requirements as may be
prescribed by the Secretary of the Treasury, shall be:
18
<PAGE> 19
For elective deferrals:
( ) a. All such Elective Deferrals.
(x) b. Only those Elective Deferrals that are needed to meet the
Average Contribution Percentage test.
( ) c. Elective Deferrals are not to be included in the ACP test.
( ) d. Not applicable.
For Qualified Non-Elective Contributions:
( ) e. All such Qualified Non-Elective contributions.
(x) f. Only those Qualified Non-Elective Contributions that are needed
to meet the Average Contribution Percentage test.
( ) g. Qualified Non-Elective Contributions are not to be included in
the ACP test.
( ) h. Not applicable.
3. EXCESS AGGREGATE CONTRIBUTIONS - Forfeitures of Excess Aggregate
Contributions pursuant to Section 2.7.7 shall be:
(x) a. Applied to reduce Employer contributions.
( ) b. Allocated, after all other forfeitures under the Plan,
to each Participant's Matching Contribution Account in the
ratio which each Participant's Compensation for the Plan Year
bears to the total Compensation of all Participants for the
Plan Year. Such forfeitures will not be allocated to the
Account of any Highly Compensated Employee.
G. DISTRIBUTION PROVISIONS
1. FORM OF DISTRIBUTIONS - Section 2.5.2 provides that the Employer may
elect to permit Plan distributions to be made in the form of: (Select all
applicable)
(x) a. Lump sum without regard to amount.
( ) b. Lump sum but not to exceed $______.
( ) c. Installments over ____ years payable: (Select one or more)
( ) c.1. annually
( ) c.2. quarterly
( ) c.3. monthly
( ) d. Installments over a period of years certain selected by the
Participant that is less than the life of the Participant
payable (Select one or more.)
( ) d.1. annually
( ) d.2. quarterly
( ) d.3. monthly
( ) e. An annuity for not more than ___
( ) f. An annuity for the life of: (Select one or more)
( ) f.1. the Participant
19
<PAGE> 20
( ) f.2. the Participant and spouse
( ) f.3. the Participant and a designated beneficiary
( ) g. An annuity for ___ years certain and thereafter for the life
of:
(Select one or more)
( ) g.1. the Participant
( ) g.2. the Participant and spouse
( ) g.3. the Participant and a designated beneficiary
( ) h. An annuity for a period certain selected by the Participant
that is less than the life of: (Select one or more)
( ) h.1. the Participant
( ) h.2. the Participant and spouse
( ) h.3. the Participant and a designated beneficiary
NOTE: Any number of options may be selected. Once selected, however, any
option may not thereafter be eliminated.
In an annuity option of life or longer is selected Qualified Joint and
Survivor Annuity provisions are required.
2. SURVIVOR ANNUITY PERCENTAGE - If a Joint and Survivor Annuity is payable,
Section 1.2.37 provides that the normal survivor annuity is 50% of the
amount payable during the joint lives of the participant and spouse,
unless the Employer elects a different percentage (Select one):
( ) a. Plan Provision - 50%
( ) b. Other Percentage - ___% (Not less than 50% nor more than 100%)
( ) c. Other Percentage selected by the Participant (Not less than
50% or more than 100%)
3. TIME OF DISTRIBUTION - Section 2.5.1(b) provides that distributions are
deferred to Participants who resign or are discharged prior to retirement
until the retirement date unless the employer elects to permit
distributions in advance of such date.
( ) a. Plan Provision without advance distribution election.
(x) b. Distributions may be made at the Participant's election
within a reasonable period following the Distribution Date.
4. DISTRIBUTION DATE - Section 2.4.5 provides that, subject to the necessity
of obtaining the consent of a Participant and spouse, for the purposes of
determining the amount to be distributed, the Distribution Date:
For a Participant who is not fully vested, is
( ) a. The Anniversary Date coinciding with or following the date of
termination.
(x) b. The Valuation Date coinciding with or following the date of
termination.
20
<PAGE> 21
( ) c. As soon as practical but prior to the Anniversary Date
coinciding with or following the date of termination, based
on the preceding Valuation Date.
( ) d. the ( ) Valuation Date ( ) Anniversary Date following ___
consecutive Breaks in Service.
( ) e. The Participant's Normal or Early Retirement Date
For a Participant who is fully vested but who terminates employment
prior to death, total and permanent disability or retirement as
his retirement date is:
( ) a. The Anniversary Date coinciding with or following the date of
termination.
(x) b. The Valuation Date coinciding wit or following the date of
termination.
( ) c. As soon as practical but prior to the Anniversary Date
following the date of termination, based upon the preceding
Valuation Date
( ) d. The Participant's Normal or Early Retirement Date
For a Participant who terminates employment as a result of death, total
and permanent disability or retirement at his retirement date, is:
( ) a. The Anniversary Date coinciding with or following the date of
termination.
(x) b. The Valuation Date coinciding with or following the date of
termination.
( ) c. As soon as practical but prior to the Anniversary Date
following the date of termination, based upon the preceding
Valuation Date
In the case of a Participant's interest in an Elective Account, Voluntary
Account or Segregated Account attributable to a rollover contribution
from another plan, notwithstanding the foregoing, the Distribution
Date, is:
( ) a. Not applicable - The Distribution Date is determined in the
manner indicated above for the fully vested Participants
( ) b. The Anniversary Date coinciding with or following the date of
termination.
(x) c. The Valuation Date coinciding with or following the date
of termination.
( ) d. As soon as practical but prior to the Anniversary Date
following the date of termination, based upon the preceding
Valuation Date
5. HARDSHIP DISTRIBUTIONS - Section 2.5.5. provides that an Employer may
permit distributions to Participants while employed in the event of
financial hardship as specified in the Plan:
( ) a. Hardship distributions are permitted.
(x) b. Hardship distributions are not permitted.
21
<PAGE> 22
Hardship Distributions may be made from a Participants Account as elected
below in c and d, provided that Hardship Distributions of earnings on
elective Deferrals may only be made on such earnings credited to the
Participant's account as of the end of the last Plan Year ending before
July 1, 1989. Therefore, subject to such limitation, Hardship
Distributions may be taken from:
( ) c. all of Participant's Accounts.
( ) d. only the Participant's Account balances attributable to the
following accounts:
( ) d.1. Employer Account
( ) d.2. Qualified Non-Elective Contribution Account
( ) d.3. Elective Contribution Account
( ) d.4. Matching Account
( ) d.5. Segregated Account (attributable to a rollover)
( ) d.6. Voluntary Account
6. IN SERVICE DISTRIBUTIONS -Section 2.5.6 provides that an Employer may
permit distributions to fully vested Participants over the age of 59-1/2
prior to termination of employment if the amounts withdrawn have been
allocated to the Participant for two (2) or more years or the Participant
has been a Participant for at least five (5) years. (Select all
applicable)
(x) a. Plan Provision.
( ) b. Require that amounts have been allocated for ___ years.
(Must be at least 2)
( ) c. Require participation for at least __ years. (Must be at
least 5)
( ) d. In Service Distributions are permitted upon reaching Normal
Retirement Date
( ) e. In Service Distribution are permitted for amounts attributable
to a rollover from another plan regardless of age or periods of
participation
( ) f. In Service Distributions are not permitted.
7. QUALIFIED DOMESTIC RELATIONS ORDERS - Section 3.12.9 provides that the
Employer may elect to permit distributions to an alternate payee pursuant
to the terms of a qualified domestic relations order even if the
Participant continues to be employed. (Select one)
( ) a. Distributions to an alternate payee are not permitted while the
Participant continues to be employed.
( ) b. Distributions to an alternate payee are permitted while the
Participant continues to be employed.
H. OTHER ADMINISTRATIVE PROVISIONS
1. EARNINGS -Section 3.1.2 permits the Employer to specify the manner in
which earnings are allocated to Participants who receive distributions on
any date other than a Valuation Date. Select any of the following:
22
<PAGE> 23
(x) a. Earnings will be credited solely as of the immediately preceding
Valuation Date.
( ) b. Actual earnings will be credited to the date of distribution.
( ) c. Earnings will be credited solely as of the immediately preceding
Valuation Date if distribution is within ___ days of such
Valuation Date and will be credited to date of distribution
otherwise.
( ) d. Earnings will be credited to the date of distribution based
upon an estimate of earnings equal to ___% annually.
( ) e. Earnings will be credited to the date of distribution based
upon an estimate of earnings equal to the average rate of
earnings during the preceding
( ) e.1. Valuation Period.
( ) e.2. Plan Year.
( ) e.3. ___ Valuation Periods.
2. LOANS -Section 3.7.1. provides that the Employer may elect to permit
loans to Participants and Beneficiaries in accordance with a participant
loan program adopted by the Trustee.
(x) a. Loans are permitted.
( ) b. Loans are not permitted.
3. ROLLOVERS.- Section 3.11.3 authorizes the Employer to permit the transfer
of interests in other qualified plans to the Plan.
( ) a. Rollover contributions are not permitted.
( ) b. Rollover contributions are permitted only from other plans of
the Employer.
( ) c. Rollover contributions are permitted only by Employees who have
satisfied the conditions for participation.
(x) d. Rollover contributions are permitted from any employee even if
not otherwise eligible to be a Participant.
4. INVESTMENT CONTROL - Section 3.6.5 provides that the Employer may elect
to permit Participants to control the investment of their Accounts.
( ) a. Participants may not control their investments.
( ) b. Participants may control the investment of their Accounts if
fully vested in the Account.
( ) c. Participants may control the investment of their Accounts to
the extent vested.
(x) d. Participants may control their investments without regard to
heir vested interest.
( ) e. Participants may control their investments solely with respect
to amounts attributable to: (Select all applicable)
( ) e.1. Non-Elective Contributions
( ) e.2. Qualified Non-Elective Contributions
( ) e.3. Elective Contributions
23
<PAGE> 24
( ) e.4. Matching Contributions
( ) e.5. Voluntary Contributions
( ) e.6. Amounts rolled over and held in a Segregated Account
5. TOP HEAVY ASSUMPTIONS - (This question applies only if the Employer has a
Defined Benefit plan.) The interest rate used to establish the Present
Value of Accrued Benefits in order to calculate the top heavy ratio under
IRC Section 416 shall be ____% and the mortality tables used shall be
____________________.
6. VALUATION DATE - For purposes of computing the top-heavy ratio, the
Valuation Date is (Select one):
(x) a. the first day of Plan Year.
( ) b. the last day of the Plan Year.
( ) c. Other - Specify. __/__ (Must be at least annually)
7. SINGLE PLAN MINIMUM TOP-HEAVY ALLOCATION - For purposes of minimum
top-heavy allocations, contributions and forfeitures equal to the
following percentage of each non-Key Employee's compensation will be
allocated to the Employee's account when the Plan is top-heavy (Select
one):
(x) a. 3% or the highest percentage allocated to any Key Employee if
less.
( ) b. ________% (Must be at least 3).
8. MULTIPLE PLANS PROVISION - The Employer which maintains or ever
maintained another qualified defined benefit plan or welfare benefit fund
or individual medical account in which any participant in the Plan is, was
or could become a participant adds the following optional provisions which
it deems necessary to satisfy Section 415 or 416 of the Code because of
the required aggregation of multiple plans: (Select one)
(x) a. Not applicable (No other plan or other plan terminated
prior to the Effective Date of this Adoption Agreement).
( ) b. A minimum contribution allocation of 5% of each Non-Key
Participant's total compensation shall be provided in a defined
contribution plan of the Employer.
( ) c. A minimum contribution allocation of 7.5% of each Non-Key
Participant's total compensation shall be provided in a defined
contribution plan of the Employer.
( ) d. A minimum benefit of _______ (must be at least the lesser of 2%
times years of service of 20%) of each Non-Key Participant's
total compensation shall be provided in a defined benefit plan
of the Employer.
( ) e. A minimum benefit of ______ (must be the lesser of 2% times
years of service or 20%) of each Non-Key Participant's total
compensation shall be provided in a defined benefit plan of the
Employer but offset by the amount contributed on such
24
<PAGE> 25
participant's behalf under any defined contribution plan
of the Employer.
( ) f. Other - Specify.
NOTE: The method selected must preclude Employer discretion and the
Employer must obtain a determination letter in order to continue
reliance on the Plan's qualified status.
9. MULTIPLE DEFINED CONTRIBUTION PLANS. If the Participant is covered under
another qualified defined contribution plan maintained by the Employer,
other than a master or prototype plan: (Select one)
(x) a. Not applicable.
( ) b. The provisions of this Plan limiting annual additions
will apply as if the other plan is a master or prototype plan.
( ) c. Other - Specify.
NOTE: Specify the method under which the plans will limit total annual
additions to the maximum permissible amount, and will properly
reduce any excess amounts in a manner that precludes Employer
discretion.
10. TOP HEAVY DUPLICATIONS - The Employer who maintains two or more Defined
Contribution plans makes the following election:
(x) a. Not applicable
( ) b. A minimum non-integrated contribution of 3% of each Non-Key
Participant's Compensation shall be provided by:
( ) b.1. this Plan.
( ) b.2. the following defined contribution plan:
__________________________
( ) c. Other - Specify.
NOTE: The method selected must preclude Employer discretion and avoid
inadvertent omissions, including any adjustments required under
code Section 415(e). The employer must obtain a determination
letter in order to continue reliance on the Plan's qualified
status. If the plan is to be paired another defined
contribution plan:
(a) if the plans benefit the same participants, one of the
paired plans must provide the top-heavy minimum
contribution.
(b) if the plans do not benefit the same participants, then
each plan must make its own top-heavy minimum
contributions.
11. ANNUAL ADDITION LIMITATION - If a Participant is or has ever been a
participant in a defined benefit pension plan maintained by the Employer,
Section 3.2.1(c) provides that Annual Additions shall be limited.
25
<PAGE> 26
(x) a. Not applicable.
( ) b. The contribution to the Plan allocable to the Participant shall
be reduced so that the limitations are not exceeded.
( ) c. Other - Specify
NOTE: Specify the method under which the plans will limit total
additions to the maximum permissible amount, and will properly
reduce any excess amounts in a manner that precludes employer
discretion.
12. SECTION 415 COMPENSATION DEFINITION - For purposes of calculating an
Employee's compensation pursuant to Section 3.2.1(h), relating to
limitations on contributions and benefits, Compensation means all of each
Participant's
( ) a. Wages are computed for Wages, Tips, and Other Compensation Box
on Form W-2.
( ) b. Section 3401(a) wages.
(x) c. Section 415 safe harbor compensation.
13. PAIRED PLAN - Indicate whether the Plan is to be paired with another
DATAIR Mass-Submitter Prototype Plan.
(x) a. No or not applicable.
( ) b. Yes. Paired with:
Plan Name __________________
Three Digit Plan Number ____________
26
<PAGE> 27
The name, address and telephone number of the Plan Sponsor is:
DATAIR Employee Benefit Systems, Inc.
735 N. Cass Avenue
Westmont, IL 60559-1100
(708) 325-2600
Applicable requirements mandate that the use of this Prototype Document be
registered by the Plan Sponsor with the Internal Revenue Service. Unregistered
use may cause the Plan to become disqualified because it may not be maintained
as required by law.
The Plan Sponsor will inform the Employer of any amendments made to the Plan or
of the discontinuance or abandonment of the Plan.
NOTE: An employer may rely on the notification letter issued by the National
Office of the Internal Revenue Service as evidence that the plan is qualified
under Section 401 of the Internal Revenue Code unless the Employer has ever
maintained or who later adopts another plan in addition to the Plan (including
a welfare benefit fund which provides post-retirement medical benefits
allocated to separate accounts for key employees or an individual medical
account plan) other than DATAIR Mass-Submitter paired plans. If the Employer
who adopts or maintains multiple plans wishes to obtain reliance that the plans
are qualified, application for a determination letter should be made to the
appropriate Key District Director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with the DATAIR
Mass-Submitter Prototype Defined Contribution Plan and Trust, Revised 05/06/92.
The Employer and Trustee hereby adopt the Plan and Trust as evidenced by the
foregoing Adoption Agreement on this 28th day of April, 1997.
Employer: Trustee:
Security Associates International, Inc.
/s/ James S. Brannen /s/ James S. Brannen
- --------------------------------------- --------------------
James S. Brannen James S. Brannen
President Trustee
/s/ Ronald I. Davis
--------------------
Ronald I. Davis
Trustee
27
<PAGE> 28
/s/ Stephen Rubin
--------------------
Stephen Rubin
Trustee
/s/ James S. Brannen
- ----------------------------------
Security Associates Command Center II, LLC
James S. Brannen
Manager
/s/ James S. Brannen
- ----------------------------------
All-Security Monitoring Services, LLC
James S. Brannen
Manager
/s/ James S. Brannen
- ----------------------------------
AMJ Central Station Corporation, Inc.
James S. Brannen
President
28
<PAGE> 1
Exhibit 10.5
SECURITY ASSOCIATES INTERNATIONAL, INC.
SUPPLEMENTAL EMPLOYEES' RETIREMENT PLAN
1. Purpose
The purpose of the Security Associates International, Inc. Supplemental
Employees' Retirement Plan (the "PLAN") is to enable a select group of key
management or highly compensated employees of Security Associates
International, Inc. (the "COMPANY") and its subsidiaries to receive
supplemental compensation on a deferred basis in accordance with the terms and
conditions set forth herein. The Plan is adopted effective May 1, 1997.
The Plan is designed to qualify under the Employee Retirement Income
Security Act of 1974, as amended, as an unfunded plan maintained by the Company
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. If, for any reason, including,
but not limited to, the promulgation of regulations by the United States
Department of Labor, this Plan, either in form or in operation, shall fail to
so qualify, the Plan shall be revised, as necessary, and notwithstanding any
other limitations herein, to comply with the requirements for maintaining such
an unfunded plan.
2. Administration
(a) The Plan shall be administered by the Board of Directors of the
Company or by a committee of two (2) or more persons appointed by the Board
(the Board serving in such function, or such committee, shall hereinafter be
referred to as the "COMMITTEE").
(b) The Committee shall have full power and authority to administer the
Plan and otherwise to perform the duties and responsibilities specified
hereunder. Without limitation, and by way of specification, the Committee
shall have the following specific powers and duties:
(i) to determine the key management or highly compensated employees
who, from time to time, shall be eligible to participate in the Plan in
accordance with Section 4;
(ii) to interpret the provisions of the Plan and make any and all
determinations arising thereunder, such interpretations and
determinations to be final, conclusive and binding on all participants
and beneficiaries hereunder;
(iii) to maintain such records as it shall deem necessary or
appropriate for the proper administration of the Plan; and
(iv) to establish such rules and procedures not inconsistent with
the terms of the Plan as it shall deem necessary or appropriate to
effectuate the purpose of the Plan.
<PAGE> 2
3. Plan Year
The Plan Year shall be the calendar year.
4. Eligible Employees
The Committee shall determine from time to time the key management or
highly compensated employees who shall be eligible to participate in the Plan
for a Plan Year, and shall notify such key employees in writing at such time as
the Committee may determine.
5. Supplemental Compensation
Subject to such restrictions, limitations and the satisfaction of such
performance criteria as the Committee may from time to time establish, the
Company may contribute to the Plan an amount equal to the value of a specified
number of shares of Company common stock. Such number need not be identical
for each participant and shall not be based or earned in whole or in part by
length of service. The number, and the restrictions, limitations, and/or
performance criteria for each participant, shall be determined by the Committee
in its sole discretion, and shall be set forth in Exhibits to the Plan that are
established for each participant.
6. Deferred Compensation Account
(a) The Committee shall establish a memorandum account ("DEFERRED
COMPENSATION ACCOUNT") for each participant in the Plan. A participant's
Deferred Compensation Account shall be (i) credited with all amounts
contributed by the Company on his behalf under the Plan, and (ii) charged with
any distributions made with respect to the participant pursuant to Section 9.
Amounts credited to a participant's Deferred Compensation Account, and the
accounting for such Deferred Compensation Account, will be measured in shares
of the Company's common stock, such that the amount credited to a participant's
Deferred Compensation Account in any particular Plan Year will reflect the
number of shares of Company common stock contributed on behalf of the
participant; provided, however, that the number of shares of Company common
stock credited to the Deferred Compensation Account of a participant in any
Plan Year shall be earned, and the participant shall become entitled to all or
a portion of such shares, pro rata over a five (5) year period (provided the
participant satisfies in each Plan Year the performance criteria established
for him by the Committee). If a participant fails to satisfy such performance
criteria in a given Plan Year, he shall earn, and be entitled to, only such
portion of the pro rata amount as may have been earned in accordance with the
participant's Exhibit to the Plan. Any portion of such amount not earned in a
particular Plan Year shall be forfeited and the Deferred Compensation Account
shall be reduced accordingly.
2
<PAGE> 3
(b) The value of the Deferred Compensation Account of each participant
shall be adjusted annually to reflect the then current fair market value of the
Company's common stock.
(c) The Company shall not be obligated to make any investments in the
Company's common stock, the purpose of such crediting being to establish a
method of adjusting each participant's Deferred Compensation Account in order
to determine the amounts that he may ultimately be entitled to receive upon
distribution.
7. Vesting
Except as the Committee may otherwise determine, a participant shall be
one hundred percent (100%) vested in the earned portion of his Deferred
Compensation Account on the first to occur of the following events: (i) death;
(ii) total and permanent disability; (iii) a sales event; (iv) termination of
the Plan; (v) termination of employment by the Company (other than for "cause",
as defined in Section 8) after the participant has completed two (2) or more
years of Plan participation; or (vi) five (5) years of Plan participation. For
purposes of this Plan: (i) a participant shall be deemed to have incurred a
"total and permanent disability" if he is totally and permanently disabled in
accordance with Section 22(e)(3) of the Code; and (ii) a "sales event" shall be
deemed to have occurred upon the consummation of the merger or consolidation of
the Company with another corporation (other than an affiliate of the Company),
firm, or entity, or upon the transfer or sale of substantially all of the
Company's assets or common stock (other than to an affiliate of the Company)
or, if the Committee so elects, upon the first sale of the common stock of the
Company to underwriters for the account of the Company pursuant to a
registration statement under the Securities Act of 1933, as amended, filed with
and declared effective by the Securities and Exchange Commission.
Unless a participant's Deferred Compensation Account has previously vested
pursuant to the preceding paragraph, if a participant voluntarily terminates
his employment prior to the completion of five (5) years of Plan participation,
he will be vested in the percentage of the earned portion of his Deferred
Compensation Account set forth below:
<TABLE>
<CAPTION>
Completed Years of Vested
Participation Percentage
------------------ ----------
<S> <C>
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 100%
</TABLE>
8. Forfeitures
For purposes of this Section 8, all references herein to the "Company"
shall include the Company's subsidiaries. Notwithstanding any other provision
of this Plan, all rights to a participant's Deferred Compensation Account,
whether vested or unvested, earned or unearned, and to any payments
3
<PAGE> 4
hereunder (or to the continuation of any payments hereunder) shall be
discontinued, canceled, and forfeited and the Company shall have no obligation
hereunder to the participant, and neither the participant nor his heirs,
personal representatives, or successors shall have any rights with respect
thereto, if any one of the following circumstances occur:
(a) the participant is discharged from employment with the Company for
"cause;"
(b) the participant violates the non-competition and non-disclosure
provisions set forth in this Section 8; or
(c) the participant performs acts of willful malfeasance or gross
negligence in a matter of material importance to the Company.
The Board of Directors shall have the sole discretion to apply the provisions
of this Section 8, and such exercise of discretion shall be conclusive and
binding upon the participant and all other persons.
For purposes of this Plan, the participant shall be deemed terminated for
"cause" if the Company terminates the participant, or the participant
terminates his employment, after the participant:
(a) shall have committed any felony, including, but not limited to, a
felony involving fraud, theft, misappropriation, dishonesty, or embezzlement;
(b) shall have committed acts that materially impair the goodwill or
business of the Company or cause material damage to its property, goodwill or
business;
(c) shall have refused to, or willfully failed to, perform his material
duties; or
(d) shall have performed any action that the Board of Directors, in its
sole discretion, may deem sufficiently injurious to the interests of the
Company to constitute substantial cause for termination.
For purposes of this Plan, the participant agrees that, during the time of
his employment and for a period of two (2) years after the termination of the
participant's employment for any reason whatsoever or for no reason, whether
voluntary or involuntary, the participant will not, except on behalf of the
Company:
(a) directly or indirectly, contact, solicit or direct any person, firm,
or corporation to contact or solicit, any of the Company's customers or
prospective customers (as hereinafter defined) for the purpose of selling or
attempting to sell, any products and/or services (including the making of loans
to customers) that are the same as or similar to the products and services
provided by the Company to its customers (or for the purpose of purchasing any
assets that are the same as or similar to those purchased by the Company from
its customers). In addition, the participant will
4
<PAGE> 5
not disclose the identity of any such customers or prospective
customers to any person, firm, corporation, association, or other entity for
any reason or purpose whatsoever; and
(b) directly or indirectly, whether as an investor (excluding investments
representing less than one percent (1%) of the common stock of a public
company), lender, owner, stockholder, officer, director, consultant, employee,
agent, salesperson or in any other capacity, whether part-time or full-time,
become associated with any business involved in the purchase of assets or
provision of services (including the making of loans) then constituting ten
percent (10%) or more of the annual sales of the Company; and
(c) solicit or accept if offered to him, with or without solicitation, on
his own behalf or on behalf of any other person, the services of any person who
is an employee of the Company, nor solicit any of the Company's employees to
terminate employment with the Company, nor agree to hire any employee of the
Company into employment with himself or any company, individual or other
entity; and
(d) act as a consultant, advisor, officer, manager, agent, director,
partner, independent contractor, owner, or employee for or on behalf of any of
the Company's competitors, prospective competitors, customers or prospective
customers (as hereinafter defined), with respect to or in any way with regard
to any aspect of the Company's business and/or any other business activities in
which the Company engages during the term hereof.
The participant further agrees that both during his employment and
thereafter the participant will not, for any reason whatsoever, use for himself
or disclose to any person not employed by the Company any "Confidential
Information" of the Company acquired by the participant during his relationship
with the Company. The participant agrees that "Confidential Information"
includes but is not limited to: (a) any financial, business, planning,
operations, services, potential services, products, potential products,
technical information and/or know-how, formulas, production, purchasing,
marketing, sales, personnel, customer, broker, supplier, or other information
of the Company; (b) any papers, data, records, processes, methods, techniques,
systems, models, samples, devices, equipment, compilations, invoices, customer
lists, or documents of the Company; (c) any confidential information or trade
secrets of any third party provided to the Company in confidence or subject to
other use or disclosure restrictions or limitations; and (d) any other
information, written, oral, or electronic, whether existing now or at some time
in the future, whether pertaining to current or future developments, and
whether previously accessed during the participant's tenure with the Company or
to be accessed during his future employment with the Company, which pertains to
the Company's affairs or interests or with whom or how the Company does
business.
For purposes of this Section 8: "customer" shall be defined as any
person, firm, or entity that sold any assets to the Company or purchased any
type of product and/or service from the Company or is or was doing business
with the Company or the participant within the twelve (12) month period
immediately preceding termination of the participant's employment; and
"prospective customer" shall be defined as any person, firm, or entity
contacted or solicited by the Company or the participant (whether directly or
indirectly) or who contacted the Company or the participant (whether directly
or indirectly) within the twelve (12) month period immediately preceding
5
<PAGE> 6
termination of the participant's employment for the purpose of having
such persons, firms, or entities become a customer of the Company.
9. Payment of Deferred Compensation
(a) Except as otherwise provided in paragraph (b) or (c) below, the then
current value of the earned and vested portion of the participant's Deferred
Compensation Account shall be paid to him, or his beneficiary, by the Company,
in its sole discretion, in either (i) one (1) single Company common stock
payment within one hundred twenty (120) days after the Settlement Date, or (ii)
five (5), ten (10), or fifteen (15) equal annual installments of Company common
stock with the first such installment to be paid one hundred twenty (120) days
after the Settlement Date and the remaining four (4), nine (9), or fourteen
(14) installments, whichever is applicable, to be paid on the anniversary date
of such first installment payment. The foregoing notwithstanding, and subject
to paragraph (c) below, the participant may elect, at the time he first becomes
a participant in the Plan, to have his Deferred Compensation Account, if any,
paid to him in five (5), ten (10) or fifteen (15) equal annual installments,
provided that, any such election shall be irrevocable and neither the Company
nor the participant may at any time thereafter change the form of payment so
elected. For purposes of this Section 9, "Settlement Date" means, with respect
to any particular participant, the first to occur of (i) the last day of the
Plan Year that is coincident with or next follows the date on which the
participant completes five (5) years of Plan participation; (ii) the date of a
sales event (as defined in Section 7); (iii) the date on which the
participant's employment with the Company is terminated by the Company other
than for "cause" (as defined in Section 8); (iv) the date the Company
terminates the Plan; or (v) the second anniversary of the participant's
voluntary termination of employment (if such voluntary termination occurs prior
to any of the events set forth in (i) through (iv)). For purposes of this
Section 9, a participant's date of death or the date on which the participant
ceases work as a result of a total and permanent disability (as defined in
Section 8) shall be considered the date on which the participant's employment
terminates under clause (iii) hereunder.
(b) If it shall be determined by a final administrative decision of the
Internal Revenue Service (which is not appealed by the participant) or by a
final decision of a court of competent jurisdiction (which is not appealed by
the participant) that the value of all or any part of the participant's
Deferred Compensation Account is includable in the income of the participant
prior to the actual receipt of such amount, the Company shall make a special
payment to such participant, which shall, to that extent, discharge the
Company's obligations under this Plan, in an amount equal to such participant's
estimated federal, state and local income tax liabilities related to such
inclusion and to the inclusion in income of such special payment; provided,
that such special payment shall not exceed the then value of the participant's
Deferred Compensation Account. The participant shall have no obligation to
appeal any determination made by the Internal Revenue Service or the decision
of any such court.
(c) Notwithstanding the foregoing, the Company shall have the right to
defer payments hereunder (i) if in any Plan Year the aggregate amounts payable
hereunder with respect to all participants shall exceed five percent (5%) of
the gross revenues of the Company as of the last day of the prior Plan Year or
(ii) if, in the reasonable judgment of the Company, making the payments
6
<PAGE> 7
would impair the capital of the Company or otherwise would be imprudent
in light of the Company's estimated cash flow, estimated cash requirements, and
such other factors as the Company deems appropriate. If payments are deferred,
the payments actually made by the Company under the Plan shall be allocated as
nearly as practicable pro rata among the participants with respect to whom
payments would otherwise have been made. The exercise of the Company's right
to defer payment shall not impair its obligation to make payments at such times
as it is able to do so within the restrictions of this Section 9.
(d) Payment in common stock to be made by the Company hereunder shall be
made by the delivery to the participant of an appropriate certificate or
certificates for the shares of common stock. Mailing to a person entitled to
payment hereunder at the address of such person last furnished to the Company
shall be adequate delivery of such payment for all purposes. If the
whereabouts of a person entitled to payment under the Plan cannot be determined
after reasonable search by the Company and such person's whereabouts continue
to be unknown for a period of three (3) years, the Company may determine that
such person has died, and payment shall be made to such person's beneficiary
or, if after a reasonable search by the Company, no such beneficiary shall be
located, the participant's interest under the Plan shall be forfeited. Any
determination hereunder shall be final and binding on all persons under the
Plan, and no interest or penalty shall be payable with respect to any payment
that cannot be delivered because a person's whereabouts cannot be so determined
or continue to be unknown.
10. Designation of Beneficiary
A participant may designate a beneficiary or beneficiaries to receive any
amount due him hereunder after his death by executing a form prescribed by the
Committee and delivering it to the Committee at any time prior to his death. A
participant may revoke or change his beneficiary designation without the
beneficiary's consent by executing a new form and delivering it to the
Committee at any time and from time to time prior to his death. If a
participant shall have failed to designate a beneficiary, or if no such
beneficiary shall survive him, then such amounts shall be paid to his spouse,
if then living, or, if not, to his children, per stirpes (including legally
adopted children). If the participant fails to designate a beneficiary, and
has no spouse or children, his Deferred Compensation Account shall be forfeited
and neither his estate nor any other person shall have any right to any benefit
hereunder.
11. Other Employee Benefits
Any benefits paid under this Plan shall not be included in creditable
compensation in computing benefits under any employee benefit plans of the
Company, except to the extent provided for thereunder.
7
<PAGE> 8
12. No Right to Employment
Nothing contained herein shall be construed as conferring upon any
participant the right to continue in the employ of the Company. The Plan
relates to the payment of deferred compensation for the participant's services,
and is not intended to be an employment contract.
13. Deferred Compensation As An Unsecured Promise
(a) The Company shall not be required to segregate any funds representing
the Deferred Compensation Accounts of participants hereunder, and nothing in
this Plan shall be construed as providing for such segregation.
(b) The Company may create a grantor trust (within the meaning of Section
671 of the Code) in connection with the adoption of this Plan to which it may
from time to time make contributions. Notwithstanding any creation of such a
trust, the benefits hereunder shall be a general obligation of the Company.
Payment of benefits from such trust shall, to that extent, discharge the
Company's obligations under this Plan. All payments provided for under this
Plan not so discharged shall be paid in Company common stock.
(c) Nothing in this Plan, and no action taken pursuant to its terms, shall
create or be construed to create a trust or escrow account of any kind, or a
fiduciary relationship between the Committee or the Company and any participant
or any other person. The participants shall rely solely on the unsecured
promise of the Company to make the payments required hereunder, but shall have
the right to enforce such a claim in the same manner as any unsecured general
creditor of the Company.
(d) In the event that, in its discretion, the Company purchases an
insurance policy or policies insuring the life of a participant to allow the
Company to recover the cost of providing benefits, in whole or in part,
hereunder, neither the participant nor his beneficiary shall have any rights
therein or in the proceeds therefrom. The Company shall be the sole owner and
beneficiary of any such insurance policy and shall possess and exercise all
incidents of ownership therein.
14. Claims Review
Any participant or beneficiary who believes that he is being denied a
benefit to which he is entitled under the Plan and who wishes to request review
of a claim for benefits, or who wishes an explanation of a benefit or its
denial, may direct to the Committee a written request for such review. The
Committee shall respond to the request by issuing a notice to the claimant as
soon as possible, but in no event later than ninety (90) days from the date of
the request. This notice furnished by the Committee shall be written in a
manner calculated to be understood by the claimant and shall include the
following:
(a) The specific reason or reasons for any denial of benefits;
8
<PAGE> 9
(b) The specific Plan provisions on which any denial is based;
(c) A description of any further material or information which is
necessary for the claimant to perfect his claim and an explanation of why the
material or information is needed; and
(d) An explanation of the Plan's claim appeals procedure.
If the claimant does not respond to the notice, posted by first-class mail
to the address of record of the Committee, within sixty (60) days from the
posting of the notice, the claimant shall be considered satisfied in all
respects. If the Committee fails to respond to the claimant's written request
for a review, the claimant shall be entitled to proceed to the claim appeals
procedure described in the next paragraph.
In the event that the claimant wishes to appeal the claim review denial,
the claimant or his duly authorized representative may submit to the Committee,
within sixty (60) days of the receipt of the notice, a written notification of
appeal of the claim denial. The notification of appeal of the claim denial
shall permit the claimant or his duly authorized representative to utilize the
following claim appeals procedures:
(a) To review pertinent documents; and
(b) To submit issues and comments in writing to which the Committee shall
respond.
The Committee shall furnish a written decision on the appeal no later than
sixty (60) days after receipt of the notification of appeal, unless special
circumstances require an extension of the time for processing the appeal. In
no event, however, shall the Committee respond later than one hundred twenty
(120) days after a request for an appeal. The decision on appeal shall be in
writing and shall include specific reasons for the decision, and shall be
written in a manner calculated to be understood by the claimant and contain
specific reference to the pertinent Plan provisions on which the decision is
based.
15. Withholding
The Company retains the right to deduct and withhold from any payments
made hereunder all sums which it then may be required to deduct or withhold
pursuant to any applicable tax, statute, law, regulation, or order of any
jurisdiction whatsoever.
16. No Assignment
No participant or beneficiary, or any other person claiming entitlement to
any payment hereunder, shall have the power to transfer, assign, anticipate,
mortgage or otherwise encumber any right to receive a payment in advance of any
such payment and any attempted transfer, assignment, anticipation, mortgage or
encumbrance shall be void. Except to the extent required by law, no payment
shall be subject to seizure for the payment of public or private debts,
judgments, alimony
9
<PAGE> 10
or separate maintenance, or be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise.
17. Obligations to the Company
If a participant becomes entitled to a distribution of benefits under the
Plan, and if at such time the participant has outstanding any debt, obligation,
or other liability representing an amount owed to the Company, the payment to
the participant or his beneficiary shall be reduced by, or set off against, the
amount of such indebtedness or claim, and the participant, as a condition of
participation hereunder, consents to such set-off. In addition to the
foregoing, the payment to a participant or his beneficiary also shall be
reduced by the Company's costs and expenses, including reasonable attorneys'
and accountants' fees, incurred in defending any claim for benefits brought
against it by such participant or beneficiary.
18. Amendment and Termination
The Company reserves the absolute right to amend or terminate the Plan, in
whole or in part, at any time and from time to time; provided that no such
amendment or termination shall affect the right of any participant or
beneficiary hereunder to receive payment of any benefits earned hereunder prior
to the date of such amendment or termination in accordance with the previously
applicable provisions of the Plan.
19. No Third Party Rights
Nothing in this Plan or any trust established pursuant to Section 13
hereof shall be construed to create any rights hereunder in favor of the
beneficiary of any participant prior to the participant's death or in favor of
any other person (other than the Company and any participant) or to limit the
Company's right to amend or terminate the Plan.
20. Notice
Any notice required or permitted to be made under the Plan shall be
sufficient if in writing and hand delivered, or sent by registered or certified
mail, to (i) in the case of notice to the Company or the Committee, the
principal office of the Company, directed to the attention of the Committee,
and (ii) in the case of a participant or the participant's beneficiary, the
participant's (or beneficiary's) mailing address maintained in the Company's
personnel records. Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the receipt
for registration or certification.
21. Validity
In the event any provision of this Plan is held invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of this Plan.
10
<PAGE> 11
22. Statements
The Committee shall furnish each participant no less frequently than
annually a statement of the value of his Deferred Compensation Account.
23. Gender
Unless the context otherwise requires, any pronoun, wherever used herein,
shall include the corresponding masculine, feminine, or neuter pronouns, and
the plural shall include the singular, and vice versa.
24. Governing Law
Except to the extent preempted by the Employee Retirement Income Security
Act of 1974, as amended, the Plan shall be governed by and construed in
accordance with the laws of the State of Illinois.
Adopted on this 28th day of April, 1997.
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
---------------------
Its: President
---------------------
11
<PAGE> 1
Exhibit 10.7
SECURITY ASSOCIATES INTERNATIONAL, INC.
PURCHASE OF STOCK OF WINNETKA INVESTORS, INC.
THIS AGREEMENT is made as of September 5, 1996, between the persons
identified on Schedule 1.2 (the "Sellers" or individually, the "Seller"), duly
represented by their respective attorneys in fact, William J. Gibbons, pursuant
to the special irrevocable powers of attorney attached hereto as Exhibit A (the
"Powers of Attorney"); and Security Associates International, Inc., a Delaware
corporation (the "Purchaser" or "SAI").
WHEREAS, the Sellers are the owners of all of the issued and outstanding
capital stock of Winnetka Investors, Inc., a Delaware corporation ("Winnetka")
and have been the only owners of the capital stock of Winnetka since its
organization in 1993; and
WHEREAS Winnetka is the owner of fifteen and two tenths percent (15.2%) of
the outstanding membership interests of Monitor Service Group, LLC, an Illinois
limited liability company ("MSG"); MCAP Investors, Inc., a Delaware corporation
("MCAP") is the owner of twenty four and eight tenths percent (24.8%) of the
outstanding membership interests of MSG; and Purchaser is the indirect owner of
the remaining sixty percent (60%) of such membership interests; and
WHEREAS, each Seller is the owner of that number of shares of Winnetka
set forth opposite such Seller's name on Schedule 1.2 ("Seller's Winnetka
Shares"); and
<PAGE> 2
WHEREAS, Sellers wishes to sell and Purchaser wishes to purchase all of
Sellers' shares in Winnetka (the "Winnetka Shares");
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth below, the parties do hereby agree as follows:
SECTION 1
1.1. Sale. Each Seller shall sell to Purchaser and Purchaser shall
purchase from each Seller on the Closing Date (as hereinafter defined) all of
such Seller's right, title and interest in and to such Seller's Winnetka
Shares.
1.2. Payment of Purchase Price. The aggregate purchase price of the
aforesaid sale of the Winnetka Shares owned by all the Sellers ("Aggregate
Purchase Price") shall be (i) One Hundred Fifty-Nine Thousand Nine Hundred
Eighty Dollars ($159,980.00), (Two Hundred Ten Dollars and Fifty Cents
($210.50) per Winnetka Share) payable on the Closing Date by a certified checks
or by wire transfers of immediately available funds, and (ii) options to
purchase the number of shares of SAI Common Stock set forth on Schedule 1.2, in
the form of Exhibit 1.2 hereto. That portion of the Aggregate Purchase Price
allocable and payable to each Seller is set forth on Schedule 1.2.
1.3. Payment in full of Promissory Notes Issued in 1993. The entire
principal and interest due with respect to the promissory notes issued by MSG
in November and December of 1993 in the aggregate principal amount of eight
hundred thousand dollars ($800,000.00) and described on Schedule 1.3 (the "1993
Promissory Notes") shall be paid in full on the Closing Date. The amount to be
paid in complete satisfaction of the
2
<PAGE> 3
1993 Promissory Notes shall be the aggregate principal amount thereof
plus the stipulated unpaid interest thereon to the Closing Date, at the rate
set forth on Schedule 1.3, payable by certified checks or by wire transfers of
immediately available funds, at the option of each holder, to the holders of
the 1993 Promissory Notes.
1.4. Payment in full of Promissory Notes Issued to William J. Gibbons.
The promissory notes issued to William J. Gibbons ("Gibbons") of 26 Woodley
Rd., Winnetka, Illinois, by MSG and RMR Management Corp. ("RMR") described on
Schedule 1.3 (the "Gibbons Notes"), shall be paid in full on the Closing Date.
The amount to be paid in full satisfaction of the Gibbons Notes shall be the
aggregate principal amount thereof plus the stipulated unpaid interest thereon
to the Closing Date, at the rate set forth on Schedule 1.3, payable by
certified check or checks.
1.5. Escrow.
1.5.1 Deposit in Escrow of Documents by Sellers. No later than one (1)
day prior to the Closing Date each Seller shall deposit in escrow (the
"Escrow") with MCAP Investors, Inc. of 20 Main Street, Park Ridge, Illinois as
the escrow agent (the "Escrow Agent"), pursuant to the escrow agreement
attached as Exhibit 1.5.1 (the "Escrow Agreement"), the following documents:
(i) a stock certificate and a duly executed, undated stock transfer
power in the form of Exhibit 1.5.1A representing that number of
Winnetka Shares owned by such Seller (the "Winnetka Certificate
and Stock Power") and evidencing the transfer of ownership and
legal title to such Seller's Winnetka Shares to Purchaser;
3
<PAGE> 4
(ii) a duly executed and undated power of attorney in the form of
Exhibit A; and
(iii) instructions from each Seller and each holder
of the 1993 Promissory Note and the Gibbons Notes ("Holders")
electing to receive payment by wire transfer ("Wire Transfer
Instructions").
(iv) instructions from each Seller and each Holder
electing to receive payment by certified check ("Certified
Check Instruction").
In addition, there shall be deposited in Escrow the Winnetka
Certificate in the form of Exhibit 5.5.
1.5.2 Deposit in Escrow of Documents by the Holders of the 1993
Promissory Notes. No later than one (1) day prior to the Closing Date
(as hereinafter defined) the holders of the 1993 Promissory Notes shall each
deposit in Escrow with the Escrow Agent pursuant to the Escrow Agreement, the
following documents:
(i) All of such holder's 1993 Promissory Notes and the
security agreements securing such notes (the "1993
Security Agreements"); and
(ii) duly executed and undated termination forms (UCC - 3) for any
financing statements filed in connection with such
holders 1993 Promissory Notes.
1.5.3 Deposit in Escrow of Documents by Gibbons. No later than one
(1) day prior to the Closing Date Gibbons or the holders of the Gibbons
Notes shall deposit
4
<PAGE> 5
in Escrow with the Escrow Agent pursuant to the Escrow Agreement, the
following documents:
(i) All of the Gibbons Notes and the security agreements
securing such notes (the "Gibbons Security Agreements"); and
(ii) duly executed and undated termination forms
(UCC - 3) for any financing statements filed in connection
with the Gibbons Notes.
1.5.4 Deposit in Escrow by Purchaser. On or before the Closing,
Purchaser shall deliver to the Escrow Agent (i) certified checks
payable to those Sellers and Holders electing to receive payment in the form of
certified check in the amount set forth opposite each such Seller's and
Holder's name on Schedule 1.2 (the "Seller Certified Checks") or, at the option
of each such Seller or Holder, immediately available funds deposited to the
account of the Escrow Agent or to the account of such other person as the
Escrow Agent may designate ("Escrow Deposit") in the amount set forth opposite
each such Seller's or Holder's name on Schedule 1.2; (ii) the Options issued to
each of the Sellers for the number of shares of SAI Common Stock set forth on
Schedule 1.2 opposite such Seller's name; (iii) certified checks or wire
transfers in immediately available funds at the option of each Holder payable
to each of the Holders of the 1993 Promissory Notes in the amount set forth
opposite such Holder's name on Schedule 1.3 (the "1993 Holders Certified
Checks" or the "1993 Holder's Wire Transfers", respectively); and (iv) a
certified check payable to Gibbons in the amount set forth on Schedule 1.4 (the
"Gibbons Certified Check")
1.5.5 The Escrow shall terminate and be of no further force or
effect and the documents specified in Section 1.5.1, Section 1.5.2 and
Section 1.5.3 shall be
5
<PAGE> 6
returned by the Escrow Agent forthwith to the Sellers, the Holders of
the 1993 Promissory Notes and Gibbons, respectively, if all of the items
specified in Section 1.5.4 have not been delivered to the Escrow Agent by
Purchaser on or before the Closing and any items theretofore delivered pursuant
to Section 1.5.4 shall forthwith be returned to Purchaser.
SECTION 2
Closing Date
2.1. Closing Date. The closing of the purchase and sale of the Winnetka
Shares and the other transactions to be consummated hereunder shall be held at
the offices of the Purchaser's counsel, Sachnoff & Weaver, Ltd., 30 South
Wacker Drive, Suite 2900, Chicago, Illinois, at 9:00 a.m., local time on
September 5, 1996 (the "Closing") or at such other time and place upon which
the Sellers and the Purchaser shall agree (the date of the Closing is
hereinafter referred to as the "Closing Date").
2.2. Delivery: Consideration. At the Closing, the Escrow Agent shall
deliver (i) to each Seller, each such Seller's Certified Check in the amount
set forth on Schedule 1.2 opposite such Seller's name or at the option of each
such Seller shall remit such amount by wire transfer in immediately available
funds to such Seller's account as specified in the Wire Transfer Instructions;
and the Options to be issued to such Seller as set forth on Schedule 1.2; (ii)
to the Holders of the 1993 Promissory Notes, the 1993 Holders Certified Checks
or the 1993 Holder's Wire Transfers, in the amounts set forth on Schedule 1.3
and sent to the place indicated in writing by the Holder or its agent; (iii) to
William J. Gibbons or the holders of the Gibbons Notes, the Gibbons Certified
Checks;
6
<PAGE> 7
and (iv) to Purchaser, the Winnetka Certificates and Stock Powers, the
Powers of Attorney, the Seller's Releases, the 1993 Promissory Notes, the
UCC-3s related to the 1993 Promissory Notes, the Gibbons Promissory Notes and
the UCC-3s related to the Gibbons Promissory Notes and the Winnetka
Certificate.
SECTION 3
Representations and Warranties of Seller
Each Seller represents and warrants with respect to itself only, and not
with respect to any other Seller:
3.1. Organization and Standing: Articles and By-Laws. If Seller is a
corporation, or other governmentally sanctioned entity, such Seller is duly
organized and existing under, and by virtue of, the laws of the jurisdiction of
its formation and is in good standing under such laws. Seller has requisite
power and authority to own and operate its properties and assets, and to carry
on its business as presently conducted.
3.2. Power and Authority. Seller will have at all times prior to and on
the Closing Date all requisite legal power and authority necessary to execute
and deliver this agreement, to sell Seller's Winnetka Shares to Purchaser, to
grant the Power of Attorney to Winnetka Investors , and to deliver said
documents to the Escrow Agent.
3.3. Authorization. All action on the part of Seller necessary for the
authorization, execution, delivery and performance of this Agreement and of the
documents specified in Section 1.5.1 to be executed by Seller has been taken or
will be taken prior to the Closing. This Agreement, and said documents, when
executed and
7
<PAGE> 8
delivered by Seller, shall constitute a valid and binding obligation of
Seller, enforceable in accordance with its terms.
3.4. Good Title to Winnetka Shares. Seller has, and upon consummation of
the purchase and sale of such Seller's Winnetka Shares as provided in this
Agreement, Purchaser will obtain, good and marketable title to such Seller's
Winnetka Shares, free and clear of any liens, charges, claims or encumbrances
(other than those that may result from Purchaser's actions); Seller has
continuously owned its Winnetka Shares since they were issued in 1993 and will
continue to own them until the Closing; Seller owns no options, warrants,
convertible instruments and is entitled to no pre-emptive rights that would
entitle Seller to acquire any interest in Winnetka or MSG.
3.5. Brokers or Finders. Seller has not incurred and will not incur, as a
result of any action taken by Seller, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection herewith.
3.6. Litigation. There are no actions, suits, proceedings or
investigations pending against Seller or its assets before any court or
governmental agency (nor, to the best of the Seller's knowledge, is there any
reasonable basis therefor).
3.7. Validity of Certain Documents. The documents specified in Section
1.5.1 to be executed by Seller will be valid and binding on Seller in
accordance with their terms upon their delivery to Purchaser, will accomplish
the purpose for which they are intended, and will have been duly authorized by
Seller and executed by the persons authorized by Seller to do so.
8
<PAGE> 9
3.8. Compliance with Other Instruments. The execution, delivery and
performance of and compliance with this Agreement, and the sale to Purchaser of
Seller's Winnetka Shares, will not result in any material violation of, or
conflict with, or constitute a material default under, the Articles or By-Laws
(or other organizational documents), if any, of Seller (if Seller is a
corporation or other governmentally sanctioned entity), or of any agreement of
Seller, or result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon Seller's Winnetka Shares; and there is no such violation or default
which materially adversely affects the Seller.
3.9. Tax Matters. Seller has timely paid all taxes owed by it and is
unaware of any pending matter which would result in the assertion by any taxing
authority of any valid deficiency in any material amount for taxes due from
Seller.
3.10. Securities Laws Matters. The following representations and
warranties are made by Seller in connection with its acceptance of the Options
as part of the consideration for the sale of its Winnetka Shares to Purchaser:
3.10.1. The Seller has read the Risk Factors and the SAI Pro Forma
Financial Projections (collectively, the "Disclosure Documents") attached
hereto as Exhibit 3.10.1A and 3.10.1B and understands the risks presented
by its investment in the Purchaser, and understands and is familiar with
the business of the Purchaser and confirms that all documents, records
and books pertaining to the investment in the Options requested by it
have been made available.
3.10.2. Seller understands and acknowledges that the projections of
future performance contained in the Disclosure Documents may not in fact
be achieved
9
<PAGE> 10
because of many possible factors including, but not limited
to, those included in the Risk Factors, as well as future events that
have not been anticipated by Purchaser or its management.
3.10.3. Seller has had an opportunity to ask questions of and
receive answers from the Purchaser, its founders and managers or a person
or persons acting on their behalf, concerning the Disclosure Documents,
the business of the Purchase and the terms and conditions of the Options
and all such questions have been answered to its satisfaction.
3.10.4. Seller understands that the Options have not been registered
under the Securities Act of 1933 (the "Act"), or any state securities
acts, and are being offered and sold in reliance on exemptions from
registration pursuant to Section 4(2) of the Act and/or Regulation D
promulgated under the Act, and applicable exemptions under pertinent
state securities acts.
3.10.5. The Options are being acquired solely for Seller's own
account for investment and are not being purchased with a view to or for
the resale, distribution, subdivision or fractionalization thereof and
Seller has no present plans to enter into any such contract, undertaking,
agreement or arrangement
3.10.6. Seller acknowledges and is aware of the following:
(a) That the Purchaser has a very limited history of operations;
that there are competitors capable of serving the market the
Purchaser operates in, some of which have greater financial and
professional resources than does the Purchaser; and that the
Options are speculative investments which
10
<PAGE> 11
involve a high degree of risk of loss by the undersigned of his
entire investment.
(b) That there are substantial restrictions on the transferability
of the Options, including a restriction against transfer without
registration under federal and state securities laws or an
exemption therefrom; the Seller has no rights to require that the
Options be registered under the Act or any state
securities laws; there will be no public market for the Options;
and the Seller may have to hold the Options until maturity and it
may not be possible for the undersigned to liquidate his
investment in the Purchaser.
SECTION 4
Representations and Warranties of Purchaser
4.1. Organization and Standing; Articles and By-Laws. Purchaser is a
corporation duly organized and existing under, and by virtue of, the laws of
the State of Delaware and is in good standing under such laws. Purchaser has
the requisite corporate power and authority to own and operate its properties
and assets, and to carry on its business as presently conducted and as proposed
to be conducted.
4.2. Corporate Power. Purchaser will have at the Closing Date all
requisite power and authority to execute and deliver this Agreement, to
purchase the Winnetka Shares to pay in full the 1993 Promissory Notes and the
Gibbons Notes and to carry out and perform its obligations under the terms of
this Agreement.
4.3. Authorization. All action on the part of Purchaser necessary for the
authorization, execution, delivery and performance of this Agreement by
Purchaser has been taken or will be taken prior to the Closing. This Agreement,
when executed and
11
<PAGE> 12
delivered by Purchaser, shall constitute a valid and binding
obligation of Purchaser, enforceable in accordance with its terms.
SECTION 5
Purchaser's Conditions to Closing
Purchaser's obligation to purchase the Winnetka Shares and to perform its
other obligations hereunder are subject to the fulfillment of the following
conditions, the waiver of which shall not be effective unless it is provided in
writing:
5.1. Correctness of Representations and Warranties. The representations
and warranties made by each Seller in Section 3 hereof shall be true and
correct when made and shall be true and correct on the Closing Date.
5.2. Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by each Seller on or prior to the Closing Date shall
have been performed or complied with in all material respects, including but
not limited to the establishment of the Escrow pursuant to Section 1.5 and the
delivery to the Escrow Agent by Seller of all the documents specified in
Section 1.5.1 on or before the date therein specified.
5.3. Deposit in Escrow of Gibbons' and 1993 Noteholders' Documents.
Delivery by the holders of the 1993 Promissory Notes and William J. Gibbons of
all of the documents specified in Section 1.5.2 and 1.5.3, respectively, on or
before the date therein specified.
5.4. Consummation of Related Transactions. On or before the Closing Date,
all of the transactions contemplated by that certain Security Associates
International, Inc.
12
<PAGE> 13
Common Stock Subscription and Purchase Agreement, dated September __,
1996, among Security Associates International, Inc., TJS Partners and the
Security Associates International, Inc. and the Purchase of Stock of MCAP
Investors, Inc. Agreement, dated September __, 1996, shall have been
consummated.
5.5. Winnetka Certificate. Purchaser shall have received at or prior
to the Closing a certificate executed by R. Wherfel, President of Winnetka, on
behalf of Winnetka in the form of Exhibit 5.5.
SECTION 6
Sellers Conditions to Closing Sellers' obligation to sell the Winnetka
Shares to Purchaser and to perform their other obligations hereunder is subject
to the fulfillment as of the Closing Date of the following conditions, the
waiver of which shall not be effective unless it is provided in writing.
6.1. Representations. The representations made by the Purchaser in Section
4 hereof shall be true and correct when made, and shall be true and correct on
the Closing Date.
6.2. Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by Purchaser on or prior to the Closing Date shall
have been performed or complied with in all material respects, including but
not limited to the establishment of the Escrow pursuant to Section 1.5 and the
delivery to the Escrow Agent by Purchaser of the documents specified in Section
1.5.4 on or before the date therein specified.
13
<PAGE> 14
6.3. Legal Matters. All material matters of a legal nature which pertain
to this Agreement, and the transactions contemplated hereby, shall have been
reasonably approved by counsel to the Sellers.
6.4. Consummation of Related Transactions. On or before the Closing Date,
all of the transactions contemplated by that certain Security Associates
International, Inc. Common Stock Subscription and Purchase Agreement, dated
September ___, 1996, among Security Associates International, Inc., TJS
Partners shall have been consummated.
SECTION 7
Affirmative Covenants of Sellers
Each of the Sellers hereby covenants and agrees as follows:
7.1. Assistance from Sellers in Transferring Seller's Winnetka Shares to
Purchaser. Each Seller shall after the Closing take all action reasonably
requested by Purchaser to assist Purchaser in obtaining good title to and
ownership of such Seller's Winnetka Shares. Sellers shall provide Purchaser
with such corporate filings and other corporate documents as Purchaser may
reasonably request.
14
<PAGE> 15
SECTION 8
Miscellaneous
8.1. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Illinois, excluding its conflicts of laws rules.
8.2. Survival. The representations and warranties, covenants and
agreements made herein shall survive this Agreement and the closing of the
transactions contemplated hereby.
8.3. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall be binding upon the successors, assigns, heirs,
executors and administrators of the parties hereto. Neither party hereto may
assign its obligations hereunder without the written consent of the other
party.
8.4. Entire Agreement: Amendment. This Agreement and the other documents
delivered pursuant hereto on or before the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subject matters hereof and thereof, and no party shall be liable or bound to
any other party in any manner by any warranties, representations or covenants
except as specifically set forth herein or therein. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
8.5. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage
15
<PAGE> 16
prepaid, or otherwise delivered by hand or by messenger, if to
Purchaser, at James S. Brannen, President, Security Associates International,
Inc., 2101 S. Arlington Heights Road, Arlington Heights, Illinois 60005-4142,
or at such other address Purchaser shall have furnished to the Sellers in
writing; or if to Sellers, at William J. Gibbons, 26 Woodley Road, Winnetka,
Illinois, or at such other address the Sellers shall have furnished to
Purchaser in writing. Each such notice or other communication shall for all
purposes of this Agreement be treated as effective or having been given when
delivered if delivered personally, or if sent by mail, at the earlier of its
receipt or seventy-two (72) hours after the same has been deposited in a
regularly maintained receptacle for the deposit of the United States mail,
addressed and mailed as aforesaid.
8.6. Counterparts. This Agreement may be executed in one or more
identical counterparts each which shall be enforceable against the parties
actually executing such counterparts and all of which shall together constitute
one instrument.
8.7. Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to either party
hereunder upon any breach or default by either party under this Agreement,
shall impair any such right, power or remedy of the party not in default nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of
either party of any breach or default of the other party under this Agreement,
or any waiver on the part of either party of any provisions or conditions of
this Agreement, must
16
<PAGE> 17
be in writing and shall be effective only to the extent specifically
set forth in such writing. All remedies, either under this Agreement or by law
or otherwise afforded to any holder, shall be cumulative and not alternative.
8.8. Expenses. The Sellers and the Purchaser shall each bear their own
expenses, including their own legal fees, incurred on their behalf with respect
to this Agreement and the transactions contemplated hereby.
8.9. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to either
party.
8.10. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
8.11. Exclusive Jurisdiction of Courts in Illinois. Each of the parties
hereto agrees to submit to the exclusive jurisdiction of the federal or state
courts in the state of Illinois and consents to service of process with respect
to all such courts by registered mail to it at its addresses set forth herein.
8.12. Waiver of Jury Trial. The Parties hereby expressly waive any right
they may have to a jury trial in any suit, action or proceeding existing under
or relating to this Agreement or any of the other related documents.
[The Signature Page Follows]
17
<PAGE> 18
The foregoing Agreement is hereby executed as of the first day written
above.
PURCHASER:
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
---------------------------
Name: James S. Brannen
Title: President
SELLER:
Bobbie Conrad Dianne Freeman
By: /s/ William J. Gibbons By: /s/ William J. Gibbons
----------------------- ---------------------------
Name: William J. Gibbons Name: William J. Gibbons
Title: Attorney-in-fact Title: Attorney-in-fact
Anita M. Dalmar Phyllis V. Greinwald
By: /s/ William J. Gibbons By: /s/ William J. Gibbons
------------------------ -------------------------
Name: William J. Gibbons Name: William J. Gibbons
Title: Attorney-in-fact Title: Attorney-in-fact
Robert H. Dilworth
By: /s/ William J. Gibbons
------------------------
Name: William J. Gibbons
Title: Attorney-in-fact
18
<PAGE> 1
Exhibit 10.8
SECURITY ASSOCIATES INTERNATIONAL, INC.
PURCHASE OF STOCK OF MCAP INVESTORS, INC.
This Agreement is made as of August 29, 1996, between the persons
identified on Schedule ___ (the "Sellers" or individually, the "Seller"), duly
represented by their respective attorneys in fact, pursuant to the special
irrevocable powers of attorney attached hereto as Exhibit A (the "Powers of
Attorney"); and Security Associates International, Inc., a Delaware corporation
(the "Purchaser").
WHEREAS, the Sellers are the owners of all of the issued and outstanding
capital stock of MCAP Investors, Inc., a Delaware corporation ("MCAP") and have
been the only owners of the capital stock of MCAP since its organization in
1993; and
WHEREAS MCAP is the owner of twenty four and eight tenths percent (24.8%)
of the outstanding membership interests of Monitor Service Group, LLC, an
Illinois limited liability company ("MSG"); Winnetka Investors, Inc., a
Delaware corporation ("Winnetka") is the owner of fifteen and two tenths
percent (15.2%) of the outstanding membership interests of MSG; and Purchaser
is the indirect owner of the remaining sixty percent (60%) of such membership
interests; and
WHEREAS, each seller is the owner of the number of shares of MCAP set
forth opposite such Seller's name on Schedule ____ ("Seller's MCAP Shares");
and
WHEREAS, Sellers wish to sell and Purchaser wishes to purchase all of
Sellers' shares in MCAP (the "MCAP Shares");
<PAGE> 2
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth below, the parties do hereby agree as follows:
SECTION 1
1.1. Sale. Each Seller shall sell to Purchaser and Purchaser shall
purchase from Each Seller on the Closing Date (as hereinafter defined) all of
such Seller's right, title and interest in and to such Seller's MCAP Shares.
1.2. Payment of Purchase Price. The aggregate purchase price of the
aforesaid sale of the MCAP Shares owned by all the Sellers ("Aggregate Purchase
Price") shall be (i) One Hundred Twenty-Four Thousand dollars ($124,000.00),
(One Hundred dollars ($100.00) per MCAP Share), payable on the Closing Date by
certified checks or by wire transfers of immediately available funds, and (ii)
the aggregate principal amount set forth on Schedule 1.2 of the Security
Associates International, Inc. 6.25% Subordinated Convertible Debentures (the
"Convertible Debentures"), in the form of Exhibit 1.2 hereto. That portion of
the Aggregate Purchase Price allocable and payable to each Seller is set forth
in Schedule 1.2.
1.3. Escrow.
1.3.1 Deposit in Escrow of Documents by Sellers. No later than one
(1) day prior to the Closing Date each Seller shall deposit in escrow (the
"Escrow") with Monitor Service Group, LLC as the escrow agent (the "Escrow
Agent"), pursuant to the escrow agreement attached as Exhibit 1.3.2 (the
"Escrow Agreement"), the following documents:
2
<PAGE> 3
(i) a stock certificate and a duly executed,
undated stock transfer power in the form of Exhibit 1.3.1A
representing such Seller's MCAP Shares (the "MCAP Certificate
and Stock Power") and evidencing the transfer of ownership
and legal title to such Seller's MCAP Shares to Purchaser;
(ii) a duly executed and undated power of attorney
in the form of Exhibit A; and
(iii) instructions from each Seller electing to
receive payment by wire transfer ("Wire Transfer
Instructions").
(iv) instructions from each Seller electing to
receive payment by certified check ("Certified Check
Instructions").
In addition, there shall be deposited in Escrow on behalf of all the
Sellers, the "MCAP Certificate" in the form of Exhibit 5.4.
1.3.2 Deposit in Escrow by Purchaser. On or before the Closing,
Purchaser shall deliver to the Escrow Agent (i) certified checks payable to
those Sellers electing to receive payment in the form of certified checks in
the amount set forth opposite each such Seller's name on Schedule 1.2 (the
"Seller Certified Checks") or, at the option of each Seller, immediately
available funds deposited to the account of the Escrow Agent or to the account
of such other person as the Escrow Agent may designate ("Escrow Deposit") in
the amount set forth opposite each such Seller's name on Schedule 1.2; and (ii)
the Convertible Debentures, issued to each of the Sellers in the principal
amount set forth on Schedule 1.2 opposite such Seller's name.
3
<PAGE> 4
1.3.3 The Escrow shall terminate and be of no further force or effect and
the documents specified in Section 1.3.1 shall be returned by the Escrow Agent
forthwith to the Sellers, if all of the items specified in Section 1.3.2 have
not been delivered to the Escrow Agent by Purchaser on or before the Closing
and any items theretofore delivered pursuant to Section 1.3.2 shall forthwith
be returned to Purchaser.
SECTION 2
Closing Date
2.1. Closing Date. The closing of the purchase and sale of the MCAP
Shares and the other transactions to be consummated hereunder shall be held at
the offices of the Purchaser's counsel at ______ p.m., local time on
__________, 1996 (the "Closing") or at such other time and place upon which the
Sellers and the Purchaser shall agree (the date of the Closing is hereinafter
referred to as the "Closing Date").
2.2. Delivery: Consideration. At the Closing, the Escrow Agent shall
deliver (i) to each Seller, each such Seller's Certified Check in the amount
set forth on Schedule 1.2 opposite each such Seller's name or at the option of
each Seller shall remit such amount by wire transfer in immediately available
funds to such Seller's account as specified in the Wire Transfer Instructions;
and (ii) the principal amount of Convertible Debentures to be issued to each
such Seller as set forth on Schedule 1.2; and (iii) to Purchaser, the MCAP
Certificates and Stock Powers and the Powers of Attorney of all the Sellers,
and the MCAP Certificate.
4
<PAGE> 5
SECTION 3
Representations and Warranties of Seller
Each Seller represents and warrants with respect to itself only, and not
with respect to any other Seller:
3.1. Organization and Standing: Articles and By-Laws. If Seller is a
corporation, or other governmentally sanctioned entity, such Seller is duly
organized and existing under, and by virtue of, the laws of the jurisdiction of
its formation and is in good standing under such laws. Seller has requisite
power and authority to own and operate its properties and assets, and to carry
on its business as presently conducted.
3.2. Power and Authority. Seller will have at all times prior to and on
the Closing Date all requisite legal power and authority necessary to execute
and deliver this agreement, to sell Seller's MCAP Shares to Purchaser, to grant
the Power of Attorney to MCAP Investors to execute the Seller's Release and to
deliver said documents to the Escrow Agent.
3.3. Authorization. All action on the part of Seller necessary for the
authorization, execution, delivery and performance of this Agreement and of the
documents specified in Section 1.3.1 to be executed by Seller has been taken or
will be taken prior to the Closing. This Agreement, and said documents, when
executed and delivered by Seller, shall constitute a valid and binding
obligation of Seller, enforceable in accordance with its terms.
3.4. Good Title to MCAP Shares. Seller has, and upon consummation of the
purchase and sale of such Seller's MCAP Shares as provided in this Agreement,
5
<PAGE> 6
Purchaser will obtain, good and marketable title to such Seller's MCAP Shares,
free and clear of any liens, charges, claims or encumbrances (other than those
that may result form Purchaser's actions); Seller has continuously owned its
MCAP Shares since they were issued in 1993 and will continue to own them until
the Closing; Seller owns no options, warrants, convertible instruments and is
entitled to no pre-emptive rights that would entitle Seller to acquire any
interest in Winnetka.
3.5. Brokers or Finders. Seller has not incurred and will not incur, as a
result of any action taken by Seller, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection herewith.
3.6. Litigation. There are no actions, suits, proceedings or
investigations pending against Seller or its assets before any court or
governmental agency (nor, to the best of the Seller's knowledge, is there any
reasonable basis therefor).
3.7. Validity of Certain Documents. The documents specified in Section
1.3.1 to be executed by Seller will be valid and binding on Seller in
accordance with their terms upon their delivery to Purchaser, will accomplish
the purpose for which they are intended, and will have been duly authorized by
Seller and executed by the persons authorized by Seller to do so.
3.8. Compliance with Other Instruments. The execution, delivery and
performance of and compliance with this Agreement, and the sale to Purchaser of
Seller's MCAP Shares, will not result in any material violation of, or conflict
with, or constitute a material default under, the Articles or By-Laws (or other
organizational documents), if any, of Seller (if Seller is a corporation or
other governmentally sanctioned entity), or of
6
<PAGE> 7
any agreement of Seller, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon Seller's MCAP Shares; and there is no
such violation or default which materially adversely affects the Seller.
3.9. Tax Matters. Seller has timely paid all taxes owed by it and is
unaware of any pending matter which would result in the assertion by any taxing
authority of any valid deficiency in any material amount for taxes due from
Seller.
3.10. Securities Laws Matters. The following representations and
warranties are made by Seller in connection with its acceptance of the
Convertible Debentures as part of the consideration for the sale of its MCAP
Shares to Purchaser:
3.10.1. The Seller has read the Risk Factors and the SAI Pro Forma
Financial Projections (collectively, the "Disclosure Documents") attached
hereto as Exhibit 3.10.1A and 3.10.1B and understands the risks presented by
its investment in the Purchaser, and understands and is familiar with the
business of the Purchaser and confirms that all documents, records and books
pertaining to the investment in the Convertible Debentures requested by it have
been made available.
3.10.2. Seller understands and acknowledges that the projections of future
performance contained in the Disclosure Documents may not in fact be achieved
because of many possible factors including, but not limited to, those included
in the Risk Factors, as well as future events that have not been anticipated by
Purchaser or its management.
3.10.3. Seller has had an opportunity to ask questions of and receive
answers from the Purchaser, its founders and managers or a person or persons
acting on their behalf, concerning the Disclosure Documents, the business of
the Purchaser and the
7
<PAGE> 8
terms and conditions of the Convertible Debentures and all such questions
have been answered to its satisfaction.
3.10.4. Seller understands that the Convertible Debentures have not
been registered under the Securities Act of 1933 (the "Act"), or any state
securities acts, and are being offered and sold in reliance on exemptions from
registration pursuant to Section 4(2) of the Act and/or Regulation D
promulgated under the Act, and applicable exemptions under pertinent state
securities acts.
3.10.5. The Convertible Debentures are being acquired solely for
Seller's own account for investment and are not being purchased with a view to
or for the resale, distribution, subdivision or fractionalization thereof and
Seller has no present plans to enter into any such contract, undertaking,
agreement or arrangement.
3.10.6. Seller acknowledges and is aware of the following:
(a) That the Purchaser has a very limited history of
operations; that there are competitors capable of serving
the market the Purchaser operates in, some of which have
greater financial and professional resources than does the
Purchaser; and that the Convertible Debentures are
speculative investments which involve a high degree of risk
of loss by the undersigned of his entire investment.
(b) That there are substantial restrictions on the
transferability of the Convertible Debentures, including a
restriction against transfer without registration under
federal and state securities laws or an
8
<PAGE> 9
exemption therefrom; the Seller has no rights to
require that the Convertible Debentures be registered
under the Act or any state securities laws; there will be
no public market for the Convertible Debentures; and the
Seller may have to hold the Convertible Debentures until
maturity and it may not be possible for the undersigned to
liquidate his investment in the Purchaser.
SECTION 4
Representations and Warranties of Purchaser
4.1. Organization and Standing; Articles and By-Laws. Purchaser is a
corporation duly organized and existing under, and by virtue of, the laws of
the State of Delaware and is in good standing under such laws. Purchaser has
the requisite corporate power and authority to own and operate its properties
and assets, and to carry on its business as presently conducted and as proposed
to be conducted.
4.2. Corporate Power. Purchaser will have at the Closing Date all
requisite power and authority to execute and deliver this Agreement, to
purchase the MCAP Shares and to carry out and perform its obligations under the
terms of this Agreement.
4.3. Authorization. All action on the part of Purchaser necessary for the
authorization, execution, delivery and performance of this Agreement by
Purchaser has been taken or will be taken prior to the Closing. This
Agreement, when executed and
9
<PAGE> 10
delivered by Purchaser, shall constitute a valid and binding obligation of
Purchaser, enforceable in accordance with its terms.
SECTION 5
Purchaser's Conditions to Closing
Purchaser's obligation to purchase the MCAP Shares and to perform its
other obligations hereunder are subject to the fulfillment of the following
conditions, the waiver of which shall not be effective unless it is provided in
writing:
5.1. Correctness of Representations and Warranties. The representations
and warranties made by each Seller in Section 3 hereof shall be true and
correct when made and shall be true and correct on the Closing Date.
5.2. Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by each Seller on or prior to the Closing Date
shall have been performed or complied with in all material respects, including
but not limited to the establishment of the Escrow pursuant to Section 1.3 and
the delivery to the Escrow Agent by Seller of all the documents specified in
Section 1.3.1 on or before the date therein specified.
5.3. Consummation of Related Transactions. On or before the Closing Date,
all of the transactions contemplated by that certain Security Associates
International, Inc. Common Stock Subscription and Purchase Agreement, dated
__________, 1996, among Security Associates International, Inc., TJS Partners
and the Security Associates International, Inc., Purchase of Stock of Winnetka
Investors, Inc. Agreement, dated ___________, 1996, shall have been
consummated.
10
<PAGE> 11
5.4. MCAP Certificate. Purchaser shall have received at or prior to the
Closing a certificate from MCAP, in the form of Exhibit 5.4 ( the "MCAP
Certificate").
SECTION 6
Sellers' Conditions to Closing
Sellers' obligation to sell the MCAP Shares to Purchaser and to perform
their other obligations hereunder is subject to the fulfillment as of the
Closing Date of the following conditions, the waiver of which shall not be
effective unless it is provided in writing.
6.1. Representations. The representations made by the Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date.
6.2. Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by Purchaser on or prior to the Closing Date
shall have been performed or complied with in all material respects, including
but not limited to the establishment of the Escrow pursuant to Section 1.3 and
the delivery to the Escrow Agent by Purchaser of the items specified in Section
1.3.2 or before the date therein specified.
6.3. Legal Matters. All material matters of a legal nature which pertain
to this Agreement, and the transactions contemplated hereby, shall have been
reasonably approved by counsel to each of the Sellers.
6.4. Consummation of Related Transactions. On or before the Closing Date,
all of the transactions contemplated by that certain Security Associates
International, Inc.
11
<PAGE> 12
Common Stock Subscription and Purchase Agreement, dated ___________, 1996,
among Seller and TJS Partners shall have been consummated.
SECTION 7
Affirmative Covenants of Sellers
Each of the Sellers hereby covenants and agrees as follows:
7.1. Assistance from Sellers in Transferring Seller's MCAP Shares to
Purchaser. Each Seller shall after the Closing take all action reasonably
requested by Purchaser to assist Purchaser in obtaining good title to and
ownership of such Seller's MCAP Shares. Sellers shall provide Purchaser with
such corporate filings and other corporate documents as Purchaser may
reasonably request.
SECTION 8
Miscellaneous
8.1. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Illinois, excluding its conflicts of laws rules.
8.2. Survival. The representations and warranties, covenants and
agreements made herein shall survive this Agreement and the closing of the
transactions contemplated hereby.
8.3. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall be binding upon the successors, assigns, heirs,
executors and
12
<PAGE> 13
administrators of the parties hereto. Neither the Sellers nor the
Purchaser may assign its (his/her) obligations hereunder without the written
consent of the other party.
8.4. Entire Agreement: Amendment. This Agreement and the other
documents delivered pursuant hereto on or before the Closing constitute the
full and entire understanding and agreement between the parties with regard to
the subject matters hereof and thereof, and no party shall be liable or bound
to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
8.5. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, if to Purchaser, at James S. Brannen, President, Security Associates
International, Inc., 2101 S. Arlington Heights Road, Arlington Heights,
Illinois 60005-4142, or at such other address Purchaser shall have furnished to
the Sellers in writing; or if to Sellers, at William J. Gibbons, 26 Woodley
Rd., Winnetka, Illinois, or at such other address that any of the Sellers shall
have furnished to Purchaser in writing. Each such notice or other communication
shall for all purposes of this Agreement be treated as effective or having been
given when delivered if delivered personally, or if sent by mail, at the
earlier of its receipt or seventy-
13
<PAGE> 14
two (72) hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
8.6. Counterparts. This Agreement may be executed in one or more
identical counterparts each of which shall be enforceable against the parties
actually executing such counterparts and all of which shall together constitute
one instrument.
8.7. Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to either party
hereunder upon any breach or default by either party under this Agreement,
shall impair any such right, power or remedy of the party not in default nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of
either party of any breach or default of the other party under this Agreement,
or any waiver on the part of either party of any provisions or conditions of
this Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative
and not alternative.
8.8. Expenses. The Sellers and the Purchaser shall each bear their own
expenses, including their own legal fees, incurred on their behalf with respect
to this Agreement and the transactions contemplated hereby.
8.9. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void,
14
<PAGE> 15
this Agreement shall continue in full force and effect without said provision;
provided that no such severability shall be effective if it materially changes
the economic benefit of this Agreement to either party.
8.10. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
8.11. Exclusive Jurisdiction of Courts in Illinois. Each of the parties
hereto agrees to submit to the exclusive jurisdiction of the federal or state
courts in the state of Illinois and consents to service of process with respect
to all such courts by registered mail to it at its addresses set forth herein.
8.12. Waiver of Jury Trial. The Parties hereby expressly waive any right
they may have to a jury trial in any suit, action or proceeding existing under
or relating to this Agreement or any of the other related documents.
15
<PAGE> 16
The foregoing Agreement is hereby executed as of the first day written
above.
SELLERS:
Robert Brown
By: /s/ William J. Gibbons
------------------------
William J. Gibbons
Phyllis V. Greinwald
By: /s/ William J. Gibbons
-------------------------
William J. Gibbons
Cheryl Grolle
By: /s/ William J. Gibbons
-------------------------
William J. Gibbons
Lorraine R. Small
By: /s/ William J. Gibbons
------------------------
William J. Gibbons
Inversiones Aparicio, C.A.
By: MCAP Investors, Inc.
Attorney-in-fact
By: /s/ Glen R. Wherfel
------------------------
Glen R. Wherfel,
President
Inversiones Alanje, C.A.
By: MCAP Investors, Inc.
Attorney-in-fact
By: /s/ Glen R. Wherfel
------------------------
Glen R. Wherfel,
President
Inversiones Erlanger, C.A.
By: MCAP Investors, Inc.
Attorney-in-fact
By: /s/ Glen R. Wherfel
------------------------
Glen R. Wherfel,
President
PURCHASER:
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
------------------------
Name: James S. Brannen
Title: President
16
<PAGE> 1
Exhibit 10.9
SECURITY ASSOCIATES INTERNATIONAL, INC.
COMMON STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
This Agreement is made as of September 5, 1996, between Security
Associates International, Inc., a Delaware corporation (the "Company"), and TJS
Partners, L.P., a New York limited partnership (the "Purchaser").
1.
1.1. Authorization. The Company will authorize the subscription, issuance
and sale of Three Million Five Hundred Twenty-Five Thousand Six Hundred Eighty
Two (3,525,682) shares of its Common Stock having the rights, privileges and
preferences as set forth in the Certificate of Incorporation and the By-laws in
the form attached to this Agreement as Exhibits 1.1A and 1.1B, respectively.
1.2. Sale of Shares. Subject to the terms and conditions hereof, the
Company will issue and sell to Purchaser, and the Purchaser will buy from the
Company, the total number of shares of its Common Stock specified in Section
1.1 ("New Shares") at a purchase price of $0.442 per New Share (the "Purchase
Price Per Share") for an aggregate purchase price of One Million Five Hundred
Fifty-Eight Thousand Three Hundred Fifty-One Dollars ($1,558,351.00).
1.3. Promissory Note. Subject to the terms and conditions hereof, the
Company will authorize the issuance of, and will issue to Purchaser, the
Promissory Note for the purpose of evidencing the Loan, all as described and
defined in Section 2.
2.
Closing Date; Delivery; Consideration
2.1. Closing Date. The closing of the purchase and sale of the New Shares
hereunder shall be held at the offices of Sachnoff & Weaver, Ltd., Suite 2900,
30 South Wacker Drive, Chicago, Illinois 60606 at 9:00 a.m., local time on
September 5, 1996 (the "Closing") or at such other time and place upon which
the Company and the Purchaser shall agree (the date of the Closing is
hereinafter referred to as the "Closing Date").
2.2. Delivery; Consideration. At the Closing, the Company shall deliver
to Purchaser (a) a certificate or certificates, registered in Purchaser's name,
representing the number of New Shares to be purchased by Purchaser, against
delivery by Purchaser of consideration therefor, which shall consist of payment
of One Million Five Hundred Fifty-Eight Thousand Three Hundred Fifty-One
Dollars ($1,558,351.00) by wire transfer of same day funds to the Company, (b)
the Promissory Note, duly executed by the Company, payable to the
Purchaser and evidencing the Loan against the advance by the Purchaser of the
principal
<PAGE> 2
amount of such Loan (as defined below), and (c) options and warrants
granting to the Purchaser rights which are, in all material respects, identical
to the rights of the holders of the Remaining Options (as defined below)
evidenced by the Standby Option and Warrant Agreement in the form of Exhibit
2.2.
2.3. The "Loan" shall be (i) in the principal amount of $3,441,649.00,
(ii) subordinate to any Senior Indebtedness (as defined below), whether now
existing or hereafter arising, (iii) for a term not to exceed the earlier of
twelve (12) months or thirty (30) days after the completion of the rights
offering ("Rights Offering") described in Section 7.12 and the receipt by the
Company of the proceeds therefrom, provided that the Company's obligation to
repay the Loan prior to the expiration of twelve (12) months shall be limited
to the net proceeds of the Rights Offering, and (iv) evidenced by and otherwise
having the terms set forth in a non-negotiable promissory note in the form
attached as Exhibit 2.3 (the "Promissory Note"). Purchaser agrees that it will
not sell, assign, transfer or pledge the Promissory Note except in compliance
with the Securities Act of 1933, as amended, (the "Securities Act") and any
applicable state securities laws. Purchaser agrees that in the event a new
senior lender requests modification to the subordination provisions of the
Promissory Note as a condition of lending to the Company, Purchaser will agree
to any commercially reasonable requests to modify such provisions of the
Promissory Note. As used herein "Senior Indebtedness" shall mean the principal
of and unpaid accrued interest on (a) all indebtedness of the Company to banks,
insurance companies or other financial institutions regularly engaged in the
business of lending money, which is for money borrowed by the Company (whether
or not secured), (b) any such indebtedness or debentures, notes or other
evidence of indebtedness issued in exchange for such Senior Indebtedness
referred to in clause (a) above, (c) 12% Notes in the principal amount of
$387,921.00 issued by the Company in 1992, 1993 and 1994, which Notes are
secured by a first lien on monitoring contracts owned by the Company, (d) 14%
Convertible Notes in the principal amount of $170,000.00, which Notes are
convertible into 85,000 shares of the Company's Common Stock and are secured by
a second lien on monitoring contracts owned by the Company, and (e) a
Promissory Note in the principal amount of $777,475.55 issued by All Security
Monitoring Services, L.L.C. ("All Security") to Shirley A. Hoven, which Note is
secured by all of the assets of All Security and which represents the remaining
portion of the purchase price of All Security's business acquired in 1995.
3.
Representations and Warranties of the Company
The Company hereby severally represents and warrants to the Purchaser with
respect to the sale of the New Shares as follows:
3.1. Organization and Standing; Certificate of Incorporation and By-laws.
The Company is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of Delaware and is in good standing under such
laws. The Company has requisite corporate power and authority to own and
operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. The Company is duly
qualified or licensed and in good standing as a foreign corporation in each
jurisdiction wherein
2
<PAGE> 3
the character of its properties or the nature of the activities conducted by
it makes such qualification or licensing necessary, except where the failure
to be so qualified or licensed would not have a material adverse effect on the
Company or its property or business. The attached copies of the Company's
Certificate of Incorporation and By-laws are true, correct and complete and
contain all amendments through the Closing Date.
3.2. Corporate Power. The Company will have at the Closing Date all
requisite legal and corporate power and authority to execute and deliver this
Agreement, to sell and issue the New Shares hereunder, to issue, and borrow
pursuant to, the Promissory Note and to carry out and perform its obligations
under the terms of this Agreement.
3.3. Subsidiaries. Other than as set forth on Schedule 3.3, the Company
has no subsidiaries or affiliated companies and does not otherwise own or
control, directly or indirectly, any equity interest in any corporation,
association or business entity. As used herein, a "subsidiary" is any
corporation, limited liability company or partnership with respect to which the
Company owns fifty percent (50%) or more of the equity interests and any
subsidiary of a subsidiary.
3.4. Capitalization. The authorized capital stock of the Company will
consist, immediately prior to the Closing, of 10,000,000 shares of common
stock, $.001 par value (the "Common Stock"), of which 3,669,587 of such shares
(excluding the New Shares) are issued and outstanding. The outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable. Options and warrants to purchase 463,088 shares of Common Stock
are issued and outstanding. The Company will issue, concurrently with the
Closing, options to purchase 500,000 shares of Common Stock in connection with
the transactions contemplated by Section 7.10 hereof. At or prior to the
Closing the options and warrants for in the aggregate 742,155 shares of Common
Stock held by Ronald I. Davis ("Davis"), James S. Brannen ("Brannen") and
Stephen Rubin ("Rubin"), officers of the Company, shall be canceled and shall
be of no further force or effect and the options for in the aggregate 132,528
shares of Common Stock held by Jerry A. Spitler and Edward Butzer shall be
canceled and, in either case, shall be of no further force and effect. All
outstanding securities of the Company were issued in compliance with applicable
Federal and state securities laws. Except set forth above, there are no
options, warrants or other rights to purchase any of the Company's authorized
and unissued capital stock. The holders of Common Stock and of options to
purchase Common Stock (other than options to be canceled or exercised at or
prior to Closing) together with the number of shares held or rights to such
options and the exercise price and periods during which such options or
debentures may be exercised or converted are set forth on Schedule 3.4. Except
as set forth on Schedule 3.4 attached hereto, there will be as of the Closing
Date no other holders of Common Stock or outstanding options, warrants or other
rights, commitments or arrangements, written or oral, to which the Company is a
party or by which it is bound, to purchase or otherwise acquire any authorized
but unissued shares of Common Stock of the Company or any security directly or
indirectly convertible into or exchangeable or exercisable for any Common Stock
of the Company. The options and warrants listed on Schedule 3.4 which are to
remain outstanding as of the Closing Date are referred to collectively as the
"Remaining Options."
3
<PAGE> 4
3.5. Authorization. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of the New Shares or the issuance and borrowing under the
Promissory Note and the performance of all of the Company's obligations
hereunder has been taken or will be taken prior to the Closing. This
Agreement, when executed and delivered by the Company, shall constitute a valid
and binding obligation of the Company, enforceable in accordance with its
terms. The New Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable and will have
the rights set forth in the Certificate of Incorporation and the By-laws. No
further approval or authorization of the stockholders or the directors of the
Company or of any governmental authority or agency will be required for the
issuance and sale of the New Shares or the issuance of the Promissory Note, as
contemplated by this Agreement. Except as set forth in Schedule 3.5 attached
hereto, no stockholder of the Company or any other person is entitled to any
preemptive rights with respect to the purchase or sale of any securities by the
Company. Except as set forth in Schedule 3.5 attached hereto, the Company, in
light of its business or proposed business, does not require any consent,
approval, authorization or order of, or declaration, filing or registration
with, any court or governmental or regulatory agency or board in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
3.6. Financial Statements. The Company has delivered to Purchaser its
combined audited balance sheet and statement of operations and the audited
balance sheets and statements of operations of each of its subsidiaries for the
periods ended December 31, 1992, 1993, and 1994, its combined unaudited balance
sheet and statement of operations for the period ended December 31, 1995 and
its combined unaudited balance sheet and statement of operations for the three
month period ended June 30, 1996 (collectively, the "Financial Statements").
The Financial Statements are complete and correct in all material respects and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated, except that the
unaudited financial statements do not contain footnotes. The Financial
Statements accurately set out and describe the financial condition and
operating results of the Company on a combined basis and of each of its
subsidiaries as of the dates, and during the periods, indicated therein.
3.7. Absence of Changes. Except as set forth in Schedule 3.7 attached
hereto and the transactions contemplated by Section 7.10 hereof, since June 30,
1996: (a) neither the Company nor any of its subsidiaries has entered into any
agreement or transaction which was not in the ordinary course of business; (b)
there has been no damage to, destruction of or loss of physical property
(whether or not covered by insurance) materially adversely affecting the
business or operations of the Company or any of its subsidiaries; (c) neither
the Company nor any of its subsidiaries have declared or paid any dividend or
made any distribution (in cash, securities or other property) on its stock, or
redeemed, purchased or otherwise acquired any of its stock; (d) neither the
Company nor any subsidiary has increased the compensation of any of its
respective officers, or the rate of pay of its employees as a group, except as
part of regular compensation increases in the ordinary course of business; and
the Company does not know of the impending resignation or termination of
employment of any key officer or employee of the Company or any of its
subsidiaries that if consummated would have a materially adverse effect
4
<PAGE> 5
on its business, except that Jerold Spitler, manager of Securities
Associates Command Center II, LLC, has orally agreed to work for the Company
only until December 31, 1996; (e) there has been no labor dispute involving the
Company, any subsidiary or their respective employees and none is pending or,
to the best of the Company's knowledge, threatened; (f) there has not been any
change, except in the ordinary course of business, in the contingent
obligations of the Company or any subsidiary, by way of guaranty, endorsement,
indemnity, warranty or otherwise; (g) there have not been any loans made by the
Company or any subsidiary to any of its employees, officers or directors other
than travel advances and office advances made in the ordinary course of
business; (h) neither the Company nor any subsidiary has borrowed any amount or
incurred or become subject to any liabilities (absolute or contingent), except
expenses incurred in the ordinary course of business; (i) neither the Company
nor any subsidiary has paid any obligations or liabilities, other than current
liabilities paid in the ordinary course of business; (j) neither the Company
nor any subsidiary has mortgaged, pledged or subjected to any lien, charge or
any other encumbrance, any of its properties or assets; (k) neither the Company
nor any subsidiary has sold, assigned or transferred any of its assets other
than in the ordinary course of business; (l) neither the Company nor any
subsidiary has made any capital expenditures or commitments therefor except in
the ordinary course of business; and (m) to the best knowledge of the Company,
there has been no other event or condition of any character pertaining to and
materially adversely affecting the assets or business of the Company or any
subsidiary.
3.8. Material Liabilities. Except as disclosed on Schedule 3.8 attached
hereto, neither the Company nor any subsidiary has any material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
(i) the liabilities and obligations set forth in the Financial Statements; (ii)
liabilities and obligations which have been incurred subsequent to June 30,
1996 in the ordinary course of business which have not been, in the aggregate,
materially adverse; (iii) liabilities and obligations under sales, procurement
and other contracts and arrangements entered into in the ordinary course of
business; (iv) the Company's obligations in connection with the transactions
contemplated by Section 7.10 and the payment of certain debts of the Company
and its subsidiaries in connection therewith.
3.9. Title to Properties and Assets; Liens, etc. The Company and its
subsidiaries have good and marketable title to their properties and assets, and
have good title to all their leasehold interests, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien
for current taxes not yet due and payable; (ii) possible minor liens and
encumbrances which do not in any case materially detract from the value of the
property subject thereto or materially impair the operations of the Company,
and which have not arisen otherwise than in the ordinary course of business;
and (iii) the liens and security interests granted to Security Leasing
Partners, LP of St. Louis, Missouri, Shirley A. Hoven, the holders of certain
promissory notes issued by subsidiaries of the Company, NBD Bank, and certain
holders of 12% and 14% promissory notes issued by the Company, all as set forth
in Schedule 3.9 attached hereto. The Company owns or leases all such
properties as are necessary to its operations as now conducted and such
properties are in good operating condition and repair, reasonable wear and tear
excepted.
5
<PAGE> 6
3.10. Compliance with Other Instruments, None Burdensome, etc. The
Company and its subsidiaries are not in violation of any term of their
respective Certificates of Incorporation or By-laws, or other organizational
documents, or, in any material respect, of any term or provision of any
material mortgage, indebtedness, indenture, contract, agreement, instrument,
judgment or decree, and are not in violation of any order, statute, rule or
regulation applicable to the Company where such violation would materially and
adversely affect the Company and its subsidiaries, taken as a whole. The
execution, delivery and performance of and compliance with this Agreement, and
the issuance of the New Shares and the Promissory Note to Purchaser (i) have
not resulted and will not result in any violation of, or conflict with, or
constitute a default under, the Certificate of Incorporation or By-laws of the
Company or any of the organizational documents of its subsidiaries or any of
their respective agreements, (ii) have not resulted and will not result in the
creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or its subsidiaries, (iii) have not
resulted and will not result in the loss of any license, certificate, legal
privilege or legal right enjoyed or possessed by the Company; (iv) do not and
will not give any party to any agreement to which the Company is a party a
right of termination; or (v) do not and will not require the consent of any
other person or entity under any agreement, indenture, mortgage, document or
other instrument or undertaking by which the Company is bound or to which any
of its properties are subject. There exist no violations or defaults under the
provisions of this Section 3.10 which materially and adversely affect the
business of the Company, its subsidiaries or any of their respective properties
or assets.
3.11. Intangible Assets. The Company and its subsidiaries (i) own or have
the right to use, free and clear of all liens, claims and restrictions, all
trademarks, service marks, trade names, copyrights (and licenses with respect
to the foregoing) used in the conduct of their business as now conducted or as
proposed to be conducted without infringing upon or otherwise acting adversely
to the right or claimed right of any person under or with respect to any of the
foregoing; and (ii) except as disclosed on Schedule 3.11, are not obligated or
under any liability whatsoever to make any payments by way of royalties, fees
or otherwise to any owner of, licensor of, or other claimant to, any trademark,
trade name, copyright or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or otherwise. The
Company and its subsidiaries have not granted any licenses with respect to
their business as proposed. The business of the Company does not, and will not
cause the Company to, violate any patent, trademark, service mark, trade name,
trade secret, copyright, license or proprietary interest of any other person.
The Company possesses all proprietary technology necessary for the conduct of
its business, both as proposed to be conducted in the Company's business plan
and as presently conducted.
3.12. Litigation, etc. There are no actions, suits, proceedings or
investigations pending or, to the best knowledge of the Company, threatened
against the Company or any subsidiary or their respective properties before any
court, arbitration panel or governmental agency (nor, to the best of the
Company's knowledge, is there any reasonable basis therefor) except as
described on Schedule 3.12.
3.13. Employees. Except as disclosed on Schedule 3.13A, no officer,
director, employee or stockholder, or any member of their immediate families,
is, directly or indirectly,
6
<PAGE> 7
interested in any material contract with the Company. No officer of the
Company is a party to or bound by any agreement, contract or commitment, or
subject to any restrictions (including confidentiality or non-compete
restrictions) in connection with any previous or current employment of any such
person, which adversely affects, or in the future may adversely affect, the
business, or the proposed business of the Company. The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation, except as disclosed on Schedule 3.13B.
3.14. Registration Rights. Except for the rights granted in or pursuant
to this Agreement, the Company is not under any contractual obligation to
register with any federal or state securities regulatory body, any of its
presently outstanding securities or any of its securities which may hereafter
be issued or which permit or entitle the holder thereof to include securities
of the Company in any registration statement filed by the Company.
3.15. Governmental Consent, etc. No consent, approval or authorization of
(or designation, declaration or filing with) any governmental agency on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the New Shares.
3.16. Offering. Subject to the accuracy of the Purchaser's
representations in Section 4 hereof and in response to the Company's
Suitability Questionnaire in the form attached hereto as Exhibit 3.16 (the
"Suitability Questionnaire"), the offer, sale and issuance of the New Shares
and the issue of the Promissory Notes in conformity with the terms of this
Agreement, constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act.
3.17. Brokers or Finders; Other Offers. Neither the Company nor any of
its subsidiaries has incurred, or will incur, directly or indirectly, as a
result of any action taken by the Company, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement, except for the finders' fee due Pro Finance Associates, Inc. on
the Closing of this Agreement in accordance with the letter attached hereto as
Exhibit 3.17, which fee shall not exceed $110,000.00. The payment of said fee
shall be solely the obligation of the Company.
3.18. Tax Matters. The Company and its subsidiaries: (i) have timely
filed all tax returns that are required to have been filed by them with all
appropriate federal, state, county and local governmental agencies (and all
such returns fairly reflect the Company's operations for tax purposes), and all
taxes, fees, assessments and governmental charges of any nature shown by such
returns to be due and payable have been paid, except for those amounts being
contested in good faith and for which appropriate amounts have been reserved in
accordance with generally accepted accounting principles and except for certain
filings with the states of Illinois and Delaware which have been brought
current; (ii) have timely paid all taxes owed by them which they obligated to
withhold from amounts owing to any employee (including without limitation
social security taxes), creditor or third party (other than taxes the validity
of which are being contested in good faith by appropriate proceedings) and
except for certain state franchise taxes in the states of Illinois and
Delaware which have been brought current; and
7
<PAGE> 8
(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. The assessment of any additional taxes for periods for which
returns have been filed is not expected to exceed the recorded liability
therefor, and, to the best of the Company's knowledge, there are no material
unresolved questions or claims concerning the Company's tax liability. Neither
the Company's nor any subsidiary's tax returns have been reviewed or audited by
any federal, state, local or county taxing authority. To the best of the
Company's knowledge, there is no pending dispute with any taxing authority
relating to any of said returns which, if determined adversely to the Company
or its subsidiaries, would result in the assertion by any taxing authority of
any valid deficiency in any material amount for taxes.
3.19. Insurance. The Company and its subsidiaries have valid workers'
compensation, fire, casualty and liability insurance policies, in such amounts
and with such coverage as are carried by similar companies in the Company's
industry, in each case with reputable insurers. The Company is not in default
with respect to any provision contained in any such policy and has not failed
to give any notice or present any claim under any such policy in due and timely
fashion. There are no outstanding unpaid claims under any such policy. The
Company has not received notice of, nor has it knowledge of, any inaccuracy in
any application for such policies, any failure to pay premiums when due or any
similar state of facts that might form the basis for termination of any such
insurance. The Company has not canceled or terminated any insurance policy,
nor has any insurance company canceled or terminated any insurance policy of
the Company.
3.20. Environmental and Safety Regulations. The Company knows of no
violation or violations by the Company, any subsidiary, or their respective
employees or agents of any environmental or safety regulation that in the
aggregate would have a materially adverse effect on the business, properties,
prospects or financial condition of the Company.
3.21. Disclosure. The Company's Confidential Placement Memorandum dated
March 19, 1996, attached hereto as Exhibit 3.21A, was based upon facts and
assumptions that were valid on March 19, 1996, but which no longer are valid,
in part, as of the date of this Agreement. This Agreement with the Schedules
and Exhibits hereto and the Company's Pro Forma Projected Consolidated
Statement as of June 30, 1996 (the "Pro Forma Statement") attached hereto as
Exhibit 3.21B, are based on updated facts and assumptions and when taken as a
whole, do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were
made. The Pro Forma Statement was prepared in good faith; however, the Company
does not warrant that it will achieve the financial projections contained
therein. There exists no fact or circumstance which, to the knowledge of the
Company, materially adversely affects or will materially adversely affect the
business, properties or assets, or condition, financial or otherwise, of the
Company, both at the present and as proposed by the Company in its business
plan, except as set forth in Schedule 3.21 attached hereto.
8
<PAGE> 9
3.22. Only Common Voting Stock Will Be Outstanding. The only issued and
outstanding shares of capital stock of the Company at Closing will be common
voting shares possessing identical rights and privileges.
3.23. Pension Plans. Except as set forth on Schedule 3.23, the Company
does not have any pension, health, retirement, profit sharing, bonus, stock
purchase, stock option, severance or similar employee benefit plans or
obligations, whether of a legally binding nature or in the nature of informal
understandings.
3.24. Representations and Warranties True on Closing Date. The
representations and warranties of the Company contained in this Agreement and
all information contained in any exhibit, schedule or attachment hereto or in
any writing delivered by the Company to the Purchaser will be true and correct
in all material respects at the Closing Date as though then made and as though
the Closing Date were substituted for the date of this Agreement throughout
this Agreement.
4.
Representations and Warranties of the Purchaser
The Purchaser hereby severally represents and warrants to the Company with
respect to the purchase of the New Shares as follows:
4.1. Investment. It is acquiring the New Shares and the Promissory Note
for investment for its own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof. It
understands that neither the New Shares nor the Promissory Note have been, nor
will be, registered under the Securities Act or the securities laws and
regulations of any state by reason of specific exemption(s) from the
registration provisions of the Securities Act and such state laws and
regulations, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Purchaser's
representations as expressed herein and in the Suitability Questionnaire.
4.2. Legend. Purchaser acknowledges that the certificates representing
the New Shares, will bear a legend of substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED WITHOUT
SUCH REGISTRATION, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT
THAT A PROPOSED SALE OR TRANSFER DOES NOT REQUIRE
REGISTRATION UNDER APPLICABLE LAW.
9
<PAGE> 10
4.3. Rule 144. Purchaser acknowledges that the New Shares and the
Promissory Note, must be held indefinitely unless subsequently registered under
the Securities Act and applicable state securities laws and regulations or
unless an exemption from such registration is available. Purchaser is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions.
4.4. No Public Market. Purchaser understands that there is only one
public market maker for the Common Stock of the Company, that the trading in
the Common Stock is extremely limited and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
Purchaser acknowledges that because the shares of Common Stock acquired hereby
will not be registered under the Securities Act, Purchaser will not be able to
participate in any public market for the Common Stock until such time as the
shares acquired by Purchaser are registered under the Securities Act and
applicable state laws and regulations or exemptions from such registration is
available.
4.5. Access to Data. Purchaser has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to review the Company's facilities and
business plan. It understands that such discussions, as well as any written
information issued by the Company, including the business plan, were intended
to describe certain aspects of the Company's business and prospects but were
not a thorough or exhaustive description. All questions of Purchaser have been
answered, and all information requested by Purchaser has been supplied, to the
complete satisfaction of Purchaser.
4.6. Authorization. This Agreement, when executed and delivered by
Purchaser, will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms.
4.7. Brokers or Finders. The Purchaser has not incurred and will not
incur, directly or indirectly, as a result of any action taken by Purchaser,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement.
4.8. Organization and Standing; Articles of Partnership. The Purchaser is
a limited partnership duly formed and existing under, and by virtue of, the
laws of the State of New York and is in good standing under such laws. The
Purchaser has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as presently conducted and
as proposed to be conducted. The Purchaser has furnished the Company with
copies of its Articles of Partnership, as amended and its financial statements
as of December 31, 1995. Said copies are true, correct and complete and
contain all amendments through the Closing Date and said financial statements
accurately describe the financial condition of the Purchaser as of the date
thereof, and in all material respects as of the Closing Date.
4.9. Power and Authority. The Purchaser will have at the Closing Date all
requisite power and authority to execute and deliver this Agreement, to
subscribe and purchase the New
10
<PAGE> 11
Shares and to make the Loan hereunder and to carry out and perform its
obligations under the terms of this Agreement.
4.10. Authorization. All action on the part of the Purchaser necessary
for the authorization, execution, delivery and performance of this Agreement by
the Purchaser, the subscription and purchase of the New Shares, the making of
the Loan, and the performance of all of the Purchaser's obligations hereunder
has been taken or will be taken prior to the Closing. This Agreement, when
executed and delivered by the Purchaser, shall constitute a valid and binding
obligation of the Purchaser, enforceable in accordance with its terms.
5.
Purchaser's Conditions to Closing
The Purchaser's obligations to purchase the Shares at the Closing are
subject to the fulfillment of the following conditions, the waiver of which
shall not be effective unless it is provided in writing by the Purchaser:
5.1. Correctness of Representations and Warranties. The representations
and warranties made by the Company in Section 3 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date as if made
on and as of the Closing Date.
5.2. Covenants. All covenants, agreements and conditions contained in
this Agreement are to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with.
5.3. Compliance with State Securities Laws. The Company shall have
obtained all permits and qualifications required by the State of New York for
the offer and sale of the New Shares, or shall have the availability of
exemptions therefrom.
5.4. Legal Matters. All material matters of a legal nature which pertain
to this Agreement and the transactions contemplated hereby shall have been
reasonably approved by counsel to the Purchaser.
5.5. Directors. Effective as of the Closing Date, the Company's Board of
Directors will consist of those persons whose names appear in Schedule 5.5.
5.6. Cancellation and/or Exercise of Certain Options and Warrants. The
options and warrants which, as described in Section 3.4 above, are to be
canceled or exercised at or prior to Closing shall have been so canceled or
exercised and written evidence thereof, reasonably satisfactory to the
Purchaser, shall have been provided to the Purchaser.
5.7. Completion of Acquisitions. The acquisitions contemplated by Section
7.10 shall occur simultaneously with the Closing of the transactions
contemplated by this Agreement on the Closing Date.
11
<PAGE> 12
5.8. Opinion of Company's Counsel. The Purchaser shall have received from
Sachnoff & Weaver, Ltd., counsel to the Company, an opinion dated the Closing
Date, in the form of Exhibit 5.8.
5.9. Officer's and Other Certificates. The Company shall have delivered
to the Purchaser the following:
(a) an officer's certificate, dated the Closing Date, stating that the
conditions specified in Sections 5.1, 5.2, 5.6 and 5.7 have been satisfied on
or prior to the Closing Date;
(b) incumbency certificates for the officers of the Company executing this
Agreement or any documents delivered in connection with this Agreement;
(c) copies of the resolutions adopted by the Company's Board of Directors
and the stockholders (to the extent required by the Company's Certificate of
Incorporation and By-laws) of the Company authorizing the execution, delivery
and performance of this Agreement and the transactions contemplated hereby,
certified to by the Secretary of the Company as being in full force and effect
on the Closing Date;
(d) a certified copy of the Certificate of Incorporation of the Company,
as then in effect, and as filed with the Secretary of State of Delaware;
(e) a certificate, dated as of a recent date, of the Secretary of State of
Delaware attesting as to the good standing of the Company in such State;
(f) a stock certificate registered in the name of the Purchaser
representing the New Shares purchased by the Purchaser on the Closing Date;
(g) a copy of the Company's By-laws, as amended, certified to by the
Secretary of the Company as being in full force and effect on the Closing Date;
and
(h) such other certificates or documents as the Purchaser or its counsel
may reasonably request relating to the transactions contemplated hereby.
5.10. Legal Action. There shall not have been instituted or threatened
any legal proceeding seeking to prohibit or threaten the consummation of the
transactions contemplated by this Agreement. None of the parties hereto shall
be prohibited by any order, writ, injunction or decree of any governmental body
of competent jurisdiction from consummating the transactions contemplated by
this Agreement.
12
<PAGE> 13
6.
Company's Conditions to Closing
The Company's obligation to sell and issue the New Shares and to issue the
Promissory Note the Closing Date is subject to the fulfillment as of the
Closing Date of the following conditions, the waiver of which shall not be
effective unless it is provided in writing:
6.1. Representations. The representations made by the Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date.
6.2. Compliance with State Securities Laws. The Company shall have
obtained all permits and qualifications required by any state for the offer and
sale of the New Shares, or shall have the availability of exemptions therefrom.
6.3. Legal Matters. All material matters of a legal nature which pertain
to this Agreement, and the transactions contemplated hereby, shall have been
reasonably approved by the counsel to the Company.
6.4. Loan from Purchaser. At the Closing, Purchaser shall advance the
principal amount of the Loan to the Company.
6.5. Issue of an Irrevocable Voting Proxy by the Purchaser. The Purchaser
shall have executed and delivered an irrevocable power of attorney in favor of
Davis and Brannen empowering them jointly (or individually in the event of the
death or resignation of one of them as an officer of the Company), for a period
ending on the earlier of (i) the date of the Company's second annual meeting
following the Closing or (ii) eighteen (18) months following the Closing, to
vote all the New Shares as well as any other shares of the capital stock of the
Company acquired by Purchaser; provided, however, that during such period,
Davis and Brannen shall not be entitled to vote any of the Purchaser's shares
on any material corporate matter, which for purposes hereof shall include (A)
any proposal to amend the Certificate of Incorporation or the By-laws of the
Company or (B) any other matter that would impair, diminish or adversely affect
the Purchaser's rights as a stockholder of the Company as compared to any other
holders of Common Stock; provided that such proxy shall immediately terminate
upon the occurrence of an Event of Default as defined in the Promissory Note.
The precise terms and conditions of said power of attorney are set forth in the
Power of Attorney attached as Exhibit 6.5.
6.6. Suitability Questionnaire. The Purchaser will have executed and
delivered to the Company a Suitability Questionnaire, acceptable to counsel for
the Company.
13
<PAGE> 14
7.
Affirmative Covenants of the Company
The Company hereby covenants and agrees as follows:
7.1. Key Man Insurance. As soon as practicable, but no later than ninety
(90) days after the Closing, the Company shall have obtained, and shall
maintain, key-man life insurance policies from a nationally recognized
insurance company, for the benefit of the Company on the lives of Davis and
Brannen, each policy to be in the amount of $500,000.00.
7.2. Financial Information. Subject to Section 7.5, from the date of this
Agreement until the time of the Company's first public offering ( the "Initial
Public Offering"), the Company will mail the following reports to the Purchaser
for so long as, and at any time when, Purchaser is the holder of the Promissory
Note or a holder of at least fifteen percent (15%) of the issued and
outstanding Common Stock of the Company.
(a) As soon as practicable, but not later than sixty (60) days after the
Closing Date, the Company shall deliver to Purchaser its combined audited
balance sheet and statement of operations and the audited balance sheets
and statements of operations of each of its subsidiaries for the fiscal
year ended December 31, 1995.
(b) As soon as practicable after the end of each fiscal year beginning
with the fiscal year ending December 31, 1996, and in any event within
ninety (90) days thereafter, unaudited consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year,
and consolidated statements of income and consolidated statements of
changes in financial position of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form
the figures for the previous fiscal year, all in reasonable detail, which
statements shall be audited by independent public accountants of national
standing selected by the Company and provided to Purchaser in audited
form no later than six (6) months after the end of each fiscal year.
(c) As soon as practicable after the end of the first, second and third
quarterly accounting periods in each fiscal year of the Company and in
any event no later than sixty (60) days thereafter, an unaudited
consolidated balance sheet of the Company and its subsidiaries, if any,
as of the end of each such quarterly period, and consolidated statements
of income and consolidated statements of changes in financial condition
of the Company and its subsidiaries, if any, for such a period and for
the current fiscal year to date, prepared in accordance with generally
accepted accounting principles (other than for accompanying notes), all
in reasonable detail and signed, subject to changes resulting from
year-end audit adjustments, by the principal financial or accounting
officer of the Company.
14
<PAGE> 15
(d) Contemporaneously with their delivery to holders of the Company's
Common Stock, a copy of each report or other communication delivered to
holders of its Common Stock.
7.3. Additional Information. Subject to Section 7.5, as long as Purchaser
is the holder of the Promissory Note or, at any time when Purchaser is a holder
of at least fifteen percent (15%) of the total issued and outstanding Common
Stock of the Company, the Company will deliver or provide to Purchaser:
(a) Within thirty (30) days prior to the beginning of each fiscal year,
an Annual Plan. The Annual Plan shall set forth full and complete
forecasted balance sheets, income statements and statements of cash flow
for such fiscal year and for each month within that year. The Annual
Plan shall also describe the marketing, organization and staffing and
financial strategies which support the Annual Plan's forecasted figures.
(b) Promptly after each meeting or the execution of an action by written
consent, copies of the minutes of proceedings or actions by written
consent of the Company's Board of Directors and stockholders.
(c) For so long as Purchaser is eligible to receive reports under this
Section 7.3, it shall also have the right, at its expense, to visit and
inspect any of the properties of the Company or any of it its
subsidiaries, to examine its books of account and records, and to discuss
their affairs, finances and accountants with their officers, all at such
reasonable times as often may be reasonably requested, provided, however,
that the Company shall not be obligated to provide any information, other
than to the designee(s) of Purchaser on the Board of Directors, that it
reasonably considers to be a trade secret or to contain confidential
information.
7.4. Assignment of Rights to Financial Information. The rights granted
pursuant to Sections 7.2 and 7.3 may not be assigned or otherwise conveyed by
Purchaser or by any subsequent transferee of any such rights without the prior
written consent of the Company, other than in connection with the pro rata
distribution of its interests under this Agreement to its partners as permitted
by Section 11.3 hereof unless they ask not to receive such information.
7.5. Termination Covenants. The covenants set forth in Section 7 shall
terminate and be of no further force or effect at such time as the Company is
required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
7.6. Other Insurance. From and after the Closing, the Company shall
maintain valid policies of worker's compensation insurance and such other
insurance with respect to its properties and business of the kinds, in amounts
and with insurers as directed from time to time by the Company's Board of
Directors. The activities and operations of the Company will be conducted in a
manner so as to conform to all applicable provisions of such insurance
policies.
15
<PAGE> 16
7.7. Taxes and Other Liabilities. The Company will pay and discharge,
before the same become delinquent and before penalties accrue thereon, all
taxes, assessments and governmental charges upon or against it or any of its
properties, and all its other material liabilities at any time existing, except
to the extent and so long as (a) the same are being contested in good faith and
by appropriate proceedings in such manner as not to cause any materially
adverse effect upon the financial condition of the Company or the loss of any
right of redemption from any sale thereunder and (b) the Company shall have set
aside on its books reserves (segregated to the extent required by generally
accepted accounting principles) deemed by it adequate with respect thereto.
7.8. Notice of Litigation and Disputes. The Company will promptly notify
Purchaser of any significant suits or litigation instituted against it or any
of its subsidiaries, or disputes that have a high probability of resulting in
material litigation.
7.9. Election of Directors. So long as, and at any time when, at least
fifteen percent (15%) of the shares issued hereunder are held of record by
Purchaser, (a) Davis and Brannen agree that in any election of a director or
directors of the Company, they shall vote their shares of capital stock of the
Company and the New Shares with respect to which they will have a proxy in such
a manner that immediately after such election the Company's Board of Directors
shall include two designees of Purchaser; (b) the Company will use its best
efforts to cause such designees to be elected to the Company's Board of
Directors; and (c) in the event of any vacancy on the Board of Directors, the
Company and the Purchaser will use their best efforts to fill the vacancy such
that the Board will include such designees. The Company covenants that at all
times on or after thirty (30) days following the Closing, its By-laws will
contain provisions authorizing no more than seven (7) directors and
indemnifying its directors to the fullest extent permitted under applicable
law. In addition, at least one of Purchaser's designees shall be appointed to
each of the committees established or maintained by the Board of Directors.
7.10. Acquisition by the Company of Minority Interests in Subsidiaries.
The Company owns sixty percent (60%) of all the outstanding membership
interests of Monitor Service Group, LLC, an Illinois limited liability company
("MSG"). MSG, in turn, owns fifty percent (50%) of the outstanding membership
interests of Security Associates Command Center II, LLC, a Michigan limited
liability company ("SACC"). The Company will acquire, directly or through a
wholly-owned subsidiary, free and clear of all liens and encumbrances, at or
before the Closing all the outstanding membership interests in MSG and SACC not
then owned by the Company. On or before the Closing, the Company will own,
directly or indirectly, all of the outstanding membership interests in MSG and
SACC.
7.11. Use of Funds. The Company will use the proceeds from the sale of
the New Shares and from the Loan as provided on Schedule 7.11.
7.12. Rights Offering. The Company, within ten (10) days of receipt of
notice from the Purchaser to do so, shall initiate the process of preparing the
registration of a rights offering under the Securities Act (the "Rights
Offering"), or such other offering as the Parties may agree
to. Pursuant to the Rights Offering, if all such Rights are exercised, the
planned proceeds of the
16
<PAGE> 17
Rights Offering shall equal in the aggregate at least two times the initial
principal amount of the Loan. If the Company and the Purchaser shall agree,
the Company shall initiate an initial public offering of the Company's Common
Stock (an "Initial Public Offering") in lieu of the Rights Offering.
7.13. Company Participation in Rights Offering; Standby Purchasers;
Standstill.
(a) Purchaser acknowledges and agrees that the Board of Directors may
authorize the officers and directors of the Company to contact and otherwise
encourage existing stockholders of the Company to exercise (and possibly
obtain) sufficient number of Rights such that fifty-one percent (51%) of all
new shares of Common Stock issued upon exercise of the Rights will be issued to
persons other than Purchaser.
(b) The Purchaser shall endeavor to locate on behalf of the Company one or
more parties who are prepared to act as standby purchasers (the "Standby
Purchasers") in the Rights Offering. Such Standby Purchasers shall commit
that, to the extent such Rights are not exercised prior to expiration, they
shall purchase from the Company the same number of shares that were purchasable
under such unexercised Rights for a price equal to the exercise price under
such Rights.
(c) Purchaser shall use its best efforts to insure that no partner of
Purchaser shall obtain sufficient shares of Common Stock to beneficially own
five percent (5%) or more of the then outstanding shares of Common Stock.
7.14. Senior Executive Incentive Compensation Plan. As soon as
practicable, the Company shall implement an incentive compensation plan for
Brannen, Davis and Rubin in their capacities as senior executives of the
Company and any other senior executives designated by Davis, Brannen and Rubin
(the "Incentive Compensation Plan") which shall be satisfactory in form and
substance to Purchaser and which shall have the following principal terms: (i)
to the extent the Company's value has increased at a compound growth rate in
excess of 20%, the participants shall be entitled to 20% of such excess value
to be allocated among the participants in accordance with their joint
instructions, (ii) the initial valuation to be used for such purposes shall be
the value of the Company implied by the Purchaser's acquisition of the New
Shares, (iii) the determination of whether a distribution is due under the
Incentive Compensation Plan shall not be made until one or more triggering
events occurs, such as an initial public offering, a major disposition or the
running of a specified period, (iv) the valuation of the Company as of any
trigger event shall be based on a multiple of adjusted cash flow, and (v) the
distribution under the Incentive Compensation Plan shall be made either in cash
or shares of the Company's Common stock, at the Company's election; provided
that the parties agree that they shall endeavor in good faith and use their
reasonable best efforts to agree to the definitive form of the Incentive
Compensation Plan; and provided further that if the parties are unable to agree
to such definitive form within sixty (60) days after the date hereof then,
unless the parties otherwise agree, the options of Brannen, Davis and Rubin
that were canceled as of the Closing Date shall be reinstated and concurrently
with such reinstatement the Purchaser shall be granted options
identical to such reinstated options pursuant to an agreement substantially
similar to the Standby Option and Warrant Agreement.
17
<PAGE> 18
7.15. Employment Agreements. Prior to or at Closing, the Company has
entered into employment agreements with each of Davis, Brannen and Rubin, in
the form of Exhibit 7.15 attached hereto (the "Employment Agreements").
7.16. Licenses. The Company will obtain and keep in full force and effect
all licenses, permits and other authorizations from governmental authorities
which shall be necessary to the conduct of its business.
7.17. Material Changes. The Company will promptly notify the Purchaser of
any material adverse change in the business, properties, assets or condition,
financial or otherwise, of the Company, and of any litigation or governmental
proceeding pending or, to the best knowledge of the Company, threatened against
the Company or against any officer or key employee of the Company.
7.18. Compliance with Law. The Company will comply in all material
respects with all applicable statutes, rules and regulations of the United
States, of the states thereof and their counties, municipalities and other
subdivisions and of any other jurisdiction applicable to the Company, and will
do all things necessary to preserve, renew and keep in full force and effect
and in good standing its corporate existence and authority necessary to
continue its business.
7.19. Lock-up Agreements. The Company will enter into agreements with
Brannen, Davis and Rubin (a) substantially in the form of Exhibit 7.19A hereto
(each a "Lock-Up Agreement"), pursuant to which such persons shall agree that
in the event the Company conducts an Initial Public Offering: that for a period
of at least 180 days after the effective date of the Company's Initial Public
Offering such persons will not, directly or indirectly, sell, offer or contract
to sell, grant any option for the sale of, or otherwise dispose of or transfer
any shares of Common Stock or any securities convertible into or exchangeable
or exercisable for Common Stock of the Company other than securities which are
included and sold in such Initial Public Offering or those which are sold or
otherwise transferred to a Permitted Transferee (as defined in the Lock-up
Agreements); and (b) substantially in the form of Exhibit 7.19B hereto, to
grant to the Company and to the Purchaser a right of first refusal with respect
to any securities of the Company which such persons propose to sell or
otherwise dispose of. Until the Company shall have completed its Initial
Public Offering, the Company will exercise its best efforts to enter into
similar agreements with all of its officers, directors and 5% stockholders.
7.20. Conflicting Agreements. The Company will not enter into any
agreement which, by its terms, might restrict the performance of the Company's
obligations under this Agreement, the New Shares, the Promissory Note or any of
the other agreements attached as exhibits hereto, including, but not limited
to, registration rights relating to the New Shares.
18
<PAGE> 19
8.
Negative Covenants of the Company.
The Company covenants and agrees with the Purchaser that as long as, and
at any time when, the Purchaser is the holder of the Promissory Note or a
holder of at least fifteen percent (15%) of the issued and outstanding Common
stock of the Company, without the consent of the Purchaser, which shall not be
unreasonably withheld:
8.1. Merger; Sale of Assets. The Company will not become a party to any
merger or consolidation, or sell, lease or otherwise dispose of any of its
assets, other than sales and leases of assets in the ordinary course of
business and other than the replacement of outmoded or damaged equipment with
new equipment unless such transaction is approved by 2/3 of the minority
stockholders of the Company (excluding shares held directly or indirectly by
Purchaser and the officers and directors of the Company). The Company will not
voluntarily dissolve, liquidate or wind up the Company or carry out any partial
liquidation of the Company.
8.2. Business. The Company will not engage in any business other than its
current business, businesses anticipated in its business plan and related
services and activities appropriate or necessary in connection therewith.
8.3. Stock Repurchases. The Company will not purchase or redeem any
shares of its capital stock other than pursuant to agreements with officers or
employees of the Company relating to repurchase of stock after termination of
employment.
8.4. Dividends. The Company will not declare or pay any dividend or make
any distribution in cash, securities or other property to the stockholders of
the Company.
8.5. Indebtedness. The Company will not create, incur or assume or
otherwise become or remain liable with respect to Indebtedness to be incurred
in an amount exceeding 4.5 times the cash flow of the Company at any one time
outstanding.
8.6. Capital Expenditures. The Company will not make or commit to make
capital expenditures in any one year in excess of fifteen percent (15%) of the
annual cash flow of the Company.
8.7. Acquisition. The Company will not acquire any assets or stock of
another entity which acquisition in the aggregate costs more than 25% of owned
accounts or 25% of third party maintained accounts if it is a single
transaction acquisition, whether by means of acquisition of assets or stock or
by merger.
8.8. Amendments. The Company will not amend its Certificate of
Incorporation or By-laws in any way that would impair, diminish or adversely
affect the Purchaser's rights as a stockholder of the Company.
19
<PAGE> 20
8.9. Issuance of Shares. Except as set forth in Schedule 8.9 attached
hereto, the Company will not authorize, create or issue any series or shares of
capital stock (or options, warrants or other rights to purchase or acquire any
capital stock or any security convertible into or exchangeable or exercisable
for any capital stock), or adopt or otherwise institute any stock option or
stock purchase plan for, or otherwise issue any stock or options to, employees,
consultants or directors of the Company except that the Company may authorize
options for employees, consultants and directors; provided, however, that the
total number of such options shall not exceed the amount determined pursuant to
Section 7.14 hereof, and such options may only be issued on terms and
conditions acceptable to the Board of Directors.
8.10. Transactions with Affiliates. The Company will not engage in any
transaction with, nor enter into any contract, agreement or other arrangement
providing for, nor amend any existing agreement relating to, the employment of,
furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any officer, director or stockholder of the
Company or any affiliate or associate of such persons or entities, except for
employment agreements with employees and normal employee benefits.
9.
Purchaser's Right of First Refusal
9.1. Right of First Refusal. The Company hereby grants to Purchaser the
right of first refusal to purchase its pro rata share of all or any part of any
New Securities (as defined in this Section 9.1) which the Company may, from
time to time, propose to sell and issue. A pro rata share, for purposes of
this right of first refusal, is the ratio that the number of New Shares then
held by Purchaser, bears to the total number of shares of Common Stock then
outstanding.
(a) Except as set forth below, "New Securities" shall mean any shares of
capital stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase said shares of Common Stock, and securities of
any type whatsoever that are, or may become, convertible into said shares of
Common Stock. Notwithstanding the foregoing, "New Securities" does not include
(i) the New Shares; (ii) securities issued in the acquisition of another
corporation by the Company by merger, purchase of substantially all of the
assets or other reorganization whereby the Company or its stockholders own not
less than fifty-one (51%) of the voting power of the surviving or successor
corporation; (iii) stock issued pursuant to any rights or agreements,
including, without limitation, convertible securities, options and warrants,
provided that the rights of first refusal established by this Section 9.1 apply
with respect to the initial sale or grant by the Company of such rights or
agreements; (iv) stock issued in connection with any stock split, stock
dividend or recapitalization by the Company; (v) stock issued pursuant to any
stock option plan for directors, employees and consultants of the Company; and
(vi) stock issued with respect to the Remaining Options.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give Purchaser written notice of its intention, describing
the type of New Securities, and the price and terms upon which the Company
proposes to issue the same. Purchaser shall have fifteen (15) days from the
date of receipt of any such notice to agree to purchase up to
Purchaser's pro rata share of such New Securities for the price and upon the
terms specified in
20
<PAGE> 21
the notice by giving written notice to the Company and stating therein
the quantity of New Securities to be purchased.
(c) In the event Purchaser fails to exercise such right of first refusal
within said fifteen (15) day period, the Company shall have ninety (90) days
thereafter to sell the New Securities not elected to be purchased by Purchaser
at the price and upon the terms no more favorable to the purchasers of such
securities than specified in the Company's notice. In the event the Company
has not sold the New Securities or entered into an agreement to sell the New
Securities within said ninety (90) day period, the Company shall not thereafter
issue or sell any of such New Securities without first offering such securities
in the manner provided above.
(d) In the event that such terms and conditions of a bona fide offer do
not provide for the Purchaser to have any registration rights, the Company
agrees with the Purchaser that in the event the Purchaser acquires any New
Securities pursuant to paragraph (b) above, such New Securities shall be deemed
Registrable Securities for the purposes of Section 10 hereof.
(e) The closing of the purchase of shares pursuant to this Section 9 shall
occur at the principal office of the Company (i) on the fifth business day
after the expiration of fifteen (15) days after receipt of the Company's Notice
if the Purchaser purchases all such New Securities, (ii) concurrently with the
closing of the sale of New Securities if the Purchaser does not purchase all
such New Securities, or (iii) at such other time as the Purchaser and the
Company may mutually determine. At the closing, the Company shall deliver to
the Purchaser, the certificate or certificates representing such shares, free
and clear of all liens and encumbrances whatsoever (other than those imposed by
this Agreement), and the Purchaser shall pay to the Company, in cash or by
delivery of a certified check, the amount of the purchase price for the shares
of New Securities purchased by the Purchaser pursuant to this Section 9.
(f) The right of first refusal granted under this Agreement shall expire
upon the first to occur of the following: (i) the closing of the first public
offering of the Common Stock of the Company to the general public which is
effected pursuant to a registration statement filed with, and declared
effective under the Securities Act, and such right of first refusal and related
right of notice shall not apply to the offer or sale of shares pursuant to such
public offering; (ii) September 5, 1999; or (iii) as to Purchaser, if Purchaser
no longer holds at least fifteen percent (15%) of the outstanding capital stock
of the Company.
10.
Registration Rights.
10.1. Required Registration. If at any time after one year from the
Closing Date, the Purchaser shall decide to sell or otherwise dispose of
Registrable Securities of the Company then owned by the Purchaser, the
Purchaser may give written notice to the Company of the proposed disposition,
specifying the number of Registrable Securities so to be sold or disposed
of and requesting that the Company prepare and file a registration statement
under the Securities Act covering such Registrable Securities. The Company
shall use its best efforts to
21
<PAGE> 22
cause an appropriate registration statement (the "Registration
Statement") covering such Registrable Securities to be filed with the
Commission and to become effective as soon as reasonably practicable and to
remain effective until the completion of the distribution of the Registrable
Securities to be offered or sold, but not to exceed 180 days. The Company
shall not be obligated to file more than one Registration Statement pursuant to
the foregoing provisions of this Section 10.1. The Company shall bear all of
the Costs and Expenses (as defined in Section 10.9 herein) of such Registration
Statements. In addition to the foregoing and without regard to there first
having been filed the Registration Statement provided for in the foregoing
provisions of this Section 10.1, from such time as the Company shall be
eligible to register its securities on such form the Purchaser will be entitled
to demand three Registration Statements on Form S-3 (or any similar short-form
Registration Statement) and the Company's shall bear all of the Costs and
Expenses of such Registration Statements. The Company will use its best
efforts to utilize a short-form registration statement for which the Company
qualifies. A demand for registration under this Section 10.1 will not count as
such until it has become effective. Any demand registration required pursuant
to this Section 10.1 may be delayed for a period not to exceed ninety (90)
days, if the Company certifies in writing that proceeding with such
registration would disrupt a material financing or other transaction of the
Company.
10.2. Procedure for Registration. In connection with the filing of a
Registration Statement pursuant to Section 10.1 hereof, and in supplementation
and not in limitation of the provisions hereof, the Company shall:
(a) Notify the Purchaser as to the filing of the Registration Statement
and of all amendments or supplements thereto filed prior to the effective date
of such Registration Statement;
(b) Notify the Purchaser promptly after the Company shall receive notice
thereof, of the time when said Registration Statement became effective or when
any amendment or supplement to any prospectus forming a part of such
Registration Statement has been filed;
(c) Notify the Purchaser promptly of any request by the Commission for the
amending or supplementing of such Registration Statement or prospectus or for
additional information;
(d) Prepare and promptly file with the Commission and promptly notify the
Purchaser of the filing of any amendments or supplements to such Registration
Statement or prospectus as may be necessary to correct any statements or
omissions if, at any time when a prospectus relating to the Registrable
Securities is required to be delivered under the Securities Act, any event with
respect to the Company shall have occurred as a result of which any such
prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading; and, in addition, prepare and file
with the Commission, promptly upon the Purchaser's written request, any
amendments or supplements to such Registration Statement or
prospectus which may be reasonably necessary or advisable in connection with
the distribution of the Registrable Securities;
22
<PAGE> 23
(e) Prepare, promptly upon request of the Purchaser or any underwriters
for the Purchaser, such amendment or amendments to such Registration Statement
and such prospectus or prospectuses as may be reasonably necessary to permit
compliance with the requirements of Section 10(a)(3) of the Securities Act
until the completion of the distribution of the Registrable Securities, but not
to exceed 180 days;
(f) Advise the Purchaser promptly after the Company shall receive notice
or obtain knowledge of the issuance of any stop order by the Commission
suspending the effectiveness of any such Registration Statement or amendment
thereto or of the initiation or threatening of any proceeding for that purpose,
and promptly use its best efforts to prevent the issuance of any stop order or
obtain its withdrawal promptly if such stop order should be issued;
(g) Use its best efforts to qualify, as soon as reasonably practicable,
the Registrable Securities for sale under the securities or blue-sky laws of
such states and jurisdictions within the United States as shall be reasonably
requested by the Purchaser; provided, that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business, to
become subject to taxation or to file a consent to service of process generally
in any of the aforesaid states or jurisdictions;
(h) Furnish the Purchaser, as soon as available, copies of any
Registration Statement and each preliminary or final prospectus, or supplement
or amendment required to be prepared pursuant hereto, all in such quantities as
the Purchaser may, from time to time, reasonably request; and
(i) If requested by the Purchaser, enter into an agreement with the
underwriters of the Registrable Securities being registered containing
customary provisions and reflecting the foregoing.
10.3. Incidental Registration. If at any time the Company shall
propose the filing of a Registration Statement on an appropriate form under the
Securities Act of any securities of the Company, otherwise than pursuant to
Section 10.1 hereof, other than in connection with the Rights Offering and
other than a registration statement on Forms S-8 or S-4 or any equivalent form
then in effect, then the Company shall give the Purchaser notice of such
proposed registration and shall include in any Registration Statement relating
to such securities all or a portion of the Registrable Securities then owned by
the Purchaser, which the Purchaser shall request, by notice given by the
Purchaser to the Company within 30 days after the giving of such notice by the
Company, to be so included. In the event of the inclusion of Registrable
Securities pursuant to this Section 10.3, the Company shall bear all of the
Costs and Expenses of such registration; provided, however, that the Purchaser
shall pay, pro rata based upon the number of Registrable Securities included
therein, the underwriters discounts and compensation attributable to the
inclusion of such Registrable Securities. In the event the distribution of
securities of the Company covered by a Registration Statement referred to in
this Section 10.3 is to be underwritten, then the Company's obligation to
include Registrable Securities in such Registration Statement shall be subject,
at the option of the Company, to the following further conditions:
23
<PAGE> 24
(a) The distribution for the account of the Purchaser shall be
underwritten by the same underwriters who are underwriting the distribution of
the securities for the account of the Company and/or any other persons whose
securities are covered by such Registration Statement, and the Purchaser will
enter into an agreement with such underwriters containing customary provisions;
(b) If the underwriting agreement entered into with the aforesaid
underwriters contains restrictions upon the sale of securities of the Company,
other than the securities which are to be included in the proposed
distribution, for a period not exceeding 180 days from the effective date of
the Registration Statement, then such restrictions will be binding upon the
Purchaser and, if requested by the Company, the Purchaser will enter into a
written agreement to that effect; and
(c) If the underwriters state in writing that they are unwilling to
include any or all of the Purchaser's securities in the proposed underwriting
because such inclusion will materially interfere with the orderly sale and
distribution of the securities being offered by the Company, then the number of
the Purchaser's securities to be included will be reduced pro rata on the basis
of the number of shares owned by all holders of Registrable Securities, or
there will be no inclusion of the Purchaser's securities in the registration
statement and proposed distribution, in accordance with such statement by the
underwriters.
10.4. Indemnification by the Company. The Company will indemnify and
hold harmless the Purchaser, any underwriter (as defined in the Securities Act)
for the Purchaser, each partner, officer and director of the Purchaser, and
each person, if any, who controls the Purchaser or such underwriter within the
meaning of the Securities Act (but, in the case of an underwriter or a
controlling person, only if such underwriter or controlling person indemnifies
the persons mentioned in subdivision (b) of Section 10.5 hereof in the manner
set forth therein), against any losses, claims, damages or liabilities, joint
or several, to which the Purchaser or any such underwriter, partner, officer,
director or controlling person becomes subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) are caused by any untrue statement or alleged untrue
statement of any material fact contained in any preliminary prospectus (if used
prior to the effective date of the Registration Statement), or contained, on
the effective date thereof, in any Registration Statement under which
Registrable Securities were registered under the Securities Act, the prospectus
contained therein, or any amendment or supplement thereto, or arising out of or
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and the Company will reimburse the Purchaser and any such
underwriter, partner, officer, director or controlling person for any legal or
other expenses reasonably incurred by the Purchaser, or any such partner,
officer, director, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable to any such persons in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information furnished to the Company in writing by such person
expressly for inclusion in any of the foregoing documents.
24
<PAGE> 25
10.5. Indemnification by The Purchaser. The Purchaser shall:
(a) Furnish in writing all information to the Company concerning itself
and its holdings of securities of the Company as shall be required in
connection with the preparation and filing of any Registration Statement
covering any Registrable Securities; and
(b) Indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed a Registration Statement, each person, if any,
who controls the Company within the meaning of the Securities Act and any
underwriter (as defined in the Securities Act) for the Company, against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, controlling person or underwriter may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) are caused by any untrue or alleged
untrue statement of any material fact contained in any preliminary prospectus
(if used prior to the effective date of the Registration Statement) or
contained on the effective date thereof, in any Registration Statement under
which Registrable Securities were registered under the Securities Act, the
prospectus contained therein, or any amendment or supplement thereto, or
arising out of or based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with information
furnished in writing to the Company by the Purchaser expressly for inclusion in
any of the foregoing documents, and the Purchaser shall reimburse the Company
and any such underwriter, officer, director or controlling person for any legal
or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action.
10.6. Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (a) the Purchaser or other person or entity entitled to indemnification
under this Agreement, makes a claim for indemnification pursuant to Section
10.4 or Section 10.5 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
Section 10.4 or Section 10.5 provides for indemnification in such case, or (b)
contribution under the Securities Act may be required on the part of any the
Purchaser, the Company or other person in circumstances for which
indemnification is provided under Section 10.4 or Section 10.5; then, and in
each such case, the Purchaser, the Company and such person will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that the
Purchaser or other person is responsible for the portion represented by the
percentage that the public offering price of its securities offered by the
Registration Statement bears to the public offering price of all securities
offered in such Registration Statement; provided, however, that, in any such
case, (i) neither the Purchaser, the Company nor any other person will be
required to contribute any amount in excess of the public offering price of all
such Registrable Securities offered by it pursuant to such Registration
Statement; and (ii) no person or entity guilty of
25
<PAGE> 26
fraudulent misrepresentation (within the meaning of Section 12(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
10.7. Notification by The Purchaser. The Purchaser and each other person
indemnified pursuant to Section 10.4 hereof will, in the event it receives
notice of the commencement of any action against it which is based upon an
alleged act or omission which, if proven, would result in the Company's having
to indemnify it pursuant to Section 10.4 hereof, promptly notify the Company,
in writing, of the commencement of such action and permit the Company, if the
Company so notifies the Purchaser within 10 days after receipt by the Company
of notice of the commencement of the action, to participate in and to assume
the defense of such action with counsel reasonably satisfactory to the
Purchaser or such other indemnified person, as the case may be; provided,
however, that the Purchaser shall be entitled to retain its own counsel at the
Company's expense if it believes there exists a conflict of interest between
the Company and the Purchaser. The omission to notify the Company promptly of
the commencement of any such action shall not relieve the Company of any
liability to indemnify the Purchaser or such other indemnified person, as the
case may be, under Section 10.4 hereof, except to the extent the Company shall
suffer any loss by reason of such failure to give notice and shall not relieve
the Company of any other liabilities which it may have under this or any other
agreement.
10.8. Notification by Company. The Company agrees that, in the event it
receives notice of the commencement of any action against it which is based
upon an alleged act or omission which, if proven, would result in the Purchaser
having to indemnify the Company pursuant to subdivision (b) of Section 10.5
hereof, the Company will promptly notify the Purchaser in writing of the
commencement of such action and permit the Purchaser, if the Purchaser so
notifies the Company within 10 days after receipt by it of notice of the
commencement of the action, to participate in and to assume the defense of such
action with counsel reasonably satisfactory to the Company; provided, however,
that the Company shall be entitled to retain its own counsel at the Purchaser's
expense if it believes there exists a conflict of interest between the
Purchaser and the Company. The omission to notify the Purchaser promptly of
the commencement of any such action will not relieve the Purchaser of liability
to indemnify the Company under subdivision (b) of Section 10.5 hereof, except
to the extent that the Purchaser suffers any loss by reason of such failure to
give notice and shall not relieve the Purchaser of any other liabilities which
it may have under this or any other agreement.
10.9. Costs and Expenses. As used in this Agreement, "Costs and
Expenses" shall include all of the costs and expenses relating to the
Registration Statement involved, including but not limited to registration,
filing and qualification fees, blue-sky expenses, printing expenses, reasonable
fees and disbursements of counsel to the Company and counsel for the Purchaser,
(provided, however, that no more than one such counsel for the Purchaser will
be so designated on any occasion), and accounting fees; provided however, that
underwriting discounts and commissions and reimbursable underwriters' expenses
will be borne pro rata by the holders of the securities included in the
Registration Statement.
26
<PAGE> 27
10.10. Rule 144 Reporting. After the Company becomes subject to the
reporting requirements of Sections 13 or 15(d) of the Exchange Act, and with a
view to making available the benefits of certain rules and regulations of the
Commission which may permit the sale of the New Shares without registration,
until the New Shares may be freely disposed of without any limitations, the
Company agrees to:
(a) Cause public information with respect to the Company to be available,
as set forth in Rule 144 or any comparable rule or regulation under the
Securities Act, at all times;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities
Act and the Exchange Act; and
(c) Furnish to the Purchaser forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of Rule 144
and of the Securities Act and Exchange Act.
10.11. Certain Definitions. The following terms shall have the respective
definitions set forth below:
Affiliate: has the meaning such term is given in Rule 405
promulgated under the Securities Act.
Associate: has the meaning such term is given in Rule 405
promulgated under the Securities Act.
Commission: the Securities and Exchange Commission.
Public Offering: a distribution of New Securities in an
underwritten public offering to the general public pursuant to a
Registration Statement filed with and declared effective by the
Commission pursuant to the Securities Act.
Registrable Securities: (i) The New Shares, (ii) any other
securities which pursuant to the terms of this Agreement are deemed to be
Registrable Securities and (iii) any securities issued or issuable with
respect to the securities referred to in clauses (i) or (ii) above by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization,
provided that a Registrable Security ceases to be a Registrable Security
when (a) it has been effectively registered under the Securities Act and
disposed of in accordance with the Registration Statement covering it,
(b) it has been distributed pursuant to Rules 144 or 144A (or any similar
provisions then in force) under the Securities Act or (c) it has
otherwise been transferred and a new certificate or other evidence of
ownership for it not bearing a legend restricting transfer under the
Securities Act and not subject to any stop transfer order has been
delivered by or on behalf of the Company and no other restriction on
transfer exists.
27
<PAGE> 28
11.
Miscellaneous.
11.1. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
WITHOUT GIVING ANY EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS. The Company
agrees that it will not assert against any partner of the Purchaser (or against
any partner, officer, director, employee or agent of the Purchaser or any of
its Affiliates) any claim it may have under this Agreement by reason of any
failure or alleged failure by the Purchaser to meet its obligations hereunder.
The parties hereto agree and intend that the proper and exclusive forum for the
litigation of any disputes or controversies arising out of, or related to, this
Agreement shall be the courts of the State of Illinois and of any Federal Court
located in such state. The Company agrees that it will not commence or move to
transfer any action or proceeding, arising out of or relating to this
Agreement, in or to any court other than one located in the State of Illinois.
The Company irrevocably consents to the service of process of any of the
aforesaid courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to the Company at the
address provided herein, such service to become effective 30 days after such
mailing. Nothing contained in this Section shall affect the right of the
Purchaser to serve process in any other manner permitted by law or commence
legal proceedings or otherwise proceed against the Company in any other
jurisdiction. In the event the Company should commence or maintain any action
arising out of or related to this Agreement in a forum other than the courts
located in the State of Illinois, the Purchaser shall be entitled to request
the dismissal of such action, and the Company stipulates that such action shall
be dismissed.
11.2. Survival. The representations and warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser
and the closing of the transactions contemplated hereby.
11.3. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
The Purchaser may not assign any part of its rights and obligations hereunder
without the prior written consent of the Company, which shall not be
unreasonably withheld, other than as part of a pro rata distribution of its
interests under this Agreement to its partners. A person to whom all or a part
of the Purchaser's rights are assigned shall become a party to this Agreement,
entitled to all the rights and benefits and subject to all of the duties and
obligations of Purchaser hereunder. Whenever reference is made to the Purchaser
in this Agreement, such reference shall include any assignees of the
Purchaser's rights hereunder.
11.4. Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto at the Closing constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged
or
28
<PAGE> 29
terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
11.5. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed (a) if to the Purchaser, or at 52 Vanderbilt Avenue, 5th
Floor, New York, NY 10017 or at such other address the Purchaser shall have
furnished to the Company in writing; or (b) if to the Company, at 2101 South
Arlington Heights Road, Arlington Heights, Illinois 60005-4142, addressed to
the President of the Company, or at such other address the Company shall have
furnished to the Purchaser in writing.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
seventy-two (72) hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
11.6. Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any holder of
New Shares, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any holder
of any breach or default under this Agreement, or any waiver on the part of any
holder of any provisions or conditions of this agreement, must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
11.7. Expenses. The Company and Purchaser shall each bear its own legal
and other expenses incurred on its behalf with respect to the preparation of
this Agreement, any related documents and the transactions contemplated hereby.
11.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
11.9. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
11.10. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
29
<PAGE> 30
11.11. Waiver of Jury Trial. The Parties hereby expressly waive any right
they may have to a jury trial in any suit, action or proceeding existing under
or relating to this Agreement, any stock, promissory notes or other securities
issued by the Company pursuant to this Agreement or any of the other documents
executed and delivered in connection with this Agreement.
The foregoing Agreement is hereby executed as of the date first above
written.
Security Associates International, Inc.
a Delaware corporation
("Company")
By: /s/ James S. Brannen
--------------------
Its: President
--------------------
TJS Partners, L.P.
a New York limited partnership
("Purchaser")
By: /s/ Thomas J. Salvatore
-------------------------------
Its: Managing Partner of TJS Mangement, L.P.,
-----------------------------------------
its General Partner
-----------------------------------------
30
<PAGE> 31
The undersigned acknowledge that they are significant stockholders of the
Company and that they will receive material economic benefits upon the
consummation of the transactions contemplated hereby. In order to induce the
Purchaser to enter into this Agreement, the undersigned agree to be bound by
Section 7.9 hereof.
Dated September 5, 1996
/s/ Ronald I. Davis
- ------------------------
Ronald I. Davis
/s/ James S. Brannen
- ------------------------
James S. Brannen
31
<PAGE> 1
Exhibit 10.10
AMENDMENT
TO
SECURITY ASSOCIATES INTERNATIONAL, INC.
COMMON STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 5, 1996
This amendment (the "Amendment") to that certain Common Stock
Subscription and Purchase Agreement between Security Associates International,
Inc., a Delaware corporation (the "Company") and TJS Partners, L.P., a New York
limited partnership ("TJS"), dated as of September 5, 1996 (the "Original
Agreement"), is made and entered into effective December 31, 1996 (the
"Effective Date"). All capitalized terms not otherwise defined herein shall have
the meanings assigned to them in the Original Agreement.
RECITALS
A. The Company and TJS (the "Parties") entered into the Original Agreement as
of September 5, 1996.
B. Pursuant to the Original Agreement, the Company issued 3,525,682 shares of
its Common Stock (the "New Shares") to TJS for an aggregate purchase price
of One Million Five Hundred Fifty-Eight Thousand Three Hundred Fifty-One
Dollars ($1,558,351.00); the Company Borrowed Three Million Four Hundred
Forty-One Thousand Six Hundred and Forty-Nine Dollars ($3,441,649.00) from
TJS pursuant to the Promissory Note; and the Company and TJS entered into
the Standby Option and Warrant Agreement.
C. The Company and TJS have determined that it would be in their mutual best
interest to modify the terms of the Original Agreement by: (i) canceling the
New Shares and the Promissory Note and issuing to TJS in lieu thereof, (a)
35,257 shares of the Company's Convertible Preferred Stock having the
designations, rights, preferences and limitations set forth in Exhibit "A"
hereto (the "Convertible Preferred Stock"), (b) 344,165 shares of the
Company's 12% Redeemable Preferred Stock having the designations, rights,
preferences and limitations set forth in Exhibit "B" hereto (the "Redeemable
Preferred Stock"), (c) a Warrant to purchase 15,000 shares of Convertible
Preferred Stock in the form of Exhibit "C" hereto (the "Warrant"); (ii)
amending the Standby Option and Warrant Agreement such that TJS purchase
rights shall be for Convertible Preferred Stock rather than Common Stock, as
set forth in Exhibit "D" hereto (the "Amended Standby Option and Warrant
Agreement"); (iii) TJS providing the Company with a Five Million Dollar
($5,000,000.00) line of credit pursuant to a loan agreement in the form of
Exhibit "E" hereto (the "Subordinated Loan Agreement"); and (iv) such other
amendments to the Original Agreement as are set forth in this Amendment
D. The Company and TJS agree that as specifically amended hereby, the Original
Agreement remains in full force and effect.
NOW THEREFORE, in consideration of the premises recited above, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Authorization.The Company will authorize all of the transactions
contemplated by this Agreement, including, but not limited to the
transactions set forth in Recital "C" above, and shall have filed with
the Secretary of State of Delaware, the Certificate of Designations,
Preferences, Rights and Limitations of Convertible Preferred Stock in
the form of Exhibit "A" hereto and the Certificate of Designations,
Preferences, Rights and Limitations of Redeemable Preferred Stock in the
form of Exhibit "B" hereto.
2. Closing; Consummation of Transactions. The Closing of the transaction
contemplated by this Agreement (the "Closing") shall occur on June 20,
1997 (the "Closing Date"), or such other date
<PAGE> 2
as the parties may agree. All of the transactions shall be deemed to
have occurred as of the Effective Date, except as otherwise stated
herein. On or before the Closing Date, subject to the terms and
conditions hereof:
2.1. Issuance of Securities. The Company will issue to TJS: a
certificate or certificates representing 35,257 shares of
Convertible Preferred Stock; (ii) a certificate or certificates
representing 344,165 shares of Redeemable Preferred Stock; (iii)
the Warrant; and (iv) the Amended Standby Option and Warrant
Agreement (items (i) through (iv) are referred to collectively
herein as the "New Securities");
2.2. Cancellation of Previously Issued Securities. TJS will deliver
to the Company for cancellation: (i) the certificate or
certificates representing the New Shares (3,525,682 shares of
Common Stock); and (ii) the Standby Option and Warrant
Agreement;
2.3. Subordinated Loan Agreement. The Company and TJS will execute
and deliver the Subordinated Loan Agreement and each of the Loan
Instruments (as defined in the Subordinated Loan Agreement)
initially required to be delivered pursuant thereto;
2.4. Cancellation of Promissory Notes. TJS will deliver the
Promissory Note to the Company for cancellation; and
2.5. Other Amendments and Transactions. All other amendments and
transactions contemplated by this Amendment will be deemed to
have been consummated.
3. Representations and Warranties of the Company. The Company represents
and warrants, except as may be effected by the transactions contemplated
by this Amendment:
3.1. Organization and Standing; Certificate of Incorporation and
By-laws. The Company is a corporation duly organized and validly
existing under, and by virtue of, the laws of the State of
Delaware and is in good standing under such laws. The Company
has requisite corporate power and authority to own and operate
its properties and assets, and to carry on its business as
presently conducted and as proposed to be conducted. The Company
is duly qualified or licensed and in good standing as a foreign
corporation in each jurisdiction wherein the character of its
properties or the nature of the activities conducted by it makes
such qualification or licensing necessary, except where the
failure to be so qualified or licensed would not have a material
adverse effect on the Company or its property or business. The
copies of the Company's Certificate of Incorporation and By-laws
attached hereto as Exhibit F and the certificates of designation
of the Convertible Preferred Stock and the Redeemable Preferred
Stock are true, correct and complete and contain all amendments
through the Closing Date.
3.2. Corporate Power. The Company will have at the Closing Date all
requisite legal and corporate power and authority to execute and
deliver this Amendment, to issue the New Securities hereunder,
to execute, deliver and borrow pursuant to the Subordinated Loan
Agreement and to carry out and perform its obligations under the
terms of this Amendment.
3.3. Capitalization. The authorized capital stock of the Company
consisted, on the Effective Date prior to the consummation of
the transactions contemplated hereby, of 50,000,000 shares of
common stock, $.001 par value (the "Common Stock"), of which
3,677,287 of such shares (excluding the New Shares to be
canceled pursuant to this Amendment) are issued and outstanding
and 500,000 shares of preferred stock, $10.00 par value per
share ("Preferred Stock"), of which none are outstanding, 35,257
of which have been designated prior to the Closing Date as
Convertible Preferred Stock and 344,165 of
<PAGE> 3
which have been designated prior to the Closing Date as
Redeemable Preferred Stock. All outstanding shares of Common
Stock and Preferred Stock (collectively, "Capital Stock") have
been duly authorized and validly issued, and are fully paid and
nonassessable. Options and warrants to purchase 1,855,243 shares
of Common Stock were issued and outstanding (excluding those
represented by the Standby Option and Warrant Agreement and
granted in the Promissory Note, both of which will be canceled
pursuant to this Amendment). Such options and warrants include
the options and warrants for in the aggregate 742,155 shares of
Common Stock previously surrendered by Ronald I. Davis
("Davis"), James S. Brannen ("Brannen") and Stephen Rubin
("Rubin"), officers of the Company, which have been reinstated
and options to purchase 75,000 shares of Common Stock issued to
John Aneralla, or his designee, on October 10, 1996. All
outstanding securities of the Company were issued in compliance
with applicable Federal and state securities laws. Except as set
forth above or pursuant to this Amendment, there are no options,
warrants or other rights to purchase any of the Company's
authorized and unissued Capital Stock. The holders of options to
purchase Common Stock (other than options to be canceled or
exercised at or prior to Closing) together with the number of
shares subject to such options and warrants and the exercise
price and periods during which such options may be exercised are
set forth on Schedule 3.3 of this Amendment. Except as set forth
on such Schedule 3.3 as modified by this Amendment, there will
be as of the Closing Date no other holders of Capital Stock or
outstanding options, warrants or other rights, commitments or
arrangements, written or oral, to which the Company is a party
or by which it is bound, to purchase or otherwise acquire any
authorized but unissued shares of Capital Stock of the Company
or any security directly or indirectly convertible into or
exchangeable or exercisable for any Capital Stock of the
Company.
3.4. Reservation of Shares. The Corporation will at all times reserve
and keep available out of its authorized shares of Convertible
Preferred Stock and Common Stock or its treasury shares, solely
for the purpose of issuance upon the exercise of the conversion
privileges of the Convertible Preferred Stock and of the Warrant
as therein provided, such number of shares of Convertible
Preferred Stock and Common Stock as shall then be issuable upon
the exercise of the conversion privileges of the Convertible
Preferred Stock and of the Warrant, respectively. Commencing
with the meeting of the Corporation's Board of Directors (the
"Board") following the meeting held in April, 1997, the Board
will estimate the number of shares issuable upon exercise of the
conversion rights of the Redeemable Preferred Stock and reserve
and keep available for issuance upon conversion of the
Redeemable Preferred Stock such number of shares of Common
Stock. The Corporation covenants that all shares of Convertible
Preferred Stock and Common Stock which shall be so issued shall
be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the
issuance thereof. The Corporation will take all such action as
may be necessary to assure that all such shares of Convertible
Preferred Stock and Common Stock may be so issued without
violation of any applicable requirements of any federal or state
securities laws.
3.5. Only Voting Stock Outstanding. The only issued and outstanding
shares of capital stock of the Company at Closing will be common
voting shares possessing identical rights and privileges and the
Convertible Preferred Stock issued pursuant to this Amendment
3.6. Authorization. All corporate action on the part of the Company,
its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Amendment by the
Company, the authorization, sale, issuance and delivery of the
New Securities, for the cancellation of the New Shares and the
Promissory Note or the issuance and borrowing under the
Subordinated Loan Agreement and the performance of all of the
Company's obligations hereunder has been taken or will be taken
prior to the
<PAGE> 4
Closing. This Agreement, when executed and delivered by the
Company, shall constitute a valid and binding obligation of the
Company, enforceable in accordance with its terms. The
Convertible Preferred Stock and the Redeemable Preferred Stock,
when issued in compliance with the provisions of this Agreement,
will be validly issued, fully paid and nonassessable and will
have the rights set forth in the Certificate of Incorporation
and the By-laws, attached hereto as Exhibit "F" and as set forth
in Exhibit "A" and Exhibit "B" hereto. No further approval or
authorization of the stockholders or the directors of the
Company or of any governmental authority or agency will be
required for the issuance and sale of the New Securities or the
execution, delivery and performance of the Subordinated Loan
Agreement, as contemplated by this Amendment. Except for the
rights of first refusal granted to TJS pursuant to the Original
Agreement, no stockholder of the Company or any other person is
entitled to any preemptive rights with respect to the purchase
or sale of any securities by the Company. The Company does not
require any consent, approval, authorization or order of, or
declaration, filing or registration with, any court or
governmental or regulatory agency or board in connection with
the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
4. Representations and Warranties of TJS. TJS represents and warrants that
each of the following statements shall be true as of the Closing Date:
4.1. Investment Intent. It is acquiring the New Securities and
entering into the Subordinated Loan Agreement for investment for
its own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution
thereof. It understands that neither the New Securities or the
Subordinated Loan Agreement (nor the Loan Instruments) have
been, nor will be, registered under the Securities Act of 1933,
as amended (the "Securities Act") or the securities laws and
regulations of any state by reason of specific exemption(s) from
the registration provisions of the Securities Act and such state
laws and regulations, the availability of which depends upon,
among other things, the bona fide nature of the investment
intent and the accuracy of the TJS' representations as expressed
herein and in the Suitability Questionnaire accompanying the
Original Agreement.
4.2. Legend. TJS acknowledges that the certificates representing the
New Securities will bear a legend of substantially the following
form:
THE SHARES OF STOCK REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED UNLESS
A COMPLIANCE WITH THE REGISTRATION
PROVISIONS OF SUCH ACT HAS BEEN MADE
OR UNLESS AVAILABILITY OF AN
EXEMPTION FROM SUCH REGISTRATION
PROVISIONS HAS BEEN ESTABLISHED, OR
UNLESS SOLD PURSUANT TO RULE 144
UNDER THE SECURITIES ACT OF 1933.
4.3. Rule 144. Purchaser acknowledges that the New Securities must be
held indefinitely unless subsequently registered under the
Securities Act and applicable state securities laws and
regulations or unless an exemption from such registration is
available. TJS is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale
of securities purchased in a private placement subject to the
satisfaction of
<PAGE> 5
certain conditions.
4.4. No Public Market. TJS understands that there is only a limited
number of public market makers for the Common Stock of the
Company and none for the New Securities, that the trading in the
Common Stock is extremely limited and that the Company has made
no assurances that a public market will ever exist for the
Company's securities. TJS acknowledges that because the New
Securities acquired hereby will not be registered under the
Securities Act, TJS will not be able to participate in any
public market for the Common Stock until such time as the shares
acquired by TJS are registered under the Securities Act and
applicable state laws and regulations or exemptions from such
registration are available.
4.5. Authorization. This Amendment and the Subordinated Loan
Agreement when executed and delivered by TJS, will constitute
valid and legally binding obligations of TJS, enforceable in
accordance with their respective terms.
4.6. Organization and Standing. TJS is a limited partnership duly
formed and existing under, and by virtue of, the laws of the
State of New York and is in good standing under such laws. TJS
has requisite partnership power and authority to own and operate
its properties and assets, and to carry on its business as
presently conducted and as proposed to be conducted. TJS has
furnished the Company with a copy of its Articles of
Partnership, as amended . Said copy is true, correct and
complete and contains all amendments through the Closing Date.
4.7. Power and Authority. TJS will have at the Closing Date all
requisite power and authority to execute and deliver this
Amendment, to subscribe and purchase the New Securities and to
execute, deliver and perform its obligations under the
Subordinated Loan Agreement and to carry out and perform its
obligations under the terms of this Agreement.
4.8. Authorization. All action on the part of TJS necessary for the
authorization, execution, delivery and performance of this
Amendment by TJS, the subscription and purchase of the New
Securities, the execution, delivery and performance of the
Subordinated Loan Agreement, and the performance of all of TJS'
obligations hereunder has been taken or will be taken prior to
the Closing. This Amendment, when executed and delivered by the
TJS, shall constitute a valid and binding obligation of TJS,
enforceable in accordance with its terms.
5. Additional Amendments and Agreements. The parties have agreed to the
following additional amendments to the Original Agreement and other
agreements. All such additional amendments and agreements shall be
effective as of the Effective Date unless otherwise stated herein.
5.1. Section 7.9 of the Original Agreement. Section 7.9 shall be
amended to read in its entirety as follows:
Election of Directors. So long as, and at any time when,
at least fifteen percent (15%) of the shares issued hereunder
are held of record by Purchaser, (a) Davis and Brannen agree
that in any election of a director or directors of the Company,
they shall vote their shares of capital stock of the Company and
all shares of Capital Stock owned by Purchaser with respect to
which they will have a proxy in such a manner that immediately
after such election the Company's Board of Directors shall
include two designees of Purchaser; (b) the Company will use its
best efforts to cause such designees to be elected to the
Company's Board of Directors; and (c) in the event of any
vacancy on the Board of Directors, the Company and the Purchaser
will use their best efforts to fill
<PAGE> 6
the vacancy such that the Board will include such designees. The
Company covenants that at all times on or after thirty (30) days
following the Closing, its By-laws will contain provisions
authorizing no more than seven (7) directors and indemnifying
its directors to the fullest extent permitted under applicable
law. In addition, Purchaser's designees shall be appointed to
each of the committees established or maintained by the Board of
Directors.
5.2. Section 7.12. Sections 7.12 of the Original Agreement shall be
amended to read in its entirety as follows:
Rights Offering. The Company, within ten (10) days of
receipt of notice from the Purchaser to do so, shall initiate
the process of preparing the registration of a rights offering
under the Securities Act (the "Rights Offering"), or such other
offering as the Parties may agree to. Pursuant to the Rights
Offering, if all such Rights are exercised, the planned proceeds
of the Rights Offering shall equal in the aggregate at least Ten
Million Dollars ($10,000,000.00). If the Company and the
Purchaser shall agree, the Company shall initiate an initial
public offering of the Company's Common Stock (an "Initial
Public Offering") in lieu of the Rights Offering.
5.3. Section 7.14 of the Original Agreement. The parties acknowledge
that the Incentive Compensation Plan contemplated by Section
7.14 of the Original Agreement was not implemented in definitive
form within sixty (60) days of the date of the Original
Agreement. As a result, as provided in Section 7.14, the options
of Brannen, Davis and Rubin that were canceled pursuant to the
Original Agreement have been reinstated (the "Reinstated
Options"). In addition, the parties agree that as provided in
Section 7.14 of the Original Agreement, concurrent with the
reinstatement of such options, TJS will be granted options
identical to the reinstated options, exercisable to the extent
that such Reinstated Options are exercised (the "Mirror
Options"). The Mirror Options so granted shall be included in
the Amended Standby Option and Warrant Agreement.
5.4. Section 10 of the Original Agreement. The definition of
"Registrable Securities" in Section 10.11 shall be amended by
deleting the phrase "The New Shares" from clause (i) and
replacing that phrase with the phrase "The Convertible Preferred
Stock." As so amended Section 10 of the Original Agreement shall
remain in full force and effect.
6. Miscellaneous.
6.1. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING ANY EFFECT TO PRINCIPLES OF
CONFLICTS OF LAWS. The Company agrees that it will not assert
against TJS (or against any partner, officer, director, employee
or agent of TJS or any of its Affiliates) any claim it may have
under this Amendment by reason of any failure or alleged failure
by TJS to meet its obligations hereunder. The parties hereto
agree and intend that the proper and exclusive forum for the
litigation of any disputes or controversies arising out of, or
related to, this Amendment shall be the courts of the State of
Illinois and of any Federal Court located in such state. The
Company agrees that it will not commence or move to transfer any
action or proceeding, arising out of or relating to this
Amendment, in or to any court other than one located in the
State of Illinois. The Company irrevocably consents to the
service of process of any of the aforesaid courts in any such
action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the Company at
the address provided herein, such service to become effective 30
days after such mailing. Nothing contained in this Section shall
affect the right of TJS to serve process in any other manner
permitted by law or commence legal
<PAGE> 7
proceedings or otherwise proceed against the Company in any
other jurisdiction. In the event the Company should commence or
maintain any action arising out of or related to this Agreement
in a forum other than the courts located in the State of
Illinois, TJS shall be entitled to request the dismissal of such
action, and the Company stipulates that such action shall be
dismissed.
6.2. Survival. The representations and warranties, covenants and
agreements made herein shall survive any investigation made by
any party and the closing of the transactions contemplated
hereby.
6.3. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and
administrators of the parties hereto. The Company may not assign
any part of its rights and obligations hereunder without the
prior written consent of TJS, which shall not be unreasonably
withheld. TJS may not assign any part of its rights and
obligations hereunder without the prior written consent of the
Company, which shall not be unreasonably withheld, other than as
part of a distribution of its interests under this Amendment to
its partners. A person to whom all or a part of TJS' rights are
assigned shall become a party to this Amendment, entitled to all
the rights and benefits and subject to all of the duties and
obligations of TJS hereunder. Whenever reference is made to the
TJS in this Amendment, such reference shall include any
assignees of the TJS' rights hereunder.
6.4. Entire Agreement; Amendment. The Original Agreement, as amended
hereby, this Amendment and the other documents delivered
pursuant hereto at the Closing constitute the full and entire
understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither
this Amendment nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
6.5. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise
delivered by hand or by messenger, addressed (a) if to TJS, at
52 Vanderbilt Avenue, 5th Floor, New York, NY 10017 or at such
other address TJS shall have furnished to the Company in
writing; or (b) if to the Company, at 2101 South Arlington
Heights Road, Arlington Heights, Illinois 60005-4142, addressed
to the President of the Company, or at such other address the
Company shall have furnished to TJS in writing.
Each such notice or other communication shall for all
purposes of this Amendment be treated as effective or having
been given when delivered if delivered personally, or, if sent
by mail, at the earlier of its receipt or seventy-two (72) hours
after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed
and mailed as aforesaid.
6.6. Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy
accruing to any holder of New Securities, upon any breach or
default of the Company under the Original Agreement or this
Amendment, shall impair any such right, power or remedy of such
holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any
similar breach or default theretofore or thereafter occurring.
Any waiver, permit, consent or approval of any kind or character
on the part of any holder of any breach or default
<PAGE> 8
under the Original Agreement or this Amendment, or any waiver on
the part of any holder of any provisions or conditions of the
Original Agreement or this Amendment , must be in writing and
shall be effective only to the extent specifically set forth in
such writing. All remedies, either under the Original Agreement
or this Amendment or by law or otherwise afforded to any holder,
shall be cumulative and not alternative.
6.7. Expenses. The Company and TJS shall each bear its own legal and
other expenses incurred on its behalf with respect to the
preparation of this Amendment, any related documents and the
transactions contemplated hereby.
6.8. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which
together shall constitute one instrument.
6.9. Severability. In the event that any provision of this Amendment
becomes or is declared by a court of competent jurisdiction to
be illegal, unenforceable or void, this Amendment shall continue
in full force and effect without said provision; provided that
no such severance shall be effective if it materially changes
the economic benefit of this Amendment to any party.
6.10. Titles and Subtitles. The titles and subtitles used in this
Amendment are used for convenience only and are not considered
in construing or interpreting this Agreement.
6.11. Waiver of Jury Trial. The Parties hereby expressly waive any
right they may have to a jury trial in any suit, action or
proceeding existing under or relating to the Original Agreement
or this Amendment, any stock, promissory notes or other
securities issued by the Company pursuant to the Original
Agreement or this Amendment or any of the other documents
executed and delivered in connection with this Amendment.
The foregoing Agreement is hereby executed as of the date first
above written.
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
-------------------------------------------------
James S. Brannen, President
TJS PARTNERS, L.P.
By: TJS Management, L.P., its General Partner
By: /s/ Thomas J. Salvatore
-------------------------------------------------
Thomas J. Salvatore, Managing General Partner
<PAGE> 9
The undersigned acknowledge that they are significant stockholders of
the Company and that they will receive material economic benefits upon the
consummation of the transactions contemplated hereby. In order to induce TJS to
enter into this Amendment, the undersigned agree to be bound by Section 7.9 of
the Original Agreement as amended hereby.
Effective as of December 31, 1996
/s/ Ronald I. Davis
- -------------------------------
Ronald I. Davis
/s/ James S. Brannen
- -------------------------------
James S. Brannen
<PAGE> 1
Exhibit 10.11
SECURITY ASSOCIATES/INTEC
PURCHASE OF MEMBERSHIP INTERESTS OF LIMITED LIABILITY COMPANIES
This Agreement is made as of September 5, 1996, between Intec Company,
Inc., a Michigan corporation, d/b/a/ Midstate Security (the "Seller"), and
Security Associates International, Inc. (the "Purchaser").
WHEREAS, Seller is the owner of fifty percent (50%) of the outstanding
membership interests of Security Associates Command Center II, LLC, a Michigan
limited liability company ("SACC"), and Monitor Service Group, LLC, an Illinois
limited liability company ("MSG") is the owner of the remaining fifty percent
(50%) of such membership interests; and
WHEREAS, Seller is the owner of one percent (1%) of the outstanding
membership interests of All-Security Monitoring Services, LLC, an Illinois
limited liability company (the "Subsidiary"), SACC is the owner of ninety eight
percent (98%) of the membership interests of the Subsidiary and Purchaser is
the owner of the remaining one percent (1%) of the membership interests of the
Subsidiary; and
WHEREAS, Seller wishes to sell and Purchaser wishes to purchase all of
Seller's membership interests in SACC and in the Subsidiary ("Seller's
Membership Interests");
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth below, the parties do hereby agree as follows:
<PAGE> 2
SECTION I
1.1. Sale. Seller shall sell to Purchaser and Purchaser shall purchase
from Seller on the Closing Date (as hereinafter defined) all of Seller's right,
title and interest in and to Seller's Membership Interests.
1.2. Payment of Purchase Price. The purchase price of the aforesaid sale
of Seller's Membership Interests shall be one million five hundred thousand
dollars ($1,500,000) payable on the Closing Date by certified check or checks
or by wire transfer of immediately available funds.
1.3. Payment of Bank Loan. Upon delivery by Seller to Purchaser of all of
the documents required to be delivered pursuant to Section 1.4.1, Purchaser
shall pay to the NBD Bank ("NBD"), at the Closing, by means of a certified
check or checks, or by wire transfer of immediately available funds, an amount
sufficient to pay in full the outstanding principal balance and accrued
interest of two loans heretofore made by NBD to SACC evidenced by the
promissory notes dated May 31, 1996 and November 4, 1994 the security
agreements dated May 31, 1996 and November 4, 1994 in the aggregate amount of
$732,874.24 as of July 31, 1996 (the "NBD Loans"). In consideration for such
payment, NBD shall release Seller, Purchaser and their respective subsidiaries
and SACC from any and all liability to NBD under said loan and shall release
all liens and personal guarantees with respect thereto.
1.4. Delivery of Documents at the Closing.
1.4.1 Delivery of Documents by Seller. At the Closing (as
hereinafter defined) Seller shall deliver to Purchaser the following documents:
2
<PAGE> 3
(i) a duly executed, undated Assignment of Membership Interests
("Assignment") in the form attached as Exhibit 1.4A evidencing the
sale and transfer of legal title to Purchaser of Seller's Membership
Interests;
(ii) a duly executed, irrevocable power of attorney ("Power of
Attorney") in the form attached as Exhibit 1.4B from Seller to
Purchaser authorizing Purchaser to vote Seller's Membership
Interests with respect to the amendment of SACC's and the
Subsidiary's Articles of Organization and Operating Agreement, the
withdrawal of Seller and admission of Purchaser as a member of SACC
and the Subsidiary, the replacement and employment of managers of
SACC and members or representatives of SACC, the modification or
revocation of resolutions adopted by SACC members, and with the
exception of, (i) the Lease (as hereinafter defined), and (ii)
SACC's obligations with respect to monitoring accounts owned by
Seller, the cancellation of all agreements between Seller and
Purchaser, Seller and MSG, MSG and SACC and Seller and SACC with
respect to SACC and/or the Subsidiary;
(iii) a duly executed and undated mutual release, in the form of
Exhibit 1.4C (the "Mutual Release").
(iv) The opinion of Seller's Counsel delivered pursuant to Section
5.6 hereof (the "Seller's Legal Opinion").
1.4.2 Delivery of Bank Letter, Certified Checks and other Documents
by Purchaser. Simultaneously with the delivery by Seller of all of the
documents required to be delivered by Seller pursuant to Section 1.4.1,
Purchaser shall deliver to Seller at the Closing, (i) a
3
<PAGE> 4
letter from NBD to SACC ("NBD Letter")) to the effect that the principal and
accrued interest to the Closing Date (as hereinafter defined) of the NBD Loans
to SACC have been paid in full and that Seller, SACC, Purchaser, MSG, and their
respective subsidiaries will be released from all liability to NBD with respect
to said Loans, (ii) a written statement from NBD ("the NBD Release Statement")
that all liens and personal guarantees with respect to the NBD Loans have been
or will be released together with at least three (3) executed UCC lien
releases, for each lien so released, and (iii) a certified check or checks
payable to Seller in the amount of one million five hundred thousand dollars
($1,500,000) ("Certified Checks") or a wire transfer of immediately available
funds in favor of Seller or such person as Seller may designate ("Wire
Transfer") at Seller's option, (iv) a duly executed and undated copy of the
Mutual Release, and (v) the opinion of Purchaser's Counsel delivered pursuant
to Section 6.4 (the "Purchaser's Legal Opinion").
SECTION II
Closing Date
2.1. Closing Date. The closing of the purchase and sale of Seller's
Membership Interests hereunder shall be held at the offices of Purchaser's
counsel, Sachnoff & Weaver, Ltd., 30 South Wacker Drive, Suite 2900, Chicago,
Illinois at 9:00 a.m., local time on September 5, 1996 (the "Closing") or at
such other time and place upon which the Seller and the Purchaser shall agree
(the date of the Closing is hereinafter referred to as the "Closing Date").
2.2. Delivery; Consideration. At the Closing (i) Seller shall deliver to
Purchaser the documents specified in Section 1.4.1 and (ii) Purchaser shall
deliver to Seller, the documents specified in Section 1.4.2. If either Seller
or Purchaser shall fail to deliver to the other party all
4
<PAGE> 5
the documents that Seller or Purchaser is required to deliver pursuant to this
Agreement, then in such event, either Seller or Purchaser (whether or not in
default with respect to the delivery of such documents) may request in writing
at any time that all the documents theretofore delivered by either party be
returned to such party, and all such documents shall be returned immediately to
the party that delivered them in the first instance to the other party.
SECTION III
Representations and Warranties of Seller
3.1. Organization and Standing. Seller is a corporation duly organized
and existing under, and by virtue of, the laws of the State of Michigan and is
in good standing under such laws. Seller has requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted. The Seller's Certificate of Good Standing
issued by the Secretary of State of Michigan dated as of a dated August 16,
1996 is attached as Exhibit 3.1.
3.2. Corporate Power. Seller will have at all times prior to and on the
Closing Date all requisite legal and corporate power and authority necessary to
execute and deliver this Agreement, to sell Seller's Membership Interests to
Purchaser, to grant the Power of Attorney, to execute the Assignment and the
Mutual Release.
3.3. Authorization. All corporate action on the part of Seller necessary
for the authorization, execution, delivery and performance of this Agreement
and of the documents specified in Section 1.4.1 to be executed by Seller has
been taken or will be taken prior to the
5
<PAGE> 6
Closing. This Agreement, and said documents, when executed and delivered by
Seller, shall constitute a valid and binding obligation of Seller, enforceable
in accordance with its terms.
3.4. Good Standing of SACC. SACC is a limited liability company duly
formed and existing under, and by virtue of the laws of Michigan and is in good
standing under such laws. SACC has the requisite power to own and operate its
properties and assets and to carry on its business as presently conducted. All
necessary action has been taken by SACC, the Subsidiary and their respective
members to create Seller's Membership Interests which are valid and existing
membership interest entitled: to (i) fifty percent (50%) of all the rights and
privileges of all membership interests of SACC as provided in SACC's Articles
of Organization and Operating Agreement and by law and (ii) one percent (1%) of
all the rights and privileges of all membership interests of the Subsidiary as
provided in the Subsidiary's Articles of Organization and Operating Agreement
and by law. Seller has not transferred Seller's Membership Interests or any
equitable, economic or other interest therein to any person, has not created an
equitable, economic or other interest in Seller's Membership Interests, and has
not created or permitted the creation by a third party of any lien on Seller's
Membership Interests or on any equitable, economic or other interest therein.
To Seller's knowledge, Seller, SACC and Purchaser are the only members of the
Subsidiary.
3.5. Title to Seller's Membership Interests. Seller has, and upon
consummation of the sale of Seller's Membership Interests to Purchaser as
provided in this Agreement Purchaser will acquire, good and marketable title to
Seller's Membership Interests, free and clear of any and all options, rights,
pledges, liens, security interests, charges or encumbrances whatsoever.
6
<PAGE> 7
3.6. SACC: Good Title to Assets and Financial Statements. SACC and to
the best of Seller's knowledge, the Subsidiary, have good and marketable title
to their properties, assets and leasehold interests, subject only to liens
disclosed on Schedule 3.6 and in SACC's financial statements. To the best of
Seller's knowledge, the financial statements of SACC as of June 30, 1996 (the
"Financial Statements") heretofore delivered to Purchaser are complete and
correct in all material respects, were prepared on a consolidated basis in
accordance with generally accepted accounting principles consistently applied
and accurately set out and describe the financial condition and operating
results of SACC and the Subsidiary as of the dates, and during the periods,
indicated therein.
3.7. Material Liabilities; Absence of Change. To the best of Seller's
knowledge, except as disclosed on Schedule 3.7, neither SACC nor the Subsidiary
has any material liabilities or obligations. No material adverse change in the
assets, condition, affairs or prospects of SACC, or the Subsidiary have
occurred since June 30, 1996. There have been no changes in the rate of
compensation or in the benefits of any employee of SACC or the Subsidiary from
those set forth on Schedule 3.13, and no commitment has been made to increase
any of the foregoing.
3.8. Environmental and Safety Regulations. Seller and SACC know of no
violation by itself or the Subsidiary of any environmental or safety regulation
that would have a material adverse effect on the business, properties,
prospects or financial condition of SACC or the Subsidiary, and Seller shall
hold Purchaser harmless from any such violation by Seller with respect to the
premises in Grand Rapids, Michigan rented by Seller to SACC, provided the
violation does not result from an act or acts of SACC or its employees.
7
<PAGE> 8
3.9. Tax Matters. SACC and the Subsidiary have timely filed all tax
returns that are required to have been filed by them with all applicable
authorities, have timely paid all taxes owed by them and are unaware of any
pending matter which would result in the assertion by any taxing authority of
any valid deficiency in any material amount for taxes due from SACC, the
Subsidiary or their respective members.
3.10. Compliance with Other Instruments. The execution, delivery and
performance of and compliance with this Agreement, and the sale to Purchaser of
Seller's Membership Interests, will not result in any material violation of, or
conflict with, or constitute a material default under, the Articles or By-Laws
of Seller, or the Certificate of Organization or Operating Agreement of SACC or
any agreement of Seller, SACC or the Subsidiary, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon Seller's Membership
Interests, SACC or, to the best of Seller's knowledge, the Subsidiary; and
there is no such violation or default which materially adversely affects the
business of SACC or the Subsidiary.
3.11. Brokers or Finders. Seller has not incurred and will not incur,
directly or indirectly, as a result of any action taken by Seller or Purchaser
pursuant to this Agreement, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection herewith.
3.12. Litigation. There are no actions, suits, proceedings or
investigations pending against SACC or the Subsidiary or their respective
properties before any court or governmental agency (nor, to the best of
Seller's knowledge, is there any reasonable basis therefor) except as described
in Schedule 3.12.
8
<PAGE> 9
3.13. Managers and Employees. No manager or employee of SACC or the
Subsidiary has any employment or profit sharing agreement with SACC or the
Subsidiary that is not terminable at will without cost to SACC or has any
interest in any material contract with SACC or the Subsidiary. Neither SACC
nor the Subsidiary is the guarantor of the obligation of any manager, employee
or other person. Schedule 3.13 is a true and complete list of all of the
employees of SACC and the Subsidiary (listed separately) and their respective
annual rates of compensation.
3.14. Insurance. SACC and the Subsidiary have fire, casualty and
liability insurance policies, in such amounts and with such coverage as, to
Seller's knowledge, are carried by similar companies in SACC's industry, and
such insurance, to Seller's knowledge, is adequate for the SACC and the
Subsidiary's business as presently proposed to be conducted.
3.15. Subsidiary of SACC. SACC has only one directly-owned subsidiary.
The Subsidiary is an Illinois limited liability company and, to Seller's
knowledge, owns no equity interest in any other company or entity. Ninety
eight percent (98%) of the membership interests of the Subsidiary are owned by
SACC, one percent (1%) is owned by Seller and, to Seller's knowledge, one
percent (1%) is owned by Purchaser. The name of said subsidiary is
All-Security Monitoring Services, LLC.
3.16. Validity of Certain Documents. The documents specified in Section
1.4.1 and the Lease to be executed by Seller and SACC will be valid and binding
on Seller in accordance with their terms upon their delivery to Purchaser and
SACC, will accomplish the purpose for which they are intended, and will have
been duly authorized by Seller and SACC and executed by the
9
<PAGE> 10
persons authorized by Seller and SACC, respectively, to do so. The Mutual
Release will have been duly executed by Jerry A. Spitler and will be valid and
binding upon him.
3.17. NBD Loans. The principal amount of the NBD Loans to SACC will not
exceed seven hundred ten thousand dollars ($710,000.) as of the Closing Date.
3.18. Assets. Schedule 3.18 is a true and complete listing and summary
description of all of SACC's and the Subsidiary's assets, including, without
limitation, inventory, machinery and equipment, other tangible assets,
intellectual property rights and contracts.
3.19. Leases. Schedule 3.19 is a true and complete listing and summary
description of all real and personal property leases to which SACC is a party
as lessee or lessor.
3.20. Disclosure. This Agreement, the Financial Statements and all
exhibits and schedules hereto and thereto, when taken as a whole, do not
contain any untrue statement by Seller of a material fact or omit a material
fact necessary in order to make the statements of Seller herein and therein not
misleading.
SECTION IV
Representations and Warranties of Purchaser
4.1. Organization and Standing; Articles and By-Laws. Purchaser is a
corporation duly organized and existing under, and by virtue of, the laws of
the State of Delaware and is in good standing under such laws. Purchaser has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted.
10
<PAGE> 11
4.2. Corporate Power. Purchaser will have at the Closing Date all
requisite power and authority to execute and deliver this Agreement, to
purchase Seller's Membership Interests, and to carry out and perform its
obligations under the terms of this Agreement.
4.3. Authorization. All action on the part of Purchaser necessary for the
authorization, execution, delivery and performance of this Agreement by
Purchaser has been taken or will be taken prior to the Closing. This
Agreement, when executed and delivered by Purchaser, shall constitute a valid
and binding obligation of Purchaser, enforceable in accordance with its terms.
4.4. Brokers or Finders. Purchaser has not incurred and will not incur,
directly or indirectly, as a result of any action taken by Seller or Purchaser
pursuant to this Agreement, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection herewith.
4.5. Disclosure. This Agreement and all exhibits and schedules hereto,
when taken as a whole, do not contain any untrue statements by Purchaser of a
material fact or omit a material fact necessary in order to make the statements
of Purchaser herein and therein not misleading.
SECTION V
Purchaser's Conditions to Closing
Purchaser's obligation to purchase Seller's Membership Interests and to
perform its other obligations hereunder are subject to the fulfillment of the
following conditions, the waiver of which shall not be effective unless it is
provided in writing:
5.1. Correctness of Representations and Warranties. The representations
and warranties made by Seller in Section 3 hereof shall be true and correct
when made and shall be true and correct on the Closing Date.
11
<PAGE> 12
5.2. Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by Seller on or prior to the Closing Date shall
have been performed or complied with in all material respects, including but
not limited to all the documents specified in Section 1.4.1 on or before the
date therein specified.
5.3. Legal Matters. All material matters of a legal nature which pertain
to this Agreement and the transactions contemplated hereby shall have been
reasonably approved by counsel to the Purchaser.
5.4. Certain Membership Matters. Prior to the Closing Date, in the manner
provided in SACC's and the Subsidiary's respective Operating Agreements, the
members of SACC and the Subsidiary shall have taken all action necessary to
allow for the withdrawal of Seller as a member of SACC and the Subsidiary and
the admission of Purchaser as a member of SACC and the Subsidiary, effective as
of the closing of the purchase and sale of Seller's Membership Interests
pursuant to this Agreement.
5.5. Lease. No less than three (3) days prior to the Closing Date, the
Seller and SACC shall have entered into a lease agreement for SACC's monitoring
facility in Grand Rapids, Michigan with an initial term of no less than two
years, and with an option to renew for one additional year (the "Lease"). The
Lease shall be on substantially the terms set forth in Schedule 5.5, attached
hereto. Purchaser and Seller will each take all actions necessary to ensure
that the Lease is executed and delivered by SACC and Seller within the time
period set forth in this Section 5.5.
12
<PAGE> 13
5.6. Opinion of Seller's Counsel. The Purchaser shall have received from
Miller, Johnson, Snell & Cummiskey, counsel to Seller, an opinion dated the
Closing Date, in form and substance satisfactory to the Purchaser, to the
effect that:
(a) Seller is a corporation and SACC is a limited liability Company,
each duly organized, validly existing and in good standing under the laws
of the State of Michigan, and Seller and SACC have the requisite corporate
power and authority to own their properties and to conduct their business.
(b) Seller has the requisite corporate power and authority to execute,
deliver and perform this Agreement. The Agreement and the documents
specified in Section 1.4.1 to be executed by Seller have been duly and
validly authorized by Seller, duly executed and delivered by an authorized
officer of Seller and constitute a legal, valid and binding obligation of
Purchaser.
(c) The Mutual Release to be executed by Seller and Jerry Spitler
specified in Section 1.4.1 constitutes a legal, valid and binding
obligation of the Seller and Jerry A. Spitler, respectively.
13
<PAGE> 14
SECTION VI
Seller's Conditions to Closing
Seller's obligation to sell Seller's Membership Interests to Purchaser and
to perform its other obligations hereunder is subject to the fulfillment as of
the Closing Date of the following conditions, the waiver of which shall not be
effective unless it is provided in writing.
6.1. Representations. The representations made by the Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date.
6.2. Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by Purchaser on or prior to the Closing Date
shall have been performed or complied with in all material respects, including
but not limited to the delivery by Purchaser of the NBD Letter, the NBD Release
Statement, the certified check or checks, or the Wire Transfer, at the option
of the Seller, specified in Section 1.4.2 on or before the date therein
specified, and the Mutual Release executed by Purchaser.
6.3. Legal Matters. All material matters of a legal nature which pertain
to this Agreement, and the transactions contemplated hereby, shall have been
reasonably approved by counsel to Seller.
6.4. Opinion of Purchaser's Counsel. The Seller shall have received from
Sachnoff & Weaver, Ltd., counsel to Purchaser, an opinion dated the Closing
Date, in form and substance satisfactory to the Seller to the effect that:
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the
requisite corporate power and authority to own its properties and to
conduct its business.
14
<PAGE> 15
(b) Purchaser has the requisite corporate power and authority to
execute, deliver and perform this Agreement. The Agreement and the
documents specified in Section 1.4.1 to be executed by Purchaser have been
duly and validly authorized by Purchaser, duly executed and delivered by
an authorized officer of Purchaser and constitute a legal, valid and
binding obligation of Seller.
(c) The Mutual Release to be executed by Purchaser specified in Section
1.4.2 constitutes a legal, valid and binding obligation of Purchaser.
SECTION VII
Affirmative Covenants of Seller
Seller hereby covenants and agrees as follows:
7.1. Assistance from Seller in Transferring Seller's Membership Interest
to Purchaser. Seller shall after the Closing take all action reasonably
requested by Purchaser to assist Purchaser in obtaining good title to and
ownership of Seller's Membership Interests, including the amendment of SACC's
and the Subsidiary's Articles of Organization and Operating Agreements, any
filings to be made with the Michigan and Illinois authorities and the amendment
and cancellation of appropriate SACC and Subsidiary documents. Seller shall
also cause its legal counsel to provide Purchaser with such corporate filings
and other SACC and Subsidiary documents as Purchaser may reasonably request in
order to carry out the foregoing objective.
7.2. Non-Competition. Unless otherwise permitted by Purchaser in writing,
neither Seller, Jerry A. Spitler or Edward Butzer, nor any shareholder of
Seller or affiliate of Seller or such persons ("Prohibited Persons") shall for
a period of twenty-four (24) months following the Closing, reveal the customer
list of SACC or the Subsidiary to any person, enter into competition
15
<PAGE> 16
with SACC or the Subsidiary by establishing a remote alarm system monitoring
center in Michigan or Illinois or servicing accounts or providing alarm system
monitoring or similar services from any location to any person in any town or
community within twenty five (25) miles of any location where SACC or the
Subsidiary provides such services; provided however, that nothing contained
herein shall prohibit any of the Prohibited Persons from establishing, after a
period of six (6) months following the Closing, a remote alarm monitoring
center in any location for the sole purpose of providing alarm system
monitoring or similar services to accounts owned, directly or indirectly,
beneficially or otherwise, by any of the Prohibited Persons. Neither Seller,
Jerry A. Spitler or Edward Butzer, nor any entity owned or controlled by any of
them, shall for a period of twenty four (24) months after the Closing, employ
any employee of Purchaser, SACC or the Subsidiary or solicit or encourage any
such employee to terminate his employment with any of the foregoing; provided
however, that immediately after Closing Seller may employ Alma Russo and after
the expiration of a period of six (6) months following the Closing, Seller may
employ Larry Kimball, Ken Sovis, Dave Campbell, Sally Graham and Chuck Houck
upon giving Purchaser thirty (30) days notice of Seller's intention to employ
one or more of said persons. Seller agrees that money damages would not be a
sufficient remedy for breach of this Section 7.2 and that the Purchaser shall
be entitled to specific performance, injunctive relief or other equitable
relief as a remedy for breach of this Section 7.2. Such remedies shall be in
addition to any other remedies available at law or in equity.
7.3. Transfer of Licenses. Jerry A. Spitler shall take all action
reasonably necessary to assist the Purchaser in the transfer, as soon as
practicable after the Closing, to a person or persons designated by Purchaser,
of all licenses related to the business of Purchaser, SACC and the
16
<PAGE> 17
Subsidiary that are held by Jerry A. Spitler, as agent for or on behalf of the
Purchaser, SACC or the Subsidiary.
7.4. Continuing Relationship. Seller agrees that for a period of six (6)
months following the Closing, Seller will use SACC as the sole provider of
alarm system monitoring services for all accounts owned by Seller on the terms
and conditions currently in effect for such services. In the event that Seller
sells all or part of the alarm system monitoring accounts owned by it on the
Closing Date (estimated at 2,300 accounts), Seller guarantees, that so long as
such accounts have not canceled their agreements with Seller, that all of such
accounts shall continue to use SACC as the sole provider of alarm monitoring
services, on the terms and conditions currently in effect, for a period of no
less than six (6) months following the Closing Date. Seller represents that
there have been no changes in the agreements governing the purchase of such
services.
7.5. Exercise of Options. On the Closing Date, immediately after the
Closing, Jerry A. Spitler and Edward Butzer hereby agree that the options
heretofore granted to them by Purchaser to purchase 66,264 shares of the common
stock of Purchaser at a price of fifty-seven one hundredths of a dollar ($0.57)
per share shall be canceled unexercised.
SECTION VIII
Miscellaneous
8.1. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Illinois, excluding its conflicts of laws rules.
8.2. Survival. The representations and warranties, covenants and
agreements made herein shall survive this Agreement and the closing of the
transactions contemplated hereby.
17
<PAGE> 18
8.3. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall be binding upon the successors, assigns, heirs,
executors and administrators of the parties hereto. Neither party hereto may
assign its obligations hereunder without the written consent of the other
party.
8.4. Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto on or before the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought.
8.5. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, if to Purchaser, at Security Associates International, Inc., 2101 S.
Arlington Heights Road, Arlington Heights, Illinois 60005-4142 addressed to
the President of Purchaser or at such other address Purchaser shall have
furnished to the Seller in writing; or if to Seller, at 1208 Butterworth S.W.,
Grand Rapids, MI 49504, addressed to the President of Seller, or at such other
address the Seller shall have furnished to Purchaser in writing. Each such
notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or seventy-two
(72) hours after the same has been
18
<PAGE> 19
deposited in a regularly maintained receptacle for the deposit of the United
States mail, addressed and mailed as aforesaid.
8.6. Delays or Omissions. Except as expressly provide herein, no delay or
omission to exercise any right, power or remedy accruing to either party
hereunder upon any breach or default by either party under this Agreement,
shall impair any such right, power or remedy of the party not in default nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of
either party of any breach or default of the other party under this Agreement,
or any waiver on the part of either party of any provisions or conditions of
this agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative
and not alternative.
8.7. Expenses. The Seller and Purchaser shall each bear its own expenses,
including its own legal fees, incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby.
8.8. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to either
party.
8.9. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
19
<PAGE> 20
8.10. Exclusive Jurisdiction of Courts in Illinois. Each of the parties
hereto agrees to submit to the exclusive jurisdiction of the federal or state
courts in the state of Illinois and consent that service of process with
respect to all such courts may be made by registered mail to it at its
addresses set forth herein.
8.11. Waiver of Jury Trial. The Parties hereby expressly waive any right
they may have to a jury trial in any suit, action or proceeding existing under
or relating to this Agreement or any of the other related documents.
The foregoing Agreement is hereby executed as of the first day written
above.
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
--------------------
Name: James S. Brannen
Title: President
INTEC COMPANY, INC.
By: /s/ Jerry A. Spitler
--------------------
Name: Jerry A. Spitler
Title: President
20
<PAGE> 21
The undersigned acknowledge that they are significant stockholders of
Intec Company, Inc. and that they will receive material economic benefits upon
the consummation of the transaction contemplated hereby. In order to induce
Purchaser to enter into this Agreement, the undersigned agree to be bound by
Sections 7.2, 7.3 and 7.5 hereof, as appropriate.
Dated: September 5, 1996
/s/ Jerry A. Spitler
- ------------------------
Jerry A. Spitler
/s/ Edward Butzer
- ------------------------
Edward Butzer
21
<PAGE> 1
EXHIBIT 10.12
ASSET PURCHASE AGREEMENT
Between
SECURITY ASSOCIATES INTERNATIONAL, INC.
as
PURCHASER
and
AMJ CENTRAL STATION CORPORATION
as
SELLER
Dated December 19, 1996
<PAGE> 2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of December 19, 1996, is entered
into by and between Security Associates International, Inc., a Delaware
corporation ("Purchaser"), and AMJ Central Station Corporation, a Florida
corporation ("Seller").
Purchaser and Seller hereby agree as follows:
1. DEFINITIONS AND USE OF TERMS
1.1 DEFINITIONS. The following terms shall have the meanings assigned
below when used in this Agreement:
(a) "Account" shall mean an agreement between a Subscriber and
Seller pursuant to which the Central Monitoring Station monitors
on a remote basis the security alarm system of such Subscriber;
(b) "Adjustment" has the meaning assigned in Section 3.2.2;
(c) "Applicable Law" shall include any law, rule, regulation, order,
injunction, notice, approval or judgment of any federal, state,
or local government or governmental department, agency, board
or the like, which applies to any of the Assets or the Purchased
Business, and any agreement with any such government or
governmental department, agency or board relating to compliance
with any of the foregoing;
(d) "Assets" has the meaning assigned in Section 2.1;
(e) "Assumed Liabilities" has the meaning assigned in Section 2.5;
(f) "Central Monitoring Station" shall mean the
central monitoring station which is owned by Seller as of the
Execution Date and the Closing Date and which monitors on a
remote basis the security alarm systems of the Subscribers;
(g) "Closing" has the meaning assigned in Section 3.1.3;
(h) "Closing Date" has the meaning assigned in Section 3.1.3;
2
<PAGE> 3
(i) "Contract" means Assets of the type described in Section 2.1(a),
(b), (e), (i) or (n);
(j) "Contract Assignment Agreement" has the meaning assigned in
Section 4.10;
(k) "Dealer" means a customer of Seller who has designated Seller to
monitor on a remote basis the security alarm systems of those
Subscribers who have contracted with Dealer to obtain such
monitoring services from Dealer or its designee;
(l) "Effective Time" means the opening of business on the Closing
Date;
(m) "Employee" means a person employed by Seller immediately prior
to the Effective Time;
(n) "Execution Date" means the date first written above;
(o) "Income Tax Returns" means Seller's federal income tax returns
for the periods ending December 31, 1993, December 31, 1994 and
December 31, 1995;
(p) "Intellectual Property" means all of the patents, trademarks,
trade names (including "AMJ Central Station" and the corporate
name "AMJ Central Station Corporation"), service marks, trade
secrets, designs, know-how, copyrights, computer programs and
software, registrations and applications and rights relating to
any of the foregoing, and all other proprietary rights and
information relating to or used by Seller;
(q) "Interim Period" means the period beginning on the Execution
Date and ending on the Closing Date;
(r) "License Assignment Agreement" has the meaning assigned in
Section 4.9;
(s) "Loss" shall mean any liability, loss, damage, claim, cost,
deficiency, obligation, or expense (including penalties and
reasonable legal fees and costs) incurred by a party;
(t) "Permits" means all governmental licenses, registrations and
permits, and applications therefor;
(u) "Personal Property Lease Assignment Agreements" has the meaning
assigned in Section 4.8;
3
<PAGE> 4
(v) "Promissory Note" has the meaning assigned in Section 2.4.1;
(w) "Purchased Business" means the entire remote alarm monitoring
business conducted by Seller as of the Execution Date and the
Closing Date, including the Central Monitoring Station;
(x) "Purchaser's Accountants" means the independent public accounting
firm of Arthur Andersen & Co.
(y) "Real Estate" has the meaning assigned in Section 2.1(b);
(z) "RMR" shall mean the monthly gross revenue earned by the Central
Monitoring Station in consideration for the monitoring services
provided by the Central Monitoring Station to Subscribers;
(aa) "Second Closing" has the meaning assigned in Section 3.1.3.
(bb) "Security Agreement" has the meaning assigned in Section 2.4.2.
(cc) "Second Closing Date" has the meaning assigned in Section 3.1.3.
(dd) "Sublease" has the meaning assigned in Section 4.7;
(ee) "Subscriber" means a customer to whom Seller is entitled by
contract to provide remote monitoring services for the security
alarm system installed on that customer's premises.
(ff) "Unrelated Party" means any person who is not a shareholder, officer
or director of Seller or is not a business entity controlled by or
under common control with any such person(s); and
(gg) "Waste Material" means any pollutant, contaminant, hazardous or
toxic material or other material now or in the past produced,
discharged, stored or emitted by the Purchased Business or on the
Real Estate.
1.2 OTHER TERMS. In this Agreement:
(a) any representation or warranty made "to the knowledge" of a party
shall mean that the party is making the representation on the basis
of the actual knowledge of the party or, in the case of a
corporation, its officers and directors, in either event, after due
inquiry; and
(b) "including" shall indicate examples of a foregoing general statement
and is not a limitation on that general statement.
4
<PAGE> 5
2. SALE AND PURCHASE OF ASSETS; PURCHASE PRICE.
2.1 SALE AND PURCHASE OF ASSETS. Upon the terms and subject to the
conditions contained in this Agreement, Seller hereby agrees to sell, and
Purchaser hereby agrees to purchase, all of Seller's assets and properties,
tangible and intangible, real, personal or mixed, of and pertaining to or used
in the Purchased Business, wherever located, whether known or unknown, and
whether or not reflected on the books and records of Seller (the "Assets").
The Assets include, but are not limited to, the following:
(a) all right, title and interest in all of Seller's
Accounts;
(b) all rights of use and occupancy of Seller in the
portion of the real estate leased by Seller occupied by the
Central Monitoring Station, as described on Schedule 4.7 (the
"Real Estate");
(c) all rights of use and occupancy of Seller in the
plant, improvements, appurtenances and fixtures located on or
forming part of the Real Estate;
(d) except for those items listed in Schedule 4.8 as
being retained by Seller, all tangible personal property, all
machinery and equipment, computers, telephone installations,
handling equipment, furniture, furnishings, accessories and
spare parts, owned by Seller;
(e) all leases of, and conditional sales contracts
and title retention agreements relating to tangible personal
property and Intellectual Property, under which Seller is
lessee or conditional buyer;
(f) all accounts receivable;
(g) all prepaid expenses and deposits;
(h) all Intellectual Property;
(i) all other contracts or commitments to which
Seller is a party or by which Seller or any of the Assets is
bound, all of which other than monitoring contracts with
Dealers and Subscribers are described on Schedule 4.10,
including, but not limited to:
(1) all unfilled orders of Seller; and
5
<PAGE> 6
(2) all forward commitments to Seller for
supplies or materials entered into the usual and
ordinary course of business, whether or not there are
any written contracts with respect thereto.
(j) all Permits;
(k) all records of sales, Dealer lists, Subscriber
lists, customer lists and supplier lists;
(l) all books, documents, records and files,
including all financial, accounting and personnel records and
all computer programs;
(m) the goodwill of Seller as a going concern;
(n) all assignable contracts and policies of
insurance, if any, including those related to the property or
liability of Seller and/or to the lives or health of Seller's
employees as set forth in Schedule 2.1(n) hereof.
2.2 TITLE. Title to the Assets shall be conveyed to Purchaser free and
clear of all liens, claims, encumbrances or restrictions except for such liens
as are specifically listed on Schedule 2.2 hereto.
2.3 PURCHASE PRICE. The purchase price ("Purchase Price") of the Assets
shall be Three Million Seven Hundred Seventy-one Thousand One Hundred and
Thirty-one ($3,771,131.00). In addition, Purchaser shall assume those (but
only those) liabilities and obligations of Seller stated in Section 2.5.
6
<PAGE> 7
2.4 PAYMENT.
2.4.1 The Purchase Price shall be paid by Purchaser to Seller as follows:
(a) Fifty Thousand Dollars ($50,000.00) at closing by means of a
cashier's check or wire transfer of federal funds in accordance with the wire
transfer instructions to be provided by Seller; and
(b) The remaining balance in a promissory note in a form similar to
Exhibit 2.4.1 (the "Promissory Note") executed by Purchaser and payable in one
installment of principal on the Second Closing Date. No prepayment of the
Promissory Note shall be permitted by Purchaser and Seller will be under no
obligation to accept any prepayment. The Promissory Note shall not bear
interest. The Promissory Note will not contain any grace period. The
Promissory Note shall be secured by the collateral described in paragraphs
2.4.2 and 2.4.3 below.
2.4.2 As security for the payment of the Promissory Note referred to in
paragraph 2.4.1(b) above, Purchaser shall execute and deliver, at closing, a
purchase money security agreement in a form similar to Exhibit 2.4.2 (the
"Security Agreement") covering all of the Assets, viz., all of the items of
tangible and intangible personal property purchased by Purchaser from Seller as
more particularly described in paragraph 2.1 of this Agreement. The security
interest evidenced by the Security Agreement shall be a first priority security
interest and shall not be subordinate to any financing obtained by Purchaser in
connection with the acquisition of the Assets or otherwise. Purchaser shall
execute such instruments as requested by Seller to perfect the security
interest in the Assets as provided in Chapter 679 of the Florida Statutes.
7
<PAGE> 8
2.4.3 As additional collateral security, Purchaser will assign and deliver
to Seller the Sublease on condition that Purchaser remain in possession of the
leased premises so long as it: fully complies with all of the terms and
conditions of the Sublease, including the prompt payment of rent; is not in
default in the payment of the Promissory Note; and complies with the terms and
conditions of the purchase money security interest referred to in paragraph
2.4.2.
2.4.4 Upon payment in full of the Promissory Note, Seller shall execute
and deliver to Purchaser a release of collateral and termination statement in
such form as may be reasonably required by Purchaser as well as the cancelled
Promissory Note.
2.4.5 Between the Closing Date and the time when Purchaser pays the
Promissory Note in full, Purchaser:
(a) Shall not sell or otherwise dispose of any of the Assets
even in the ordinary course of business;
(b) Shall not remove any of the tangible personal property from
the premises located at 1471 S.W. 12th Avenue, Pompano Beach,
Florida; and
(c) Shall not take any action which would cause Purchaser to be
in a position so as not to return all of the Assets to Seller
should any of the contingencies listed in paragraph 2.4.6 occur.
2.4.6 In the event Purchaser shall fail to (i) pay the Promissory Note in
full on the Second Closing Date, (ii) pay the liabilities and obligations of
Seller as set forth on Schedule 2.5.1(c) no later than the Second Closing Date
or (iii) pay off the Guaranteed Leases (as defined in paragraph 4.8 hereof) no
later than the Second Closing Date, the following shall occur:
8
<PAGE> 9
(a) this Agreement shall terminate and be null and void and of
no legal force and effect whatsoever;
(b) Seller's sole remedy for the termination of this Agreement
and under the Note and Security Agreement shall be limited to
the return of the Assets (including the balance of the accounts
receivable as of the Second Closing Date and the cash (or
undeposited checks) remaining after collection of payments on
accounts receivable and payment of any obligations related to
the Purchased Business that arise in the ordinary course of
business on or before the Second Closing Date) and Seller shall
retain the $50,000 payment made pursuant to paragraph 2.4.1
hereof;
(c) the Sublease shall terminate and be null and void and of no
legal force and effect whatsover; and
(d) neither Seller nor Purchaser shall have any further
liability to each other; except that Purchaser shall indemnify
Seller for (i) any loss suffered by Seller due to a violation by
Purchaser of the provisions of paragraph 2.4.5 above or 2.4.6(b)
or (ii) for any loss to the Assets that occurs from the Closing
Date to the Second Closing Date as a result of Purchaser's
negligence, including all reasonable attorneys' fees and costs
incured by Seller in pursuing Seller's remedies under this
paragraph..
9
<PAGE> 10
2.5 ASSUMPTION OF CERTAIN LIABILITIES
2.5.1 Purchaser shall assume, pay, fulfill perform or otherwise
discharge only the following liabilities and obligations of Seller to Unrelated
Parties ("Assumed Liabilities") on the Closing Date:
(a) all of Seller's trade, and other accounts payable
and liabilities reflected or reserved against as of November
25, 1996 and included on Schedule 2.5.1(a), plus additional
expenses or liabilities arising in the usual and ordinary
course of business consistent with past practice after
November 25, 1996 and before the Closing Date, which in the
aggregate do not exceed $130,000.00;
(b) all liabilities and obligations of the Purchased
Business accruing on and after the Closing Date under
contracts, agreements, licenses, leases and similar documents
which are to be transferred to Purchaser, specifically
including the obligation to provide, during the term of each
Subscriber's or Dealer's contract with Seller, continuing
monitoring services of the Central Monitoring Station to all
such Subscribers and Dealers; and
(c) those liabilities and obligations of Seller
otherwise specifically assumed by Purchaser in this Agreement
as set forth on Schedule 2.5.1(c).
2.5.2 Except as provided in Section 2.5.1, Purchaser shall not be
required to assume, pay, perform, defend or discharge any, and Seller shall
retain, pay, perform, defend and discharge all, of Seller's liabilities and
obligations of any and every kind whatsoever, whether disclosed, undisclosed,
direct, indirect, absolute, contingent, secured, unsecured, accrued or
otherwise, whether known or unknown. Further, Purchaser shall not assume or
agree to pay, perform or discharge, nor shall Purchaser be, directly or
indirectly responsible for, any obligation or liability of Seller with respect
to the breach of any contract or commitment prior to the Closing Date, or any
action, suit or proceeding pending at the Closing which is asserted in respect
of the conduct by Seller of its business prior to the Closing Date.
10
<PAGE> 11
2.6 SUBSEQUENT DOCUMENTATION. At any time and from time to time after the
Closing, upon the request of Seller or Purchaser and without further
consideration to the other party, but with Purchaser and Seller bearing their
own respective expenses incident thereto, Seller and Purchase shall do,
execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, assignments, transfers,
conveyances, assumptions, powers of attorney and assurances:
(a) as may be required for assigning transferring,
granting and conveying to Purchaser or its successors and
assigns, or for aiding and assisting in collecting and
reducing to possession and control of Purchaser or its
successors and assigns, all of the Assets; or
(b) as may be required for the better assigning,
assuming, obligating, assuring and confirming to Seller that
the Assumed Liabilities are assumed and to provide to Seller
evidence of such undertaking and the discharge of such
undertaking by Purchaser.
2.7 ALLOCATIONS. The Purchase Price shall be allocated among the Assets
in accordance with Schedule 2.7. In filing their respective income tax returns
in any jurisdiction, the parties shall use the allocations of the Purchase
Price set out in Schedule 2.7.
2.8 TRANSFER INSTRUMENTS AND TAXES. The sale, transfer, assignment and
delivery of the Assets by Seller to Purchaser shall be effected at the Closing
by instruments of transfer and conveyance (with any necessary transfer and
documentary stamps) sufficient in form and substance to vest in Purchaser good,
valid and marketable title to all of the Assets. Seller shall take all other
steps as may be reasonably necessary to put Purchaser in actual possession and
operating control of the Assets. To the extent any sale, transfer, use or
other similar taxes may be imposed by reason of such sale, transfer, assignment
and delivery of the Assets, Seller shall pay
11
<PAGE> 12
all such taxes. Seller shall make any filings required as a result of the
transactions contemplated by this Agreement with the Florida taxing authorities.
2.9 CONSENT TO ASSIGNMENT. To the extent that the assignment of Contract,
Permit or Intellectual Property shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the Contract, Permit
or Intellectual Property if an attempted assignment would constitute a breach
thereof. Seller and Purchaser shall cooperate with each other in obtaining and
shall jointly attempt to obtain the consent of any other party to a Contract,
or the issuer of a Permit for the assignment thereof to Purchaser. If any such
consent is not obtained, to the extent permitted by applicable law, Seller
shall cooperate with Purchaser to provide for Purchaser the benefits under such
Contract, Permit or Intellectual Property, including enforcement, for the
benefit of Purchaser, of any and all rights of Seller against any other party.
Purchaser, at its option, may elect to buy out any personal property lease
where the lessor does not consent to the assignment of such lease to Purchaser
on its then existing terms.
2.10 ORIGINAL DOCUMENTS. Seller shall deliver to Purchaser at Closing and
Purchaser shall thereafter retain all the original books, records, files,
contracts and other documents referred to in Section 2.1 hereof arising out of
or related to Seller's business prior to Closing (collectively, the "Original
Records") except for Seller's corporate minute books and records of
shareholders' and directors' meetings; provided, however, that Seller shall
have the right for a period of four (4) years after Closing, to copy any and
all such Original Records during normal business hours and upon reasonable
notice to Purchaser.
12
<PAGE> 13
3. CLOSING AND POST CLOSING ADJUSTMENTS.
3.1 CLOSING. The consummation of the sale and purchase hereunder (the
"Closing") shall be effected by mail in accordance with the following
procedures:
3.1.1 Counsel for Purchaser will prepare and circulate for signature
a complete set of operative documents. Such documents will include this
Agreement, the Employment Agreement, the Bill of Sale, the Assumption
Agreements, the Sublease, the Contract Assignment Agreements, the Permit
Assignment Agreements, the License Assignment Agreements and Purchaser's
Opinion of Counsel and all other Closing documents to be delivered by
Purchaser.
3.1.2 Counsel for Seller will prepare and circulate Seller's Opinion
of Counsel and all other Closing documents to be delivered by Seller. Seller's
counsel shall also prepare the Promissory Note and the Security Agreement for
execution and delivery by Purchaser along with Seller's amended certificate of
incorporation indicating that Seller's name has been changed as provided in
Section 4.9.
3.1.3 Upon receipt of executed or final copies of all the documents
referred to in Sections 3.1.1 and 3.1.2, and satisfactory completion of all of
the Schedules and Exhibits thereto, Purchaser shall pay to Seller (by wire
transfer or by certified or cashier's check as the parties may agree) the first
installment of the Purchase Price (the "Closing"). The date of such payment is
referred to herein as the "Closing Date." The payment of the second
installment of the Purchase Price (the "Second Closing") shall occur on January
3, 1997 (the "Second Closing Date"), by wire transfer or by certified or
cashier's check as the parties may agree. Simultaneously with the payment of
the second installment of the Purchase Price, the Note and the Security
Agreement
13
<PAGE> 14
shall be canceled and returned to Purchaser and all liens with
respect thereto shall be immediately released.
3.2 ADJUSTMENTS.
3.2.1 Purchaser and Seller agree that the Purchase Price as set
forth in Section 2.3 is to be adjusted for the amount of any liabilities or
obligations of Seller arising before November 25, 1996 but not included on
Schedule 2.5.1(a) and any expenses, liabilities and obligations arising between
November 25, 1996 and the Closing Date in excess of the amount established
pursuant to Section 2.5.1 (a).
3.2.2 Within 60 days after the Closing Date, Purchaser shall present
to Seller a schedule itemizing the actual amount of all of the items set forth
on Schedule 3.2.1. The amounts so determined shall be used to compute and
arrive at a final adjustment to the Purchase Price hereunder (the "Adjustment").
3.3 PAYMENT OF ADJUSTMENT Promptly after the delivery of the finally
determined Adjustment pursuant to Section 3.2, the Adjustment shall be paid by
the Seller to the Purchaser.
4. REPRESENTATIONS WARRANTIES AND COVENANTS OF SELLER.
As of the Execution Date (for all matters arising prior thereto) and as of
the Closing Date, Seller and William Jackson represent and warrant to Purchaser
as follows:
4.1 ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has
all requisite corporate power and authority to own its assets and to conduct
its business in the manner in which it is now conducted. Seller duly qualified
to do business in, and is in good standing under the laws of, each jurisdiction
in which the ownership or leasing of the Assets or the conduct of the Purchased
Business requires such qualification, which jurisdiction are listed on Schedule
4.1. Seller has no
14
<PAGE> 15
equity interest in and does not control, through stock ownership or otherwise,
any corporation, partnership, joint venture or other business entity. Attached
hereto as Exhibits 4.1A, 4.1B and 4.1C, respectively, are certified copies of
Seller's Certificate of Incorporation and By-Laws, including all amendments
through the Closing Date and a Certificate of Good Standing issued by the
Secretary of State of Florida dated as of a recent date. William Jackson is
the sole shareholder of Seller.
4.2 POWER AND AUTHORITY. Seller has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement has been duly authorized, executed and delivered by Seller and,
assuming the due authorization, execution and delivery by Purchaser,
constitutes the legal, valid and binding obligation of Seller enforceable
against Seller in accordance with its terms. The President of Seller has been
duly authorized to execute this Agreement on behalf of Seller. Attached hereto
as Exhibit 4.2 is a true and complete copy of the corporate actions taken by
the Seller and its shareholders authorizing the transactions contemplated by
this Agreement.
4.3 FINANCIAL CONDITION.
4.3.1 Seller has delivered to Purchaser its Income Tax Returns for
calendar years 1993, 1994 and 1995, attached as Exhibit 4.3.1. The Income Tax
Returns are correct and complete in all material respects.
4.3.2 The tangible property and Intellectual Property used in the
conduct of Seller's business included in the Assets are not damaged, are fit
for their particular use, and are not defective, such that they are of a
quantity and quality usable in the ordinary course of the
15
<PAGE> 16
business of Seller, subject only to changes in the ordinary course of business.
All such property is located at Seller's principal place of business.
4.3.3 The accounts receivable included in the Assets and listed on
Schedule 4.3.3 are valid receivables, collectible to the extent of the excess
thereof over any reserves, discounts and allowances specifically included on
Schedule 4.3.3, and are subject to no defenses, counterclaims or set-offs.
4.4 ABSENCE OF UNDISCLOSED LIABILITIES. Seller has no liabilities or
obligations (whether absolute, accrued, contingent or otherwise and whether due
or to become due, including liabilities for taxes and interest and penalties
thereon) except (a) the Assumed Liabilities and (b) the liabilities and
obligations set forth on Schedule 4.4, all of which will be retained by Seller.
4.5 TAX RETURNS. Seller has filed with the appropriate governmental
agencies all required tax returns, is not in default with respect to any such
filing, is not delinquent in payment of any taxes due to any taxing authority
and has paid or made adequate provision or reserves for all taxes (including
all federal, state and local income taxes, withholding, corporate and excise
taxes, sales taxes, real and personal property taxes, unemployment insurance,
occupation, social security and Medicare taxes, and interest and penalties
thereon) payable by it, or attributable to periods prior to the Closing Date.
Seller has not given any waiver or extension of any period of limitation
governing the time of assessment or collection of any tax. The federal income
tax returns of Seller have never been audited by the United States Internal
Revenue Service. No deficiency in tax payment is claimed by the United States
Internal Revenue Service or any other tax authority for any of Seller's taxable
years. There are no tax audits currently pending with respect to Seller. To
the best of Seller's knowledge, there is no basis for assessment of any
16
<PAGE> 17
deficiency in federal or state income taxes or any other taxes or governmental
charges against Seller.
4.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule 4.6,
since November 25, 1996 through the Closing Date there has not been and will
not be:
(a) any material adverse change in the financial
condition, assets, liabilities, equity, operations, business
or prospects of Seller;
(b) any obligation or liability incurred by Seller
other than obligations and liabilities incurred in the
ordinary course of business;
(c) any material damage, destruction or loss, whether
or not covered by insurance, adversely affecting any Assets;
(d) any mortgage, encumbrance or lien placed on any
of the Assets;
(e) any purchase or sale or other disposition or any
agreement or other arrangement for the purchase or sale or
other disposition of any material assets;
(f) any change in the compensation or benefits
payable or to become payable by Seller to any of its officers,
employees or agents or any new bonus payment or arrangement or
employee benefit made to or with any of them;
(g) any change with respect to the management or
supervisory personnel of Seller; or
(h) any other event or condition of any character
materially and adversely affecting the financial condition or
business of Seller.
4.7 REAL ESTATE. Seller does not own any real estate and does not lease
any real estate to others. Seller has valid leasehold interests in all Real
Estate that it leases from others and the improvements situated thereon, all of
which are listed and identified on Schedule 4.7 (which includes the facility in
which the Central Monitoring Station is located which is leased to William
Jackson and Elizabeth Jackson or their assignee (collectively, the "Jacksons")
as lessees). All such improvements and all fixtures are in good repair and
operating condition,
17
<PAGE> 18
normal wear and tear and required maintenance (which has heretofore been
regularly performed) excepted, and are suitable and fit for the purposes for
which they are currently being used. The Real Estate on which the Central
Monitoring Station is located complies with all Underwriter's Laboratories
standards for multi-user facilities. True and correct copies of all available
deeds, conveyances, leases and other related instruments have been delivered to
Purchaser. Seller's use and occupation of such Real Estate and the
improvements thereon comply in all material respects with the Lease. Neither
Seller nor the Jacksons are in default under the Lease, nor is there any event
or occurrence which with notice or passage of time will constitute a default
under the Lease. None of the improvements situated on the Real Estate leased
under the Lease encroaches on the property of any other person. The Lease for
the Real Estate on which the Central Monitoring Station is located as currently
in effect (and as to which The Jacksons are lessees) is attached hereto as
Exhibit 4.7A (the "Lease"). On or prior to the Closing Date, all of Seller's
(and the Jacksons') right, title and interest in that portion of leased Real
Estate comprising the Central Monitoring Station shall have been conveyed to
Purchaser pursuant to a sublease agreement substantially in the form of Exhibit
4.7B hereto (the "Sublease"). In the event that Seller (or The Jacksons)
exercises its (or their) right to purchase the Real Estate on which the Central
Monitoring Station is located, as provided in the Lease, Seller (or The
Jacksons) shall then lease the portion of such facility comprising the Central
Monitoring Station to Purchaser on the same terms as are provided in the
Sublease.
4.8 TANGIBLE PERSONAL PROPERTY. Except as disclosed on Schedule 4.8,
Seller has and will transfer to Purchaser good title to all of the tangible
personal property which it owns, as reflected on Schedule 4.8. Seller has
valid leases for all tangible personal property which it leases from others,
all of which are identified on Schedule 4.8. On or prior to the Closing Date,
18
<PAGE> 19
all leases with respect to the tangible personal property of Seller shall have
been assigned to Purchaser pursuant to agreements substantially in the form of
Exhibit 4.8 hereto (the "Personal Property Lease Assignment Agreements"). The
machinery, equipment, furniture and fixtures, computer hardware and software
used by Seller are in good operating condition and repair, normal wear and tear
and required maintenance (which has heretofore been regularly performed)
excepted, and are suitable and fit for the purposes for which they are
currently being used. Any personal property lease listed on Schedule 4.8 that
is guaranteed by William Jackson ("Guaranteed Leases") where the lessor will
not release Jackson's guarantee will be paid off by Purchaser no later than the
Second Closing Date. The payoff amount for all of the personal property leases
does not in the aggregate exceed $189,007.58.
4.9 INTELLECTUAL PROPERTY. Schedule 4.9 lists and briefly describes all
of the Intellectual Property owned or used under license, as well as specifying
whether Seller is owner, licensor or licensee of any Intellectual Property.
All license agreements and all other instruments relating to licenses are
described in Schedule 4.9 and true and complete copies thereof have been
provided to Purchaser. None of the Intellectual Property has been held or
stipulated to be invalid in any litigation which has been concluded and the
validity of none of the Intellectual Property has been questioned in any
litigation currently pending or, to the best knowledge of Seller, threatened.
Seller owns or possesses under lease, license, or otherwise all intellectual
property necessary to sell its services and the performance by Seller of such
services does not infringe any rights of any other person. Seller has not
received any notice of conflict thereof with the asserted rights of others, and
Seller has the right to bring an action for any infringement of the
Intellectual Property. On or prior to the Closing Date, all licenses with
respect to Intellectual Property as to which Seller is Licensee shall be
assigned to Purchaser pursuant to License Assignment
19
<PAGE> 20
Agreements in the form of Exhibit 4.9. On or prior to the Closing Date Seller
shall have changed its name from AMJ Central Station Corporation to another
name dissimilar to its present name and do such other things as shall be
necessary or desirable to permit Purchaser to assume and use the Seller's name
from and after the Closing Date.
4.10 CONTRACTS. Schedule 4.10 is a true and complete list of all
Contracts (other than contracts with Dealers and Subscribers, all of which and
the related Accounts are listed on Schedule 4.20), to which the Company is a
party which are not otherwise listed on Schedules 2.1(n), 4.7 or 4.9. All such
Contracts (including those with the parties listed on Schedule 4.20) are
enforceable against the parties thereto in accordance with their respective
terms. Other than defaults of Dealers or Subscribers under monitoring
contracts which are in the aggregate not material, no default exists with
respect to any such Contracts and no event or occurrence exists which with
notice or passage of time will result in a default. On or prior to the Closing
Date, all Contracts to which Seller is a party shall be assigned to Purchaser
pursuant to Contract Assignment Agreements in the form of Exhibit 4.10
("Contract Assignment" Agreements). The contracts with the Dealers and
Subscribers reflected on Schedule 4.20 shall be assigned to Purchaser pursuant
to a single Assignment Agreement assigning all such contracts which shall be
listed on a schedule thereto. Except for the Contracts listed on Schedules
2.1(n), 4.7, 4.9, 4.10 and 4.20, there is no Contract:
(a) extending for a period of time longer than 12
months;
(b) involving expenditures or receipts in excess of
$3,000;
(c) relating to the borrowing of money or guarantying
any obligation for borrowed money or otherwise, other than
endorsements for collection;
(d) with any insider or any affiliate;
20
<PAGE> 21
(e) prohibiting or substantially restricting Seller
from freely engaging in business in any part of the world;
(f) with any Dealer; or
(g) any other contract, commitment or lease outside
of the usual and ordinary course of business.
4.11 PERMITS. Seller or William Jackson ("Jackson") holds all of the
Permits required by Applicable Law for Seller to own all of the Assets and to
operate the Purchased Business as now conducted. Schedule 4.11 contains a true
and complete list of all such Permits and the holder thereof. All such Permits
are currently in effect. Seller has received no notice and has no reason to
believe that such Permits will not continue to be in effect and available for
use by Purchaser in operating the Purchased Business immediately following the
Closing. Except as specified on Schedule 4.11, all of the Permits are
renewable in the ordinary course of business, or are assignable to Purchaser
pursuant to this Agreement, or are such that Seller has no reason to believe
that Purchaser will not be granted such Permit upon submission of a proper
application. At or prior to Closing, all assignable Permits will be assigned
to Purchaser pursuant to agreements in the form of Exhibit 4.11 attached hereto
(the "Permit Assignment Agreements"). Jackson shall remain an employee of
Purchaser, on the terms included in the Employment Agreement attached hereto as
Exhibit 7.1(h), and retain on behalf of Purchaser any Permit held by Jackson
necessary to operate the Purchased Business for the period provided therein, or
if such Permits are transferable transfer such Permits to a permanent employee
of Purchaser.
4.12 COMPLIANCE WITH APPLICABLE LAW AND PERMITS. To Seller's knowledge,
except as disclosed on Schedule 4.12, Seller is conducting, and has conducted,
the Purchased Business in compliance with all Applicable Laws and Permits, and
has received no notice that it is in breach of any such Applicable Law or
Permit. To Seller's knowledge, Seller (and the Jacksons)
21
<PAGE> 22
and its predecessors in possession of the Real Estate have processed, stored,
disposed, transported, handled, emitted, discharged, and released any Waste
Material, whether on or off the Real Estate leased by it, only in compliance
with Applicable Law and Permits, and no such disposal will form the basis for
any claim, demand, or action seeking the clean-up of any site, location, body
of water, surface, or subsurface, wherever located. To Seller's knowledge, no
Waste Material, tanks, containers, cylinders, drums or cans were buried on the
Real Estate leased by Seller (or the Jacksons) or any other party during or
preceding Seller's (or the Jacksons') leasing of the Real Estate. Seller has
delivered to Purchaser copies of all internal or external environmental audit
reports prepared by or for Seller (or the Jacksons).
4.13 NO CONFLICT. Neither the entering into nor the delivery of this
Agreement nor the completion of the transactions contemplated hereby by Seller
will result in the violation of the Certificate of Incorporation or By-Laws of
Seller or any resolutions of its shareholders or board of directors; any
Contract; or any Applicable Law or Permit. Seller is not required to give
prior notice to, or obtain any consent, approval or authorization of, or make
any declaration or filing with, any governmental authority, creditor or other
person in connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby.
4.14 NO ENCUMBRANCES. Except as set forth in Schedule 2.2, Seller has
good title to all Assets which it owns, free and clear of all liens, charges,
security interests, encumbrances or any other rights or interests of others.
4.15 NO DEFAULTS. Except as set forth in Schedule 4.15, Seller has taken
all actions reasonably necessary to enable it to perform when due all
obligations under any Contracts or Permits, all of which are in full force and
effect, and there has not occurred any default or other
22
<PAGE> 23
event which with the lapse of time or giving of notice or both may become a
default under any of the foregoing documents.
4.16 LITIGATION. Except as set forth on Schedule 4.16, there are no
claims, actions, suits or proceedings pending or, to the best knowledge of
Seller, threatened by or against Seller or affecting it in any court or before
any governmental or administrative authority, including but not limited to
claims, actions or suits by Dealers and/or Subscribers. Seller is subject to
no decree, judgment, order or notice of any kind which enjoins or restrains it
from taking any action of any kind.
4.17 EMPLOYEE AND LABOR MATTERS. To the knowledge of Seller, none of
Seller's key Employees, and no group of Employees, plans to terminate his, her
or their employment with Seller or to refuse employment with Purchaser. Seller
has not been, and is not, a party to any collective bargaining or other union
agreement. Seller is in compliance in all material respects with all
Applicable Laws respecting employment and employment practices, immigration
laws, terms and conditions of employment, and wages and hours. None of
Seller's employees is represented by a union nor are there any applications for
certification of a collective bargaining agent pending. Within the last two
years, Seller has experienced no, and there is not presently pending or
existing any, union organization attempts or work stoppages. There has not
been, and there is not presently pending or existing, any unfair labor practice
or discrimination charge or complaint against Seller or, to the knowledge of
Seller, threatened, before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any other similar national, state or local
body. There are no strikes, requests for representation, slowdowns, picketing,
work stoppages, or grievances actually pending or threatened against or
affecting Seller. No question
23
<PAGE> 24
concerning representation as defined in the National Labor Relations Act has
been raised with Seller or, to the knowledge of Seller, is threatened against
it.
4.18 EMPLOYEE BENEFITS.
4.18.1 Seller has never been and is not a party to (i) any employee
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or to (ii) any employment,
consulting, agency, commission, retirement, stock, stock option, incentive pay,
severance pay or non-competition agreement or any profit-sharing, vacation,
deferred compensation, excess or pension agreements or plans, or similar
arrangements, whether written or oral, or formal or informal, other than the
health insurance plan identified on Schedule 4.18 and defined herein as the
"Plan" (a true and correct copy of which have been delivered to Purchaser).
All obligations, whether arising by operation of law, by contract or by past
custom, for payments with respect to the Plan or with respect to unemployment
compensation benefits, social security benefits, accrued vacation, or other
benefits for Employees, arising as a result of employment during periods prior
to the Closing Date, other than those included on Schedule 2.5.1(a), have been
or shall be paid by Seller. Any payments in excess of those provided for on
Schedule 2.5.1(a) shall be borne by Seller.
4.18.2 Upon termination by Purchaser of the employment of any Employee,
Purchaser shall not incur any liability for any severance or termination pay or
other similar payment related to that Employee's employment by Seller prior to
the Effective Time (such liability being solely Seller's).
4.18.3 The Plan is in compliance with its terms and with ERISA and
other applicable laws and all agreements and instruments applicable to the
Plan. No violation of
24
<PAGE> 25
ERISA has at any time occurred in connection with the administration of the
Plan, and there are no actions, suits, or claims (other than routine,
non-contested claims for benefits) pending or threatened against the Plan, or
any administrator or fiduciary thereof, which could result in any liability.
4.18.4 Full payment as of the Effective Time has been made of all
amounts which Seller is required to have paid under the Plan up to the
Effective Time.
4.18.5 The Seller does not provide, nor has it at any time provided,
coverage under any welfare benefit plan, as defined in Section 3(1) of ERISA
(including, but not limited to, life insurance, disability, medical, dental,
prescription drugs, or accidental death or dismemberment) to any of its
retirees, other than any continuation or conversion coverage which any such
retiree may have purchased at his own expense.
4.19 SUFFICIENT ASSETS. The Assets constitute all of the tangible
property and Intellectual Property and other assets necessary and sufficient
for the conduct of, and used or held by Seller in connection with, the
Purchased Business as it is presently conducted.
4.20 CUSTOMERS, DEALERS, DISTRIBUTORS AND SUPPLIERS. Schedule 4.20
contains a true and complete list of all Dealers and the number of Subscribers
whose Accounts are monitored for each such Dealer. To Seller's knowledge,
there are no problems in Seller's business relations with the foregoing persons
and, except as described in Schedule 4.20, there are no disputes between Seller
and any of such persons pending or, to the knowledge of Seller, threatened.
True and complete copies of all contracts with the foregoing persons in effect
as of the Execution Date have been delivered to Purchaser and are in full force
and effect in accordance with their terms, and there are no defaults or
assertions of default thereunder. True and complete copies of all such
contracts executed between the Execution Date and the Closing Date will be
delivered to
25
<PAGE> 26
Purchaser at the Closing and they will be in full force and effect in
accordance with their terms and there will be no defaults or assertions of
default thereunder. Seller is not aware of any Dealer that is planning to
terminate its relationship with Seller or the Purchased Business. One true and
complete copy each of Seller's standard "Alarm Company Monitoring Agreement"
form which it uses with Dealers is included as Exhibit 4.20. Seller has in
force with each Dealer a valid and enforceable contract utilizing said forms.
Seller shall use its best efforts to renew each such contract which expires
during the Interim Period. Seller has neither agreed to modify, nor modified,
the preprinted text of either such form in contracts with any of the Dealers or
Subscribers in the twelve months ended on the Execution Date and shall not
agree to modify either form or use any other form of agreement from the
Execution Date through the Closing Date.
4.21 RELATED PARTY TRANSACTIONS. Except as set forth in Schedule 4.21 or
as contemplated by this Agreement, no shareholder, relative of a shareholder,
partner, officer or director of Seller has any interest in any of the Assets or
is a party to any Contract with Seller affecting the Purchased Business or the
Assets.
4.22 DISCLOSURE. No representation or warranty by Seller in this
Agreement, and no certificate or written statement furnished or to be furnished
to Purchaser pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact, or omits or shall omit to state a material fact necessary in order to
make the statements contained herein and therein not misleading. There is no
fact known to Seller which materially adversely affects or in the future would
(so far as can now be reasonably foreseen) materially adversely affect the
Purchased Business, its financial condition or
26
<PAGE> 27
its business which has not been set forth in this Agreement, any Schedule,
Exhibit, or other information or written materials provided by Seller to Buyer.
4.23 MINIMUM NUMBER OF SUBSCRIBERS. As of the Execution Date the Central
Monitoring Station is monitoring the security alarm systems of a minimum of
50,000 Subscribers and is earning a minimum of One Hundred Ninety Thousand
Dollars ($190,000.00) in RMR from such monitoring activities.
4.24 CONTRACTS AND POLICIES OF INSURANCE. Schedule 2.1(n) includes a true
and complete list of all contracts and policies of insurance which Seller has
in force on the Execution Date and which are assignable either without the need
to obtain the respective insurer's consent or upon obtaining the respective
insurer's consent (which consent shall be obtained at a or prior to the Closing
Date). Seller shall renew each such contract or policy which expires during
the Interim Period or obtain a new contract or policy with the same or another
insurer containing substantially the same terms and conditions.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
As of the date hereof and as of the Closing Date, Purchaser represents and
warrants to, and agrees with, Seller as follows:
5.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
Purchaser has provided or will provide Seller at Closing a photocopy of its
Certificate of Incorporation and a photocopy of its By-Laws.
5.2 POWER OF AUTHORITY. Purchaser has the power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement has been duly authorized, executed, and delivered by Purchaser and,
assuming the due authorization, execution
27
<PAGE> 28
and delivery hereof by Seller, constitutes the legal, valid and binding
obligation of Purchaser enforceable against Purchaser in accordance with its
terms. The President of Purchaser has been duly authorized to execute this
Agreement on behalf of Purchaser. Attached on Exhibit 5.2 is a true and
complete copy of the corporate resolutions authorizing the transactions
contemplated by this Agreement.
5.3 NO CONFLICT. Neither the entering into nor the delivery of this
Agreement nor the completion of the transactions contemplated hereby by
Purchaser will result in the violation of or default under:
(a) any of the provisions of the Articles of
Incorporation or By-Laws of Purchaser;
(b) any agreement or other instrument to which
Purchaser is a party or by which Purchaser is bound; or
(c) any law, rule, regulation, order, judgment or
decree applicable to Purchaser.
5.4 DISCLOSURE. No representation or warranty by Purchaser in this
Agreement, and no certificate or written statement furnished or to be furnished
to Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact, or omits or shall omit to state a material fact necessary in order to
make the statements contained herein and therein not misleading.
6. COVENANTS.
6.1 CONTINUED CONDUCT OF BUSINESS DURING INTERIM PERIOD. During the
period beginning November 25, 1996 and ending on the Closing Date, Seller has
and shall continue to:
(a) conduct the Purchased Business only in the usual
and ordinary course, consistent with past practice;
28
<PAGE> 29
(b) refrain from making any material change in
Seller's accounting practices or procedures;
(c) refrain from incurring any obligations or
liabilities other than those that are usual and normal in the
ordinary course of business, consistent with past practice;
(d) refrain from declaring or paying any dividend or
distribution on Seller's stock, or redeeming, purchasing or
obligating Seller to redeem or purchase any of its stock;
(e) refrain from making any change in the
compensation or benefit payable or to become payable to any
Employees or making any new bonus payment or arrangement or
benefit to or with any of them;
(f) refrain from making any loans to any of its
officers, directors, employees or agents;
(g) refrain from making any voluntary capital
expenditures without the prior written consent of Purchaser;
(h) have in effect and maintain at all times all
insurance now in force as described in Schedule 2.1(n),
including third party liability insurance for damages which
may be suffered by any Subscriber, in the amount of at least
two million dollars ($2,000,000) per occurrence;
(i) use its best efforts to preserve the Purchased
Business intact, to preserve and maintain all Intellectual
Property, to keep available the services of the present
officers and employees of Seller and to make no changes
therein, and to preserve the goodwill of all suppliers,
customers, licensors, sales representatives and others having
business relations with Seller;
(j) conduct the Purchased Business in accordance with
Applicable Law; and
(k) be solely responsible for the management of the
Purchased Business; provided however, that during said period
Seller shall permit Purchaser, at Purchaser's sole option and
expense, to locate in Seller's principal place of business
from time to time during normal business hours (on a full or
part-time basis) not more than two (2) administrative and/or
technical managers ("Purchaser's Managers") for the purpose of
consulting with and assisting Seller's management personnel in
the management of the Purchased Business, it being understood
that Purchaser's Managers shall work in an advisory capacity
only. Purchaser shall, to the best of its ability, assist
Seller in the conduct of the Purchased Business during the
Interim Period but shall incur no liability to Seller for
advice given to Seller.
29
<PAGE> 30
6.2 ACCESS TO RECORDS. Purchaser's representatives, attorneys and
accountants have had, prior to the date hereof, and shall continue to have
until the Closing Date and thereafter, reasonable access to the records
(including all contracts with Dealers and Subscribers), audits and properties
of Seller as well as to all information relating to taxes, commitments,
contracts, title to properties and the financial condition of, or otherwise
pertaining to, the Seller. From the date hereof, Seller agrees to cause its
accountants to cooperate with Purchaser and its accountants in making available
all financial information concerning Seller, as is requested, and Purchaser and
its accountants shall have the right to examine all working papers pertaining
to examinations of Seller, or preparation of its reports, by its accountants.
Unless and until the purchase contemplated herein is consummated, Purchaser
shall hold in confidence, and shall use its best efforts to cause its
representatives, attorneys and accountants to hold in confidence, all
information obtained as aforesaid. During the Interim Period Purchaser shall
neither reproduce nor remove from Seller's premises, without Seller's prior
consent, any list of Dealers or Subscribers prepared by Seller. If the
purchase contemplated by this Agreement is not consummated, Purchaser shall
return to Seller or destroy (at Seller's option) all copies of documents
received from Seller as Seller may reasonably request.
6.3 ACTION BY SELLER. Seller shall use its best efforts to cause each of
the conditions set forth in Section 6.1 to be fulfilled on or prior to the
Closing Date.
6.4 ACTION BY PURCHASER. Purchaser shall use its best efforts to cause
each of the conditions set forth in Section 7.3 to be fulfilled on or prior to
the Closing Date.
30
<PAGE> 31
6.5 EMPLOYEES.
6.5.1 Schedule 6.5.1 is a true and complete list of the Employees and
their respective annual salaries as of the date hereof. Beginning at the
Effective Time, Purchaser shall offer to employ all of the Employees on
substantially the same terms and conditions of employment, taken as a whole, as
are in effect with Seller immediately prior to the Effective Time. Seller
shall use its best efforts to encourage all Employees to accept Purchaser's
offer of employment. Prior to the Effective Time, Purchaser shall not be
deemed an employer of any Employees or be responsible for any damage caused to
any third party or for any liability incurred by Seller or the Purchased
Business. Seller shall be responsible for the health care continuation
requirements of all Employees and former Employees of the Seller who worked in
the Purchased Business (other than those Employees who are subsequently
employed by Purchaser), such continuation to be made in accordance with the
continuation coverage requirements of Part 6 of Subtitle B of Title I of ERISA
and Section 4980B of the Code.
6.5.2 Purchaser shall treat the employment with Seller of all Employees
who accept Purchaser's offer of employment (the "Transferred Employees") as
employment with Purchaser for all seniority-related purposes, including for the
purposes of any of Purchaser's medical, accident and sickness, disability, sick
leave policies and for the purpose of determining eligibility for vacations and
statutory holidays. Purchaser shall use its best efforts to cause the relevant
insurance carriers and other third parties to waive all restrictions and
limitations for any pre-existing medical condition existing at the Effective
Time of any of the Transferred Employees and their eligible dependents for the
purposes of any such plans.
31
<PAGE> 32
6.5.3 Purchaser shall grant paid vacation time to any of the
Transferred Employees who had accrued paid vacation time due as of the
Effective Time for any such vacation days to be taken on or after the Closing
Date. Purchaser shall not be responsible for any pay in lieu of vacation that
may be due to any Employee who rejects Purchaser's offer of employment. All
other obligations in respect of the Employees which have been included in
calculating the Adjustment or which have accrued in the ordinary course of
business subsequent to November 25, 1996 shall be paid by Purchaser. All other
obligations in respect of the Employees arising prior to the Closing Date shall
be paid by Seller.
6.6 NO SHOP. From the Execution Date through the Closing Date, neither
Seller nor any of its officers, directors, affiliates, employees,
representatives or agents, shall, directly or indirectly, solicit, initiate or
participate in any way in discussions or negotiations with, or provide any
information or assistance to, any corporation, partnership, individual, person
or other entity or group with respect to the sale of Seller or the Assets
(other than sales of inventory in the ordinary course of business) or assist or
participate in, facilitate or encourage any effort or attempt by any other
person to do or seek any of the foregoing. Seller shall promptly communicate
to Purchaser the terms of any proposal or contact which it may receive in
respect of any such transaction.
6.7 NONCOMPETITION AND NONSOLICITATION. During the period commencing with
the Execution Date and ending on the third (3rd) anniversary of the Closing
Date, neither Seller or any of its principal shareholders agreeing to be bound
by this Section 6.7 shall:
6.7.1 enter into competition with Purchaser by establishing a remote
alarm system monitoring center in Florida providing third party alarm system
monitoring or similar
32
<PAGE> 33
services to those provided by the Purchased Business from any location to any
person within twenty five (25) miles of any location where Purchaser or any
subsidiary of Purchaser provides such services;
6.7.2 solicit any Dealer or Subscriber for the purposes of providing
any services similar to those provided by the Purchased Business, either by such
party or by any other person or entity;
6.7.3 reveal the customer list of Seller and the Purchased Business to
any person;
6.7.4 employ any employee of Purchaser or its subsidiaries, or any of
the Employees or solicit or encourage any such employee to terminate his
employment with any of the foregoing; or
6.7.5 take any other action which is intended to, or which would
reasonably be expected to:
(a) adversely affect Purchaser's interest in any Account;
(b) adversely affect Purchaser's contractual relationship with
any Dealer or Subscriber; or
(c) discourage any Dealer, Subscriber or supplier from
continuing its business relationship with Purchaser after the
Closing Date on the same terms as were maintained with Seller.
Notwithstanding any other provision of this Agreement, Seller agrees that
neither money damages nor arbitration would be a sufficient remedy for breach
of this Section 6.7 and that the Purchaser shall be entitled to specific
performance, injunctive relief or other equitable relief as a
33
<PAGE> 34
remedy for breach of this Section 6.7. Such remedies shall be in addition to
any other remedies available at law or in equity. The parties agree that the
state and federal courts located in Broward County, Florida are the proper
venue for seeking such relief, and no party shall attempt to have the venue of
any such action changed to any other court.
7. CONDITIONS TO OBLIGATIONS OF PURCHASER AND SELLER.
7.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. All obligations of Purchaser
hereunder are, at its option, subject to the fulfillment of each of the
following conditions on or before the Closing Date and the Second Closing
Date:
(a) The representations and warranties of Seller set
forth in Section 4 shall be true and correct on the Closing
Date with the same force and effect as if made at and as of
such date;
(b) Seller shall have performed or complied with all
of the terms, covenants and conditions of this Agreement to be
performed or complied with by Seller at or prior to the
Closing Date.
(c) No action or proceeding shall be pending by any
person, government, governmental, authority, regulatory body
or agency to enjoin, restrict or prohibit:
(1) the sale and purchase of the Assets contemplated hereby; or
(2) the right of Purchaser to own the Assets or conduct the
Purchased Business;
(d) No material Assets shall have been stolen, damaged or
destroyed and there shall have occurred no event or events
having a material adverse effect on the financial condition,
assets, liabilities, equity, results of operations, business
or prospects of Seller, whether or not in the ordinary
course of business;
(e) Seller shall have delivered to Purchaser the
opinion of Seller's counsel substantially in the form of
Exhibit 7.1(e) (which shall be reconfirmed as of the Second
Closing Date);
(f) Seller (or the Jacksons, in the case of the
Sublease) shall have delivered executed Contract Assignment
Agreements (including but not limited to
34
<PAGE> 35
those for the contracts and policies of insurance listed on
Schedule 2.1(n)), the Sublease, the Personal Property Lease
Assignment Agreements, the License Assignment Agreements, and
any and all other authorizations, permits and consents
necessary to lawfully own and operate the Purchased Business,
including executed consents where necessary to accomplish the
assignment in conformity with the underlying agreements, for
all material contracts, leases, agreements, insurance policies
and permits to be acquired by Purchaser pursuant to this
Agreement;
(g) Seller shall have received any and all other
authorizations, permits and consents necessary to validly
sell, assign and transfer the Assets to Purchaser and for
Purchaser's assumption of the Assumed Liabilities; and
(h) Jackson and Purchaser shall have executed and
delivered an employment agreement, substantially in the form
of Exhibit 7.1(h) (the "Employment Agreement").
7.2 PURCHASER'S OPTION.
7.2.1 In case any condition referred to in Section 7.1 to be performed
or complied with at or prior to the Closing Date shall not have been so
performed or complied with, Purchaser may, without limiting any other right that
Purchaser may have, at its sole option, either:
(a) rescind this Agreement by notice to Seller, and
in such event Purchaser shall be released from all obligations
hereunder; or
(b) waive compliance with any such term, covenant or
condition in whole or in part.
7.2.2 Notwithstanding any provision to the contrary herein contained,
Purchaser may terminate this Agreement at any time prior to the Closing without
being required to give any reason or to demonstrate any cause for such
termination. Purchaser shall notify Seller of such termination in writing. If
Purchaser terminates this Agreement as provided in this Section 7.2.2, this
Agreement shall thereupon terminate, and neither Seller nor Purchaser shall
have further liability to each other. In such event, Purchaser shall, however,
pursuant to Section 6.2, return to
35
<PAGE> 36
Seller or destroy (at Seller's option) all copies of documents received from
Seller in contemplation of the purchase described in this Agreement.
7.3 CONDITIONS TO OBLIGATIONS OF SELLER. All Obligations of Seller
hereunder are, at its option, subject to the fulfillment of each of the
following conditions on or before the Closing Date.
(a) The representations and warranties of Purchaser set forth
in Section 5 shall be true and correct at the Closing Date
with the force and effect as if made at and as of such date;
(b) Purchaser shall have performed or complied with all of the
terms, covenants and conditions of this Agreement to be
performed or complied with by Purchaser at or prior to the
Closing Date;
(c) No action or proceeding shall be pending by an person,
government, governmental authority, regulatory body or agency
to enjoin, restrict, or prohibit the sale and purchase of the
Assets contemplated hereby;
(d) Purchaser shall have delivered to Seller opinion of Purchaser's
counsel substantially in the form of Exhibit 7.3(d) (which
shall be reconfirmed at the Second Closing); and
(e) Purchaser shall have received any and all other authorizations,
permits and consents necessary for Purchaser to purchase the
Assets and to assume the Assumed Liabilities.
7.4 SELLER'S OPTION. In case any condition referred to in Section 7.3 to
be performed or complied with as of the Closing Date shall not have been so
performed or complied with, Seller may, without limiting any other right that
Seller may have, at its sole option, either;
(a) rescind this Agreement by notice to Purchaser,
and in such event Seller shall be released from all
obligations hereunder; or
(b) waive compliance with any such term, covenant or
condition in whole or in part.
36
<PAGE> 37
8. INDEMNIFICATION
8.1 INDEMNIFICATION BY SELLER.
Seller and its principal shareholder, William Jackson, jointly and
severally hereby agree to indemnify and hold Purchaser harmless against any
Loss arising out of or due to:
(a) any material breach of any representation or
warranty by Seller contained herein or in any document
delivered hereunder;
(b) any material breach of any covenant or agreement
by Seller contained herein;
(c) any material breach of any covenant or agreement
by Seller contained herein to be performed prior to or after
the Closing Date.
(d) liabilities of Seller which relate to the
ownership or use of any of the Assets or the conduct of the
Purchased Business prior to the Closing Date which are not
Assumed Liabilities including liabilities arising from or
relating to:
(1) taxes imposed on Seller, the Purchased Business or any
other Assets for any period prior to the Closing Date
unless disclosed, assumed and reserved against;
(2) The litigation set forth on Schedule 4.16, less any
amounts covered by Seller's casualty and liability
insurance.
(3) injuries to, the death of, or the contraction of
diseases by, any person resulting from exposure to
hazardous substances or other materials prior to the
Closing Date without regard to when such injuries or
diseases are first manifested but only to the extent
not covered by Seller's workers' compensation, casualty
or other liability insurance;
(4) the generation, processing, handling, storage or
disposition of or contamination by Waste Material,
whether on or off the Real Estate, prior to the Closing
Date, including costs and penalties incurred in the
monitoring, cleanup or correction of any such event
or condition, but only to the extent not covered
by casualty or other liability insurance;
(5) any pollution or other damage or injury to the
environment, whether on or off the Real Estate, arising
out of events occurring or
37
<PAGE> 38
conditions existing prior to the Closing date, and
caused or contributed to by Seller, including costs and
penalties incurred in the monitoring, cleanup or
correction of any such event or condition, but only to
the extent not covered by casualty or other liability
insurance; and
(e) any and all actions, suits, proceedings, demands,
assessments or judgments, costs and expenses incidental to any
of the foregoing matters set forth in Section 8.1(a) through
(d).
8.2 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and hold
Seller harmless against any Loss arising out of or resulting from:
(a) any material breach of any representation or
warranty by Purchaser contained herein or in any document
delivered hereunder;
(b) any material breach of any covenant or agreement
by Purchaser contained herein;
(c) any material breach of any covenant or agreement
by Purchaser contained herein to be performed before or after
the Closing Date; or
(d) the Assumed Liabilities and any other liabilities
with respect to the conduct of the Purchased Business on and
after the Closing Date, including liabilities arising from or
relating to:
(1) any taxes imposed on the Assets or
the conduct by the Purchaser of the Purchased Business
for periods on or after the Closing date;
(2) injuries to, the death of or the
contraction of any diseases by, any person resulting
from exposure to hazardous substances or other materials
on or after the Closing Date, but only to the extent not
covered by casualty or other liability insurance;
(3) the generation, processing, handling,
storage or disposition of or contamination by any Waste
Material, whether on or off the Real Estate or other
premises from which the Purchased Business shall be
conducted, on or after the Closing Date, including costs
and penalties incurred in the monitoring, cleanup or
correction of any such event, but only to the extent not
covered by casualty or other liability insurance; and
(4) any pollution or other damage or
injury to the environment, whether on or off the Real
Estate or other premises from which the
38
<PAGE> 39
Purchased Business shall be conducted, occurring on or
after the Closing Date, and caused to by Purchaser,
including costs and penalties incurred in the monitoring,
cleanup or correction of any such event, but only to the
extent not covered by casualty or other liability
insurance.
8.3 INDEMNIFICATION PROCEDURES.
8.3.1 For the purposes of this Section 8.3, the term "Indemnitee" shall
refer to the person or persons entitled, or claiming to be entitled, to be
indemnified, pursuant to the provisions of Section 8.1 or 8.2. The term
"Indemnitor" shall refer to the person or persons having the obligation to
indemnify pursuant to such provisions.
8.3.2 An Indemnitee shall promptly give the Indemnitor written notice
of any matter which an Indemnitee has determined has given or could give rise
to a right of indemnification under this Agreement, stating the amount of the
Loss, if known, and method of computation thereof, all with reasonable
particularity and containing a reference to the provisions of this Agreement in
respect of which such right of indemnification is claimed or arises. If an
Indemnitee shall receive notice of any claim by a third party which is or may
be subject to indemnification (a "Third Party Claim"), the Indemnitee shall
give the Indemnitor prompt written notice of such Third Party Claim and shall
permit the Indemnitor, at its option, to participate in the defense of such
Third Party Claim by counsel of its own choice and at its expense. If,
however, the Indemnitor acknowledges in writing its obligation to indemnify the
Indemnitee hereunder against all Losses that may result from such Third Party
Claim (subject to the limitations set forth herein), then the Indemnitor shall
be entitled, at its option, to assume and control the defense of such Third
Party Claim at its expense and through counsel of its choice. In the event the
Indemnitor exercises its right to undertake the defense of any such Third Party
39
<PAGE> 40
Claim, the Indemnitee shall co-operate with the Indemnitor in such defense and
make available to the Indemnitor, at the Indemnitor's expense, all witnesses,
pertinent records, materials and information in its possession or under its
control relating thereto as is reasonably required by the Indemnitor.
Similarly, in the event the Indemnitee is, directly or indirectly, conducting
the defense against any such Third Party Claim, the Indemnitor shall co-operate
with the Indemnitee in such defense and make available to it all such
witnesses, records, materials and information in its possession or under its
control relating thereto as is reasonably required by the Indemnitee. No such
Third Party Claim may be settled by the Indemnitor without the written consent
of the Indemnitee, unless the settlement involves only the payment of money by
the Indemnitor. Similarly, no Third Party Claim which is being defended in
good faith by the Indemnitor shall be settled by the Indemnitee without the
written consent of the Indemnitor.
8.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITY OBLIGATIONS.
All representations, warranties, covenants and indemnification obligations
contained in this Agreement, shall survive the Closing and any investigation
made at any time by or on behalf of a party, for a period of three years
following the Closing.
8.5 CALCULATION OF LOSSES.
8.5.1 Losses shall be determined after taking into account any
insurance proceeds received by an Indemnitee or its affiliates from a
non-affiliated insurance company on account of such Losses (after taking into
account any costs incurred in obtaining such proceeds and any increase,
determined in the reasonable judgment of the Indemnitee and confirmed by
insurance company, in insurance premiums as a result of a claim with respect to
such proceeds).
40
<PAGE> 41
9. MISCELLANEOUS
9.1 BROKERAGE. Purchaser and Seller each represent and warrant to the
other that they have retained no broker or other person entitled to a
commission, finder's fee or other like payment in connection with the
transactions contemplated by this Agreement.
9.2 ASSIGNMENT. The respective rights and obligations of Purchaser and
Seller under this Agreement shall not be assignable by Purchaser or Seller
without the prior written consent of the other; provided however, that
Purchaser shall not be required to obtain Seller's prior written consent for an
assignment of all the assets and liabilities of Purchaser or of this Agreement
in its entirety to a wholly-owned subsidiary of Purchaser, to the parent
company of Purchaser owning all the issued and outstanding shares of stock of
or substantially all of the membership interests (except for qualifying
interests) in Purchaser, to a sister corporation of Purchaser wholly-owned by
Purchaser's parent company, or to a sister limited liability company in which
Purchaser's parent company owns substantially all of the membership interests
except for qualifying interests. Upon such demonstration by Purchaser, all the
rights and powers of Purchaser and remedies available to it hereunder shall
extend to and be enforceable by such subsidiary, parent, or sister company, and
appropriate changes shall be made in all appropriate documents and in
applicable parts of this Agreement, reflecting such assignment but no such
assignment shall release Purchaser from its obligations hereunder. Nothing
herein expressed or implied shall confer upon any person, other than the
parties hereto or their respective successors, assigns, heirs and legal
representatives, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
9.3 NOTICES. Any notice, consent, request, claim, demand, instruction or
other communication to be given hereunder by Purchaser or Seller shall be in
writing and shall be
41
<PAGE> 42
deemed to have been given when actually received. Any such notice, consent,
request, claim, demand, instruction or other communication may be given by
mail, express package service, telex, or telefax, and shall be addressed as
follows:
If to Purchaser, to:
Security Associates International, Inc..
2101 S. Arlington Heights Road
Arlington Heights, IL 60005-4142
Attention: President
with a copy to:
Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, IL 60606-7489
Attention: Jerold N. Siegan
If to Seller, to:
William Jackson
1821 S.E. 7th Street
Pompano Beach, FL 33060
with a copy to:
David Romanik
Romanik, Lavin, Huss & Paoli
1901 Harrison Street
Hollywood, FL 33020
or to such other address as a party may from time to time designate by
notice to the other.
9.4 COSTS. The expenses of each party in connection with this Agreement
shall be the sole responsibility of such party.
9.5 INCORPORATION BY REFERENCE. The Schedules, Exhibits, certificates and
other documents attached hereto or referred to herein are deemed to be a part
of this Agreement and are incorporated herein by this reference.
42
<PAGE> 43
9.6 ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties relating to the
subject matter hereof and supersede all prior agreements, understandings, and
representations, whether oral or written. This Agreement shall not be
modified, amended or terminated except by written agreement of the parties.
Captions appearing in this Agreement are for convenience only and shall not be
deemed to explain, limit or amplify the provisions hereof. Unless and only to
the extent specified in this Agreement, Seller and Purchaser do not intend to
confer any rights or benefits on any third parties arising out of or related to
this Agreement or the transactions contemplated herein.
9.7 SET OFF RIGHTS. In addition to the rights of the parties to
indemnification pursuant to Section 8 hereunder, Seller and Purchaser shall
each have the right to set off against any debt owed to the other party any
damages or losses of any kind suffered as a result of the other party's failure
to perform its obligations under this Agreement, breach of warranty or
covenant, or any other act or failure to act in connection with this Agreement;
provided that such right of set off is not modified or prohibited by an award
in arbitration or a judgment by a court of competent jurisdiction.
Nothwithstanding the foregoing, Purchaser shall not have any right of set-off
with respect to its obligations under the Promissory Note and Sublease.
9.8 COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
9.9 ARBITRATION. Any controversy or claim arising out of or related to
this Agreement, or the breach thereof, shall be resolved by binding arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules. The award rendered by the arbitrator may
include attorneys' fees. Judgment on the award rendered by
43
<PAGE> 44
the arbitrator may be entered in any court having jurisdiction thereof. The
arbitration: (a) if initiated by Purchaser, shall be held in Chicago, Illinois,
(b) if initiated by Seller, shall be held in Broward County, Florida, or at any
other place selected by mutual agreement of Seller and Purchaser; (c) shall be
decided by one neutral arbitrator who has been a member in good standing of the
appropriate state bar for at least 15 years, has expertise in the process of
arbitration and interpreting contracts in mergers and acquisitions and
commercial transactions, and is selected in accordance with the Commercial
Arbitration Rules; and (d) shall proceed under the Expedited Procedures of
those rules, irrespective of the amount in dispute. Except to the extent the
arbitrator may award attorneys' fees to a prevailing party, each party shall
bear its own costs and expenses and an equal share of the arbitrator's fee and
the administrative fees of the arbitration.
9.10 GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of Florida excluding its conflict of laws rules.
44
<PAGE> 45
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ATTEST: Security Associates International, Inc.
By: /s/ James S. Brannen
---------------------------------------
As Its President
ATTEST: AMJ Central Station Corporation
By: /s/ William Jackson
---------------------------------------
As Its President
The undersigned, being the sole shareholder of AMJ Central Station
Corporation acknowledges that he will receive substantial economic benefits
upon the consummation of the transactions contemplated by this Agreement. In
order to induce Purchaser to enter into this Agreement and to consummate the
transactions contemplated herein the undersigned hereby agrees to be bound by
Sections 4.7, 6.7, 7.1(h) and 8 hereof.
DATED: December 18, 1996
By: /s/ William Jackson
--------------------
William Jackson
45
<PAGE> 46
The undersigned, being one of the lessees under the Lease agrees to be
bound by Section 4.7 hereof as it relates to the obligation to enter into the
Sublease with Purchaser.
/s/ Elizabeth Jackson
---------------------
Elizabeth Jackson
46
<PAGE> 1
Exhibit 10.13
ASSET PURCHASE AGREEMENT
Between
ALL-SECURITY MONITORING SERVICES, L.L.C.
as
PURCHASER
and
NORTHERN CENTRAL STATION, INC.
as
SELLER
Dated February 25, 1997
<PAGE> 2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of February 25, 1997, is entered
into by and between All-Security Monitoring Services, L.L.C., an Illinois
limited liability company ("Purchaser"), and Northern Central Station, Inc., a
New Jersey corporation ("Seller").
Purchaser and Seller hereby agree as follows:
1. DEFINITIONS AND USE OF TERMS
Definitions. The following terms shall have the meanings assigned below
when used in this Agreement:
1.1. "Account" shall mean an agreement between a Subscriber and Seller
pursuant to which the Central Monitoring Station monitors on a remote basis the
security alarm system of a Subscriber;
1.2. "Adjustment" has the meaning assigned in Section 3.2.2 (c);
1.3. "Applicable Law" shall include any law, rule, regulation, order,
injunction, notice, approval or judgment of any federal, state, or local
government or governmental department, agency, board or the like, which applies
to any of the Assets or the Purchased Business, and any agreement with any such
government or governmental department, agency or board relating to compliance
with any of the foregoing;
1.4. "Assets" has the meaning assigned in Section 2.1;
1.5. "Assumed Liabilities" has the meaning assigned in Section 2.5;
1.6. "Be-Protected" has the meaning assigned in Section 2.3;
1.7. "Be-Protected Accounts Receivable" has the meaning assigned in
Section 2.4.3 (a);
1.8. "Be-Protected Acknowledgment" has the meaning assigned in Section
2.4.3 (a);
1.9. "Central Monitoring Station" shall mean the central monitoring
station which is owned by Seller as of the Execution Date and the Closing Date
and which monitors on a remote basis the security alarm systems of the
Subscribers;
1.10. "Closing" has the meaning assigned in Section 3.1;
1.11. "Closing Date" has the meaning assigned in Section 3.1;
2
<PAGE> 3
1.12. "Contract" means Assets of the type described in Section 2.1(a), (c)
and (g);
1.13. "Contract Assignment Agreement" has the meaning assigned in Section
4.10;
1.14. "Dealer" means a customer of Seller who has designated Seller to
monitor on a remote basis the security alarm systems of those Subscribers who
have contracted with Dealer to obtain such monitoring services from Seller;
1.15."Deferred Accounts" has the meaning assigned in Section 2.4.3 (b).
1.16. "Effective Time" means the opening of business on the Closing Date;
1.17. "Eligible Receivables" means all of Seller's accounts receivable
purchased hereunder less all of the accounts receivable of account debtors whose
accounts receivable were in excess of $2,000.00 and over 60 days past due as of
the Closing Date;
1.18. "Employee" means a person employed by Seller immediately prior to
the Effective Time;
1.19. "Excluded Assets" means all assets other than the Assets purchased
hereunder as described in Section 2.1 hereof.
1.20. "Execution Date" means the date first written above;
1.21. "Financial Statements" means Seller's unaudited statement of income
and balance sheet compiled but not audited by Seller's Accountant for the twelve
month period ending on October 31, 1996 (presented on an accrual basis);
1.22. "FSS" has the meaning assigned in Section 2.4.3 (b);
1.23. "FSS Agreements" has the meaning assigned in Section 2.4.3 (b);
1.24. "Income Tax Returns" means Seller's federal income tax returns for
the periods ending October 31, 1993, October 31, 1994 and October 31, 1995;
1.25. "Intellectual Property" means all of the patents, trademarks, trade
names (including "Northern Central Station" and the corporate name "Northern
Central Station, Inc."), service marks, trade secrets, designs, know-how,
copyrights, computer programs and software, registrations and applications and
rights relating to any of the foregoing, and all other proprietary rights and
information relating to or used by Seller;
1.26. "Intercreditor Agreement" has the meaning assigned in Section 2.4.3
(c).
1.27. "Interim Period" means the period beginning on the Execution Date
and ending on the Closing Date;
3
<PAGE> 4
1.28. "License Assignment Agreement" has the meaning assigned in Section
4.9;
1.29. "Loss" shall mean any liability, loss, damage, claim, cost,
deficiency, obligation, or expense (including penalties and reasonable legal
fees and costs) incurred by a party;
1.30. "Permits" means all governmental licenses, registrations and
permits, and applications therefor;
1.31. "Personal Property Lease Assignment Agreements" has the meaning
assigned in Section 4.8;
1.32. "Purchased Business" means the entire remote alarm monitoring
business conducted by Seller as of the Execution Date and the Closing Date;
1.33. "Purchaser's Accountants" means the independent public accounting
firm of Arthur Andersen & Co.;
1.34. "Reliable Hawk Accounts" has the meaning assigned in Section 2.3;
1.35. "Reliable Hawk Purchase Price" has the meaning assigned in Section
2.4.2 (b);
1.36. "RMR" shall mean the recurring monthly gross revenue contracted for
by the Purchased Business in consideration for the monitoring services provided
to Subscribers;
1.37. "RMR Reports" means the reports prepared by Seller and delivered to
Purchaser detailing the RMR due from each Dealer as of November 30, 1996,
December 31, 1996 and January 31, 1997;
1.38. "Sellers' Accountant" means the independent public accounting firm
of John F. Chiodi;
1.39. "Seller's Principals" means Jeffrey Goldberg and William Paynton.
1.40. "Subscriber" means a customer to whom Seller is entitled by contract
to provide remote monitoring services for the security alarm system installed on
that customer's premises;
1.41."UL Certificates" has the meaning assigned in Section 4.11
1.42. "United Federated Letter" means a letter from Seller to United
Federated Security, Inc. stating that commencing March 1, 1997 United Federated
Security, Inc. will pay for monitoring services for its Subscribers' Accounts on
a current basis, which letter will be acknowledged and agreed in writing by
United Federated Security, Inc..
4
<PAGE> 5
1.43. "Unrelated Party" means any person who is not a shareholder, officer
or director of Seller or is not a business entity controlled by or under common
control with any such person(s); and
1.44. "Waste Material" means any pollutant, contaminant, hazardous or
toxic material or other material now or in the past produced, discharged, stored
or emitted by the Purchased Business or on the real estate occupied by the
Purchased Business.
1.45. Other Terms. In this Agreement:
(a) any representation or warranty made "to the knowledge" of a
party shall mean that the party is making the representation on the basis
of the actual knowledge of the party or, in the case of a corporation, its
officers and directors, in either event, after due inquiry; and
(b) "including" shall indicate examples of a foregoing general
statement and is not a limitation on that general statement.
2. SALE AND PURCHASE OF ASSETS; PURCHASE PRICE.
2.1. Sale and Purchase of Assets. Upon the terms and subject to the
conditions contained in this Agreement, Seller hereby agrees to sell, and
Purchaser hereby agrees to purchase, all of Seller's assets and properties,
tangible and intangible, real, personal or mixed, of and pertaining to or used
in the Purchased Business, wherever located, whether known or unknown, and
whether or not reflected on the books and records of Seller (the "Assets"). The
Assets do not include any of Seller's right, title or interest in the real
estate on which the Central Monitoring Station is located. The Assets include,
but are not limited to, the following:
(a) all right, title and interest in all of Seller's Accounts;
(b) the tangible personal property of Seller listed on Schedule
2.1(b) ;
(c) all leases relating to the tangible personal property and
Intellectual Property which are listed on Schedule 2.1(c), under which
Seller is lessee or conditional buyer;
(d) all right, title and interest in the telephone lines related
to the Accounts and Seller's general telephone line, all of which are
listed on Schedule 2.1(d);
(e) all accounts receivable listed on Schedule 2.1(e) in the
amounts set forth on Schedule 2.1(e);
(f) all prepaid expenses and deposits related to the Assets;
(g) all Intellectual Property;
5
<PAGE> 6
(h) all Permits;
(i) copies of all records of sales, Dealer lists, Subscriber
lists, customer lists and supplier lists;
(j) copies of all books, documents, records and files relating to
the Assets, including but limited to, the accounts receivable purchased
hereunder and the Assumed Liabilities (as defined below), including all
related financial and accounting records and all computer programs;
(k) the goodwill of Seller as a going concern;
2.2. Title. Title to the Assets shall be conveyed to Purchaser free and
clear of all liens, claims, encumbrances or restrictions except for such liens
as are specifically listed on Schedule 2.2 hereto.
2.3. Purchase Price. The purchase price ("Purchase Price") of the Assets
shall be____________________________ Dollars ($______________). In addition,
Purchaser shall assume those (but only those) liabilities and obligations of
Seller stated in Section 2.5. The parties acknowledge and agree that the
Purchase Price as set forth herein does not include payment for the Accounts
monitored for Subscribers who are the customers of Reliable Hawk, Inc.
(approximately 2,200 Accounts) (the "Reliable Hawk Accounts"), payment for which
will be made as provided in Section 2.4.2 hereof or payment for the Deferred
Accounts (approximately 235 Accounts) monitored for Subscribers who are
customers of Be-Protected Alarm Company ("Be-Protected"), payment for which will
be made as provided in Section 2.4.3(c) and (d) hereof provided that the
conditions stated in those sections are satisfied.
2.4. Payment.
The Purchase Price shall be paid by Purchaser to Seller and Seller's
Principals at Closing, at Seller's option, by means of a certified or
cashier's check or wire by transfer in accordance with wire transfer
instructions to be provided by Seller. Schedule 2.4.1 sets forth the
allocation of the Purchase Price as between Seller and each of Seller's
Principals. Exhibit 2.4.1 is a letter of instruction from Seller and
Seller's Principals directing Purchaser to pay the entire Purchase Price
to the law firm of Williams, Caliri, Miller & Otley for distribution to
Seller and Seller's Principals.
2.5. Reliable Hawk.
(a) In addition to the payment of the Purchase Price as set forth
in Section 2.4.1 above, if Purchaser provides monitoring services to the
Reliable Hawk Accounts, Purchaser shall pay to Seller (or Seller's
Principals if so directed in writing by Seller), within thirty (30) days
of receipt thereof, __% of all cash receipts (regardless of when
6
<PAGE> 7
received) for providing monitoring services to the Reliable Hawk Accounts
(net of any refunds), for a period of three (3) years commencing on the
Closing Date.
(b) In the event that Purchaser (or any affiliate of Purchaser)
purchases the Reliable Hawk Accounts, the Purchase Price shall be
increased by an amount equal to two times (2X) the annualized RMR of the
Reliable Hawk Accounts purchased. Purchaser shall, within thirty (30) days
of the closing of such purchase, pay the increased amount of the Purchase
Price (the "Reliable Hawk Purchase Price") to Seller and Seller's
Principals, in such proportions as Purchaser is directed in writing by
Seller. Any amounts paid pursuant to Section 2.4.2 (a) shall be credited
against the Reliable Hawk Purchase Price. In addition, Purchaser may
setoff against the Reliable Hawk Purchase Price any amounts due Purchaser
from Seller or Seller's Principals pursuant to this Agreement.
2.6. Be-Protected Alarm Company.
(a) Be-Protected is indebted to Seller for an estimated Twenty One
Thousand Dollars ($21,000.00) in monitoring fees for service provided
prior to the Closing (the "Be-Protected Accounts Receivable"). Seller has
agreed, that at or prior to Closing, Seller will obtain from Be-Protected
and deliver to Purchaser, subject to Purchaser's reasonable approval,
Be-Protected's written acknowledgment of its obligation to pay to
Purchaser the entire amount of the Be-Protected Accounts Receivable over a
period of one year from Closing in twelve equal installments, as well as
its commitment to pay on a current basis all monitoring fees for all
Be-Protected Accounts other than the Deferred Accounts (the "Be-Protected
Acknowledgment"). The Be-Protected Acknowledgment will include
Be-Protected's agreement to pay one percent (1%) a month interest on all
amounts that are not paid when due. Seller agrees that if Seller does not
deliver the Be-Protected Acknowledgment at or prior to Closing, the
Purchase Price will be reduced by (i) the amount of the Be-Protected
Accounts Receivable, which shall remain the property of Seller and, (ii)
provided Purchaser elects to discontinue monitoring services with respect
to such Be-Protected Accounts (which will be evidenced by a writing to
that effect delivered to Seller at Closing and notice to Be-Protected to
be delivered as soon as practicable after the Closing two times (2X) the
annualized RMR of all Be-Protected Accounts included in the Accounts to be
purchased by Purchaser and such Be-Protected Accounts shall remain the
property of Seller.
(b) Schedule 2.4.3(b) is a true and complete list of all Accounts
for which Seller has agreed to accept payment from Be- Protected for
monitoring services on a deferred basis (the "Deferred Accounts"). All of
the Deferred Accounts are owned by Be- Protected Alarm Company. The
purchase of the Deferred Accounts by Be-Protected was financed by
Financial Security Services, Inc. ("FSS"), pursuant to certain loan and
security agreements (the "FSS Agreements").
(c) Purchaser agrees to Purchase the Deferred Accounts from
Seller, but only if all of the following conditions are met: (i) Purchaser
receives within ten (10) days of Closing, true and complete copies of the
FSS Agreements; (ii) there are no liens on any
7
<PAGE> 8
Accounts owned by Be-Protected other than those in connection with the FSS
Agreements; (iii) within sixty (60) day of Closing, Purchaser and
Be-Protected enter into an agreement governing the payment of the amounts
due with respect to the Deferred Accounts, which shall include a security
interest in all of Be-Protected's Accounts, ranking junior to only the
liens of FSS pursuant to the FSS Agreements, which agreement shall be
satisfactory to Purchaser in its sole discretion; and (iv) within sixty
(60) days of Closing, Purchaser and FSS enter into an intercreditor
agreement (the "Intercreditor Agreement"), satisfactory to Purchaser in
its sole discretion, pursuant to which Purchaser would receive notice of
and have the option to cure any defaults of Be-Protected under the FSS
Agreements and pursuant to which Purchaser would be assigned
Be-Protected's ownership interest in the Deferred Accounts upon such
default by Be-Protected and cure by Purchaser. If all of the conditions of
this Section 2.4.3(c) are satisfied, then Purchaser shall purchase the
Deferred Accounts from Seller at a purchase price equal to two times (2X)
the annualized RMR of the Deferred Accounts so purchased, payable ten (10)
business days following the satisfaction of all of the conditions
contained in this Section 2.4.3(c). The purchase price for the Deferred
Accounts shall be paid to Seller and/or Seller's Principals as directed by
Seller.
(d) In the event that all of the conditions contained in Section
2.4.3(c) are not satisfied or waived by Purchaser within ninety (90) day
of the Closing Date, Purchaser in its sole discretion may elect to either:
(i) not purchase the Deferred Accounts and discontinue
monitoring services for the Deferred Accounts, or
(ii) purchase the Deferred Accounts and continue to provide
monitoring services to those Accounts. If the Deferred Accounts are
purchased pursuant to this Section 2.4.3(d) the purchase price for
the Deferred Accounts so purchased shall be two times (2X) the
annualized RMR for such Accounts, provided, however, that such
purchase price shall only be payable out of monitoring fees received
by Purchaser for services provided to such Accounts, as follows:
Purchaser shall pay to Seller (or Seller's Principals if so directed
in writing by Seller), within thirty (30) days of receipt thereof,
fifty percent (50% ) of all cash receipts for providing monitoring
services to the Deferred Accounts (net of any refunds), until such
time as the purchase price of the Deferred Accounts has been paid in
full.
2.7. Assumption of Certain Liabilities
(a) Purchaser shall assume, pay, fulfill perform or otherwise
discharge only the following liabilities and obligations of Seller to
Unrelated Parties ("Assumed Liabilities") on the Closing Date:
(i) only those of Seller's liabilities set forth on schedule
2.5.1 (a) in the amount reflected on Schedule 2.5.1(a) as of the
Closing Date;
8
<PAGE> 9
(ii) all liabilities and obligations of the Purchased
Business accruing on and after the Closing Date under contracts,
agreements, licenses, leases and similar documents which are to be
transferred to Purchaser pursuant to this Agreement, specifically
including the obligation to provide, during the term of each
Subscriber's or Dealer's contract with Seller, continuing monitoring
services to all such Subscribers and Dealers; and
(iii) those liabilities and obligations of Seller otherwise
specifically assumed by Purchaser in this Agreement as set forth on
Schedule 2.5.1(c).
(b) Except as provided in Section 2.5.1, Purchaser shall not be
required to assume, pay, perform, defend or discharge any, and Seller
shall retain, pay, perform, defend and discharge all, of Seller's
liabilities and obligations of any and every kind whatsoever, whether
disclosed, undisclosed, direct, indirect, absolute, contingent, secured,
unsecured, accrued or otherwise, whether known or unknown. Further,
Purchaser shall not assume or agree to pay, perform or discharge, nor
shall Purchaser be, directly or indirectly responsible for, any obligation
or liability of Seller with respect to the breach of any contract or
commitment prior to the Closing Date, or any action, suit or proceeding
pending at the Closing which is asserted in respect of the conduct by
Seller of its business prior to the Closing Date.
2.8. Subsequent Documentation. At any time and from time to time after
the Closing, upon the request of Seller or Purchaser and without further
consideration and at no cost to the other party, but with Purchaser and Seller
bearing their own respective expenses incident thereto, Seller and Purchase
shall do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, assignments, transfers,
conveyances, assumptions, powers of attorney and assurances:
(a) as may be required for assigning transferring, granting and
conveying to Purchaser or its successors and assigns, or for aiding and
assisting in collecting and reducing to possession and control of
Purchaser or its successors and assigns, all of the Assets; or
(b) as may be required for the better assigning, assuming,
obligating, assuring and confirming to Seller that the Assumed Liabilities
are assumed and to provide to Seller evidence of such undertaking and the
discharge of such undertaking by Purchaser.
2.9. Allocations. The Purchase Price shall be allocated among the Assets
in accordance with Schedule 2.7. In filing their respective income tax returns
in any jurisdiction, the parties shall use the allocations of the Purchase Price
set out in Schedule 2.7.
2.10. Transfer Instruments and Taxes. The sale, transfer, assignment and
delivery of the Assets by Seller to Purchaser shall be effected at the Closing
by instruments of transfer and conveyance (with any necessary transfer and
documentary stamps) sufficient in form and
9
<PAGE> 10
substance to vest in Purchaser good, valid and marketable title to all of the
Assets. Seller shall take all other steps as may be reasonably necessary to
put Purchaser in actual possession and operating control of the Assets. To the
extent any sale, transfer, use or other similar taxes may be imposed by reason
of such sale, transfer, assignment and delivery of the Assets, Seller shall pay
all such taxes. Seller shall make any filings required as a result of the
transactions contemplated by this Agreement with the New Jersey taxing
authorities.
2.11. Consent to Assignment. To the extent that the assignment of any
Contract, Permit or Intellectual Property shall require the consent of another
person, this Agreement shall not constitute an agreement to assign the Contract,
Permit or Intellectual Property if an attempted assignment would constitute a
breach thereof. Seller and Purchaser shall cooperate with each other in
obtaining and shall jointly attempt to obtain the consent of any other party to
a Contract, or the issuer of a Permit for the assignment thereof to Purchaser.
If any such consent is not obtained, to the extent permitted by applicable law,
Seller shall cooperate with Purchaser to provide for Purchaser the benefits
under such Contract, Permit or Intellectual Property, including enforcement, for
the benefit of Purchaser, of any and all rights of Seller against any other
party. Purchaser, at its option, may elect to buy out any personal property
lease where the lessor does not consent to the assignment of such lease to
Purchaser on its then existing terms.
2.12. Original Documents. Seller shall deliver to Purchaser at Closing and
Purchaser shall thereafter retain all the original books, records, files,
contracts and other documents referred to in Section 2.1 hereof arising out of
or related to Seller's business prior to Closing (collectively, the "Original
Records") except for Seller's corporate minute books and records of
shareholders' and directors' meetings; provided, however, that Seller shall have
the right for a period of four (4) years after Closing, to copy any and all such
Original Records during normal business hours and upon reasonable notice to
Purchaser.
3. CLOSING AND POST CLOSING ADJUSTMENTS.
3.1. Closing. The consummation of the sale and purchase hereunder (the
"Closing") shall be effected by facsimile transfer of documents and by wire
transfer of funds at 10:00 a.m. Chicago time on February 28, 1997 (the "Closing
Date") or at such other place and time as the parties may agree.
3.2. At or prior to Closing, Seller shall execute and deliver to
Purchaser: (i) this Agreement; (ii) a bill of sale evidencing the transfer to
Purchaser of the Assets (the "Bill of Sale"); (iii) the Assumption Agreement;
(iv) the Personal Property Lease Assignment Agreements; (v) the Contract
Assignment Agreements; (vi) the License Assignment Agreements; (vii) the Permit
Assignment Agreements; (viii) certified copies of Seller's Certificate of
Incorporation, By-laws and the corporate proceedings authorizing the
transactions contemplated by this Agreement; (ix) a Certificate of Good Standing
dated as of a recent date issued by the Secretary of State of the State of New
Jersey; (x) the form of amendment to Seller's Certificate of Incorporation
pursuant to which Seller's name will be changed immediately following the
Closing as provided in Section 4.9 and (xi) Seller's Opinion of Counsel. In
10
<PAGE> 11
addition, Seller shall obtain and deliver to Purchaser at Closing: (xii) the
Be-Protected Acknowledgment ; and (xiii) the United Federated Letter;
3.3. At or prior to Closing Purchaser shall execute and deliver to
Seller: (i) this Agreement; (ii) the Purchase Price, payable by means of a
certified check, cashier's check or wire transfer, as directed by Seller; (iii)
the Assumption Agreement; (iv) the Personal Property Lease Assignment
Agreements; (v) the Contract Assignment Agreements; (vi) the License Assignment
Agreements; (vii) the Permit Assignment Agreements; (viii) certified copies of
Purchaser's Articles of Organization, Operating Agreement and the proceedings
authorizing the transactions contemplated by this Agreement.
3.4. Adjustments. Purchaser and Seller have agreed that the Purchase
Price as set forth in Section 2.1 shall be subject to the following post-closing
adjustments:
3.5. February Month End Adjustment.
Schedule 3.2.1 contains the parties' estimate, as of the Closing
Date, of the net difference between the value of Seller's accounts
receivable (excluding those of Be-Protected) to be purchased by Purchaser
and Seller's liabilities to be assumed by Purchaser pursuant to this
Agreement. Seller will deliver to Purchaser by no later than five (5)
business days following the Closing, the actual amounts for each of the
items listed on Schedule 3.2.1. Within five (5) business days of delivery
of the revised amounts, Purchaser or Seller, as appropriate, shall pay to
the other, as directed by the receiving party, the amount of the
difference between the estimate contained on Schedule 3.2.1 and the
revised net difference as determined pursuant to this Section 3.2.1.
3.6. Sixty Day Adjustment.
Purchaser and Seller have agreed that sixty (60) days following the
Closing there shall be a final adjustment of the Purchase Price based on a
post-closing review of the accounts receivable purchased pursuant to this
Agreement and the RMR of the Accounts purchased pursuant to this
Agreement, as of the Closing Date.
3.7. Accounts Receivable Adjustment. Seller has agreed that within ten
(10) days following the Closing, Seller's Accountant will survey all of the
Dealers who are the account debtors on the Eligible Accounts Receivable to
confirm their respective accounts receivable as of the Closing Date. Within five
(5) days of the completion of the survey, Seller's Accountant will deliver to
Seller and Purchaser a written report of the results of its survey. The value of
the accounts receivable being purchased hereunder (which was calculated as the
sum of Seller's Eligible Receivables) as reflected on Schedule 3.2.1 (as revised
pursuant to Section 3.2.1) shall be adjusted to reflect the Eligible Receivables
so confirmed. Any increase in the amount of such Eligible Receivables shall be
paid by Purchaser to Seller and any decrease shall be paid by Seller to
Purchaser as provided in Section 3.2.2(c).
11
<PAGE> 12
3.8. RMR Adjustment. Seller and Purchaser have agreed that within ten
(10) days following the Closing Purchaser will survey each of the Dealers listed
on Schedule 4.20, to determine that on the Closing Date each such Dealer had a
continuing agreement with Seller for Seller to provide monitoring services for
their Accounts and to confirm the contracted amount of RMR for which such
agreements existed as of the Closing Date. Within five (5) days of the
completion of the survey, Purchaser will deliver to Seller a report detailing
the results of the survey. The Purchase Price hereunder shall be increased or
decreased , as appropriate, by two times (2X) the difference in the RMR of the
Accounts to be purchased as determined pursuant to this Section 3.2.2(b) and the
RMR reflected on Schedule 4.20. In making the adjustment calculation required by
this Section 3.2.2(b) the RMR of the Reliable Hawk Accounts, the Deferred
Accounts and any Be-Protected Accounts excluded from the purchase and sale
hereunder pursuant to Section 2.4.3(a) shall be excluded.
3.9. The net adjustments pursuant to Sections 3.2.2(a) and 3.2.2(b) shall
be reflected in an adjustment report to be prepared by Purchaser (the
"Adjustment Report") and delivered to Seller no later than ten (10) days
following the receipt of the survey reports pursuant to Section 3.2.2(a) and
3.2.2(b). Provided that there is no dispute among the parties, sixty (60) days
following the Closing Date the net amount of the adjustments shall be paid to
Purchaser or Seller (and Seller's Principals, if so directed by Seller), as
appropriate, as directed by the party to which payment is due. Any payments due
from Seller hereunder shall be paid by Seller and Seller's principals in the
same proportions as they received their respective shares of the Purchase Price
pursuant to Section 2.4.1.
3.10. If either Purchaser or Seller disputes the amount reflected in the
reports of Seller's Accountant and/or Purchaser delivered pursuant to Sections
3.2.2(a) and 3.2.2(b) or the net adjustment reflected in the Adjustment Report,
the amount of the adjustment due under this Section 3.2.2 shall be determined by
arbitration as provided in Section 8. Notwithstanding the foregoing, if the net
amount in dispute is less than Five Thousand Dollars ($5,000.00) than the
adjustment amount shall be as reflected in the Adjustment Report.
4. REPRESENTATIONS WARRANTIES AND COVENANTS OF SELLER
As of the Execution Date (for all matters arising prior thereto) and as of
the Closing Date, Seller, Jeffrey Goldberg, William Paynton and Desmond Starr
represent and warrant to Purchaser as follows:
4.1. Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey and has
all requisite corporate power and authority to own its assets and to conduct its
business in the manner in which it is now conducted. Seller is duly qualified to
do business in, and is in good standing under the laws of, each jurisdiction in
which the ownership or leasing of the Assets or the conduct of the Purchased
Business requires such qualification, which jurisdiction are listed on Schedule
4.1. Seller has no equity interest in and does not control, through stock
ownership or otherwise, any corporation, partnership, joint venture or other
business entity. Attached hereto as Exhibits 4.1A, 4.1B and 4.1C, respectively,
are certified copies of Seller's Certificate of Incorporation and By-laws,
12
<PAGE> 13
including all amendments through the Closing Date and a Certificate of Good
Standing issued by the Secretary of State of New Jersey dated as of a recent
date. Jeffrey Goldberg, William Paynton and Desmond Starr are the only
shareholders of Seller.
4.2. Power and Authority. Seller has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement has been duly authorized, executed and delivered by Seller and,
assuming the due authorization, execution and delivery by Purchaser, constitutes
the legal, valid and binding obligation of Seller enforceable against Seller in
accordance with its terms. The President of Seller has been duly authorized to
execute this Agreement on behalf of Seller. Attached hereto as Exhibit 4.2 is a
true and complete copy of the corporate actions taken by the Seller and its
shareholders authorizing the transactions contemplated by this Agreement.
4.3. Financial Condition.
(a) Seller has delivered to Purchaser its Financial Statement,
consisting of Seller's unaudited statements of income and balance sheets
compiled but not audited by Seller's Accountant for the twelve month
period ending on October 31, 1996, and its RMR Report for months of
November and December 1996 and January , 1997. The Financial Statement and
the RMR Reports fairly presents the financial condition, assets,
liabilities, equity and results of operations of Seller as of their
respective dates and periods and are correct in all material respects, and
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved._
TC "Financial Condition." \f C \l "2" _
(b) Seller has delivered to Purchaser its Income Tax Returns for
calendar years 1992, 1993 and 1994, attached as Exhibit 4.3.2. The Income
Tax Returns are correct and complete in all material respects.
(c) The tangible property and Intellectual Property used in the
conduct of Seller's business included in the Assets are not damaged, are
fit for their particular use, and are not defective, such that they are of
a quantity and quality usable in the ordinary course of the business of
Seller, and are in the amounts reflected on the October 31, 1996 Financial
Statement, subject only to changes in the ordinary course of business. All
such property reflected on the October 31, 1996 Financial Statement are
stated at not more than cost, and have been adjusted to reflect damaged or
otherwise not readily usable items. All such property is located at
Seller's principal place of business.
(d) The accounts receivable included in the Assets and listed on
Schedule 4.3.4 are valid receivables, collectible to the extent of the
excess thereof over any reserves, discounts and allowances specifically
included in the October 31, 1996 Financial Statement and on Schedule
4.3.4, and are subject to no defenses, counterclaims or set-offs other
than those disclosed on Schedule 4.3.4. Schedule 4.3.4 also includes a
list of all prepaid accounts receivable and the amounts and periods of
prepayment for each such prepaid account.
13
<PAGE> 14
4.4. Absence of Undisclosed Liabilities. Seller has no liabilities or
obligations (whether absolute, accrued, contingent or otherwise and whether due
or to become due, including liabilities for taxes and interest and penalties
thereon) except (a) the Assumed Liabilities, and (b) the liabilities and
obligations set forth on Schedule 4.4 which will be retained by Seller. There
are no liabilities related to the telephone lines being acquired by Purchaser
pursuant to Section 2.1(d) (e.g., no ongoing Yellow Pages advertisements) other
than the obligation to pay the future line and usage charges for those telephone
lines.
4.5. Tax Returns. Seller has filed with the appropriate governmental
agencies all required tax returns, is not in default with respect to any such
filing, is not delinquent in payment of any taxes due to any taxing authority
and has paid or made adequate provision or reserves for all taxes (including all
federal, state and local income taxes, withholding, corporate and excise taxes,
sales taxes, real and personal property taxes, unemployment insurance,
occupation, social security and Medicare taxes, and interest and penalties
thereon) payable by it, or attributable to periods prior to the Closing Date.
Seller has not given any waiver or extension of any period of limitation
governing the time of assessment or collection of any tax. The federal income
tax returns of Seller have never been audited by the United States Internal
Revenue Service. No deficiency in tax payment is claimed by the United States
Internal Revenue Service or any other tax authority for any of Seller's taxable
years. There are no tax audits currently pending with respect to Seller. To the
best of Seller's knowledge, there is no basis for assessment of any deficiency
in federal or state income taxes or any other taxes or governmental charges
against Seller.
4.6. Absence of Certain Changes. Except as disclosed on Schedule 4.6,
since December 31, 1996 through the Closing Date there has not been and will not
be:
(a) any material adverse change in the financial condition,
assets, liabilities, equity, operations, business or prospects of Seller;
(b) any obligation or liability incurred by Seller other than
obligations and liabilities incurred in the ordinary course of business;
(c) any material damage, destruction or loss, whether or not
covered by insurance, adversely affecting any Assets;
(d) any mortgage, encumbrance or lien placed on any of the Assets;
(e) any purchase or sale or other disposition or any agreement or
other arrangement for the purchase or sale or other disposition of any
material assets;
(f) any change in the compensation or benefits payable or to
become payable by Seller to any of its officers, employees or agents or
any new bonus payment or arrangement or employee benefit made to or with
any of them;
(g) any change with respect to the management or supervisory
personnel of Seller; or
14
<PAGE> 15
(h) any other event or condition of any character materially and
adversely affecting the financial condition or business of Seller.
4.7. Real Estate. Seller does not own any real estate and does not lease
any real estate to others. Seller has valid leasehold interests in all real
estate that it leases from others and the improvements situated thereon. Seller
is not in default under the lease for Seller's Central Monitoring Station, nor
is there any event or occurrence which with notice or passage of time will
constitute a default under such lease. The lease for the real estate on which
the Central Monitoring Station is located is currently in effect and will stay
in effect for the entire Transition Period.
4.8. Tangible Personal Property. Seller has and will transfer to
Purchaser good title to all of the Assets, as reflected on Schedule 4.8. Seller
has valid leases for all tangible personal property which it leases from others,
all of which are identified on Schedule 4.8. On or prior to the Closing Date,
all leases with respect to the tangible personal property of Seller identified
on Schedule 4.8, including the lease with respect to the MAS System and all the
equipment related thereto, shall have been assigned to Purchaser pursuant to
agreements substantially in the form of Exhibit 4.8 hereto (the "Personal
Property Lease Assignment Agreements"). The machinery, equipment, furniture and
fixtures, computer hardware and software used by Seller are in good operating
condition and repair, normal wear and tear and required maintenance (which has
heretofore been regularly performed) excepted, and are suitable and fit for the
purposes for which they are currently being used.
4.9. Intellectual Property. Schedule 4.9 lists and briefly describes all
of the Intellectual Property owned or used under license, and specifies in each
case whether Seller is owner, licensor or licensee of any Intellectual Property.
All license agreements and all other instruments relating to licenses, including
the Monitoring Automation Systems license, are described in Schedule 4.9 and
true and complete copies thereof have been provided to Purchaser. None of the
Intellectual Property has been held or stipulated to be invalid in any
litigation which has been concluded and the validity of none of the Intellectual
Property has been questioned in any litigation currently pending or, to the best
knowledge of Seller, threatened. Seller owns or possesses under lease, license,
or otherwise all intellectual property necessary to sell its services and the
performance by Seller of such services does not infringe any rights of any other
person. Seller has not received any notice of conflict thereof with the asserted
rights of others, and Seller has the right to bring an action for any
infringement of its Intellectual Property. On or prior to the Closing Date, all
licenses with respect to Intellectual Property as to which Seller is licensee
shall be assigned to Purchaser pursuant to License Assignment Agreements in the
form of Exhibit 4.9 ("License Assignment Agreements"). Immediately following the
Closing Date Seller shall change its name from Northern Central Station, Inc. to
another name dissimilar to its present name and do such other things as shall be
necessary or desirable to permit Purchaser to assume and use the Seller's name
from and after the Closing Date.
15
<PAGE> 16
4.10. Contracts. Schedule 4.10 is a true and complete list of all
Contracts (other than contracts with Dealers and Subscribers, all of which and
the related Accounts are listed on Schedule 4.20 and those Contracts listed on
Schedules 4.8 and 4.9) being purchased by Purchaser pursuant to this Agreement
which are not otherwise listed on Schedules 4.8 or 4.9. All such Contracts
(including those with the parties listed on Schedules 4.8, 4.9 and 4.20) are
enforceable against the parties thereto in accordance with their respective
terms. No default exists with respect to any such Contracts and no event or
occurrence exists which with notice or passage of time will result in a default.
On or prior to the Closing Date, all such Contracts shall be assigned to
Purchaser pursuant to Contract Assignment Agreements in the form of Exhibit 4.10
("Contract Assignment Agreements"). The contracts with the Dealers and
Subscribers reflected on Schedule 4.20 shall be assigned to Purchaser pursuant
to a single Contract Assignment Agreement assigning all such contracts which
shall be listed on a schedule thereto. Except for the Contracts listed on
Schedules 4.7, 4.9, 4.10 and 4.20, there is no Contract related to the Accounts
or other Assets being purchased hereunder:
(a) extending for a period of time longer than 12 months;
(b) involving expenditures or receipts in excess of $3,000;
(c) relating to the borrowing of money or guarantying any
obligation for borrowed money or otherwise, other than endorsements for
collection;
(d) with any insider or any affiliate;
(e) prohibiting or substantially restricting Seller from freely
engaging in business in any part of the world;
(f) with any Dealer; or
(g) any other contract, commitment or lease outside of the usual
and ordinary course of business.
4.11. Permits. There are no Permits required by Applicable Law for Seller
to own all of the Assets and to operate the Purchased Business as now conducted.
Schedule 4.11 contains a true and complete list of all Underwriters Laboratories
certifications issued to Seller in connection with its operation of the Central
Monitoring Station (the "UL Certificates"). All such UL Certificates are
currently in effect..
4.12. Compliance with Applicable Law and Permits. Seller is conducting,
and has conducted, the Purchased Business in compliance with all Applicable Laws
and the UL Certificates , and has received no notice that it is in breach of any
such Applicable Law or UL Certificate. Seller and to its knowledge its
predecessors in possession of the real estate on which Seller's Central
Monitoring Station is located have processed, stored, disposed, transported,
handled, emitted, discharged, and released any Waste Material, whether on or off
such real estate. No Waste Material, tanks, containers, cylinders, drums or cans
were buried on such real estate by Seller or to its knowledge, any other party
during or preceding Seller's leasing of such
16
<PAGE> 17
real estate. Seller has no internal or external environmental audit reports
prepared by or for Seller. There is no applicable state or local law, rule,
regulation which applies to any of the Accounts being purchased pursuant to
this Agreement that would prohibit or place any financial burden on Purchaser
were Purchaser to monitor such Accounts from a central monitoring station
located in the State of Illinois.
4.13. No Conflict. Neither the entering into nor the delivery of this
Agreement nor the completion of the transactions contemplated hereby by Seller
will result in the violation of the Certificate of Incorporation or By-laws of
Seller or any resolutions of its shareholders or board of directors; any
Contract; or any Applicable Law or Permit. Seller is not required to give prior
notice to, or obtain any consent, approval or authorization of, or make any
declaration or filing with, any governmental authority, creditor or other person
in connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby.
4.14. No Encumbrances. Except as set forth in Schedule 2.2, Seller has,
and upon consummation of the transaction contemplated by this Agreement
Purchaser will have, good title to all Assets which it owns, free and clear of
all liens, charges, security interests, encumbrances or any other rights or
interests of others.
4.15. No Defaults. Seller has taken all actions reasonably necessary to
enable it to perform when due all obligations under any Contracts or Permits,
all of which are in full force and effect, and there has not occurred any
default or other event which with the lapse of time or giving of notice or both
may become a default under any of the foregoing documents.
4.16. Litigation. There are no claims, actions, suits or proceedings
pending or, to the best knowledge of Seller, threatened by or against Seller or
affecting it in any court or before any governmental or administrative
authority, including but not limited to claims, actions or suits by Dealers
and/or Subscribers. Seller is subject to no decree, judgment, order or notice of
any kind which enjoins or restrains it from taking any action of any kind.
4.17. Employee and Labor Matters. Seller has not been, and is not, a party
to any collective bargaining or other union agreement. Seller is in compliance
in all material respects with all Applicable Laws respecting employment and
employment practices, immigration laws, terms and conditions of employment, and
wages and hours. None of Seller's employees is represented by a union nor are
there any applications for certification of a collective bargaining agent
pending. Within the last two years, Seller has experienced no, and there is not
presently pending or existing any, union organization attempts or work
stoppages. There has not been, and there is not presently pending or existing,
any unfair labor practice or discrimination charge or complaint against Seller
or, to the knowledge of Seller, threatened, before the National Labor Relations
Board, the Equal Employment Opportunity Commission or any other similar
national, state or local body. There are no strikes, requests for
representation, slowdowns, picketing, work stoppages, or grievances actually
pending or threatened against or affecting Seller. No question concerning
representation as defined in the National Labor Relations Act has been raised
with Seller or, to the knowledge of Seller, is threatened against it. No consent
of any union or any other person or authority is required for, and no collective
bargaining agreement restricts, the
17
<PAGE> 18
execution of this Agreement, the consummation of any of the transactions
contemplated hereby, the termination of employment of any Employee, or the
closing or relocation of any facility including Seller's Central Monitoring
Station.
4.18. Employee Benefits.
(a) Seller has never been and is not a party to (i) any employee
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or to (ii) any employment,
consulting, agency, commission, retirement, stock, stock option, incentive
pay, severance pay or non-competition agreement or any profit-sharing,
vacation, deferred compensation or pension agreements or plans, or similar
arrangements, whether written or oral, or formal or informal, other than
the health insurance plan identified on Schedule 4.18 and defined herein
as the "Plan" (a true and correct copy of which has been delivered to
Purchaser). All obligations, whether arising by operation of law, by
contract or by past custom, for payments with respect to the Plan or with
respect to unemployment compensation benefits, social security benefits,
accrued vacation, or other benefits for Employees, arising as a result of
employment during periods prior to the Closing Date have been or shall be
paid by Seller.
(b) Upon termination of the employment of any Employee by Seller,
Purchaser shall not incur any liability for any severance or termination
pay or other similar payment related to that Employee's employment by
Seller (such liability being solely Seller's).
(c) The Plan is in compliance with its terms and with ERISA and
other applicable laws and all agreements and instruments applicable
to the Plan. No violation of ERISA has at any time occurred in
connection with the administration of the Plan, and there are no
actions, suits, or claims (other than routine, non-contested claims
for benefits) pending or threatened against the Plan, or any
administrator or fiduciary thereof, which could result in any
liability.
(d) Full payment as of the Effective Time has been made of all
amounts which Seller is required to have paid under the Plan up to
the Effective Time.
(e) The Seller does not provide, nor has it at any time provided,
coverage under any welfare benefit plan, as defined in Section 3(1)
of ERISA (including, but not limited to, life insurance, disability,
medical, dental, prescription drugs, or accidental death or
dismemberment) to any of its retirees, other than any continuation
or conversion coverage which any such retiree may have purchased at
his own expense.
4.19. Intentionally left blank.
4.20. Customers, Dealers, Distributors and Suppliers. Schedule 4.20
contains a true and complete list of all Dealers and the number of Subscribers
whose Accounts are monitored for
18
<PAGE> 19
each such Dealer and the RMR attributable to each such Dealer as of the Closing
Date. There are no problems in Seller's business relations with the foregoing
persons and, except as described in Schedule 4.20, there are no disputes
between Seller and any of such persons pending or, to the knowledge of Seller,
threatened. True and complete copies of all contracts with the foregoing
persons in effect as of the Execution Date as well as descriptions of all oral
contracts in effect have been delivered to Purchaser and are in full force and
effect in accordance with their terms, and there are no defaults or assertions
of default thereunder. True and complete copies of all such contracts executed
between the Execution Date and the Closing Date will be delivered to Purchaser
at the Closing and they will be in full force and effect in accordance with
their terms and there will be no defaults or assertions of default thereunder.
Seller is not aware of any Dealer that is planning to terminate its
relationship with Seller or the Purchased Business (except for Reliable Hawk).
One true and complete copy each of Seller's standard "Installer Contract" form
which it uses with Dealers and its standard "Alarm Monitoring Agreement" form
it uses with Subscribers are included as Exhibit 4.20. Seller has in force
with no less than fifteen percent (15%) of all Dealers and eighty percent
(80%) of all Subscribers a valid and enforceable contract utilizing said forms.
All such agreements are fully assignable to Purchaser by their terms. Seller
shall use its best efforts to renew, for Purchaser's account, each such
contract which expires during the Interim Period. Seller has neither agreed to
modify, nor modified, the preprinted text of either such form in contracts with
any of the Dealers or Subscribers in the twelve months ended on the Execution
Date and shall not agree to modify either form or use any other form of
agreement or modify any oral agreement from the Execution Date through the
Closing Date.
4.21. Related Party Transactions. Except as contemplated by this
Agreement, no shareholder, relative of a shareholder, partner, officer or
director of Seller has any interest in any of the Assets or is a party to any
Contract with Seller affecting the Purchased Business or the Assets.
4.22. Disclosure. No representation or warranty by Seller in this
Agreement, and no certificate or written statement furnished or to be furnished
to Purchaser pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact, or omits or shall omit to state a material fact necessary in order to make
the statements contained herein and therein not misleading. There is no fact
known to Seller which materially adversely affects or in the future would (so
far as can now be reasonably foreseen) materially adversely affect the Purchased
Business, its financial condition or its business which has not been set forth
in this Agreement, any Schedule, Exhibit, or other information or written
materials provided by Seller to Buyer.
4.23. Minimum Number of Subscribers. As of the Execution Date the Central
Monitoring Station is monitoring the security alarm systems of a minimum of
7,800 Subscribers and is earning a minimum of Thirty Nine Thousand Dollars
($39,000.00) in RMR from such monitoring activities.
4.24. Contracts and Policies of Insurance. Schedule 4.24 is a true and
complete list of all contracts and policies of insurance which Seller has in
force on the Execution Date all of
19
<PAGE> 20
which will remain in effect until the end of the Transition Period . Purchaser
will not become liable for any claims related to any occurrences prior to the
Closing Date, which would have been covered by such insurance policies, by
reason of the consummation of the transactions contemplated by this Agreement.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
As of the date hereof and as of the Closing Date, Purchaser represents and
warrants to, and agrees with, Seller as follows:
5.1. Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Illinois and Purchaser has provided or will provide Seller at Closing a
photocopy of its Articles of Organization and a photocopy of its Operating
Agreement.
5.2. Power of Authority. Purchaser has the power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement has been duly authorized, executed, and delivered by Purchaser and,
assuming the due authorization, execution and delivery hereof by Seller,
constitutes the legal, valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms. The Manager of Purchaser has
been duly authorized to execute this Agreement on behalf of Purchaser. Attached
on Exhibit 5.2 is a true and complete copy of the resolutions authorizing the
transactions contemplated by this Agreement.
5.3. No Conflict. Neither the entering into nor the delivery of this
Agreement nor the completion of the transactions contemplated hereby by
Purchaser will result in the violation of or default under:
(a) any of the provisions of the Articles of Organization or
Operating Agreement of Purchaser;
(b) any agreement or other instrument to which Purchaser is a
party or by which Purchaser is bound; or
(c) any law, rule, regulation, order, judgment or decree
applicable to Purchaser.
5.4. Disclosure. No representation or warranty by Purchaser in this
Agreement, and no certificate or written statement furnished or to be furnished
to Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact, or omits or shall omit to state a material fact necessary in order to make
the statements contained herein and therein not misleading.
20
<PAGE> 21
6. COVENANTS.
6.1. Continued Conduct of Business During Interim Period. During the
period beginning December 31, 1996 and ending on the Closing Date (the "Interim
Period"), Seller has and shall continue to:
(a) conduct the Purchased Business only in the usual and ordinary
course, consistent with past practice;
(b) refrain from making any material change in Seller's accounting
practices or procedures;
(c) refrain from incurring any obligations or liabilities other
than those that are usual and normal in the ordinary course of business,
consistent with past practice;
(d) have in effect and maintain at all times all insurance now in
force as described in Schedule 4.24, including third party liability
insurance for damages which may be suffered by any Subscriber, in the
amount of at least one million dollars ($1,000,000) per occurrence;
(e) use its best efforts to preserve the Purchased Business
intact, to preserve and maintain all Intellectual Property, to keep
available the services of the present officers and employees of Seller and
to make no changes therein, and to preserve the goodwill of all suppliers,
customers, licensors, sales representatives and others having business
relations with Seller;
(f) conduct the Purchased Business in accordance with Applicable
Law; and
(g) be solely responsible for the management of the Purchased
Business; provided however, that during said period Seller shall permit
Purchaser, at Purchaser's sole option and expense, to locate in Seller's
principal place of business from time to time during normal business hours
(on a full or part-time basis) not more than two (2) administrative and/or
technical managers ("Purchaser's Managers") for the purpose of consulting
with and assisting Seller's management personnel in the management of the
Purchased Business, it being understood that Purchaser's Managers shall
work in an advisory capacity only. Purchaser shall, to the best of its
ability, assist Seller in the conduct of the Purchased Business during the
Interim Period but shall incur no liability to Seller for advice given to
Seller.
6.2. Transition Period. Seller agrees to maintain the facility that
constitutes its Central Monitoring Station for such period, not to exceed twenty
one (21) days following the Closing Date (the "Transition Period"), as is
necessary for Purchaser to (i) transfer the monitoring of the purchased Accounts
to Purchaser's central monitoring station (or to a third-party central
monitoring station chosen by Purchaser), and (ii) to pack and ship (at
Purchaser's expense) those purchased Assets constituting tangible personal
property. During the Transition Period, Seller agrees to take such further
actions as may be reasonably necessary to assist in the timely transfer
21
<PAGE> 22
of the Assets to Purchaser. Purchaser covenants that it will undertake its
best efforts to accomplish the transition required by this Section 6.2 by the
close of business on Wednesday, March 5, 1997. In the event of any delay
beyond that date due to the fault of Purchaser, Purchaser agrees that it will
reimburse Seller for its payroll expenses for the Transition Period, provided
that such expenses shall be only for the personnel listed on Schedule 6.2, who
will be compensated at the rates as set forth thereon.
6.3. Access to Records. Purchaser's representatives, attorneys and
accountants have had, prior to the date hereof, and shall continue to have until
the Closing Date and thereafter, reasonable access to the records (including all
contracts with Dealers and Subscribers), audits and properties of Seller as well
as to all information relating to taxes, commitments, contracts, title to
properties and the financial condition of, or otherwise pertaining to, the
Seller. From the date hereof, Seller agrees to cause its accountants to
cooperate with Purchaser and its accountants in making available all financial
information concerning Seller, as is requested, and Purchaser and its
accountants shall have the right to examine all working papers pertaining to
examinations of Seller, or preparation of its reports, by its accountants.
Unless and until the purchase contemplated herein is consummated, Purchaser
shall hold in confidence, and shall use its best efforts to cause its
representatives, attorneys and accountants to hold in confidence, all
information obtained as aforesaid. During the Interim Period Purchaser shall
neither reproduce nor remove from Seller's premises, without Seller's prior
consent, any list of Dealers or Subscribers prepared by Seller. If the purchase
contemplated by this Agreement is not consummated, Purchaser shall return to
Seller or destroy (at Seller's option) all copies of documents received from
Seller as Seller may reasonably request and shall continue to be bound by the
terms of the confidentiality letter between the parties dated August 14, 1996.
6.4. Action by Seller. Seller shall use its best efforts to cause each of
the conditions set forth in Section 7.1 to be fulfilled on or prior to the
Closing Date.
6.5. Action by Purchaser. Purchaser shall use its best efforts to cause
each of the conditions set forth in Section 7.3 to be fulfilled on or prior to
the Closing Date.
6.6. Employees.
(a) The parties agree that none of Seller's Employees will be
employed by Purchaser. Purchaser shall not be deemed an employer of
any Employees or be responsible for any damage caused to any third
party or for any liability incurred by Seller or the Purchased
Business prior to the Closing Date. Seller shall be responsible for
the health care continuation requirements of all Employees and
former Employees of the Seller who worked in the Purchased Business,
such continuation to be made in accordance with the continuation
coverage requirements of Part 6 of Subtitle B of Title I of ERISA
and Section 4980B of the Code. All other obligations in respect of
the Employees arising prior to the Closing Date shall be paid by
Seller.
6.7. No Shop. From the Execution Date through the Closing Date, neither
Seller nor any of its officers, directors, affiliates, employees,
representatives or agents, shall, directly or
22
<PAGE> 23
indirectly, solicit, initiate or participate in any way in discussions or
negotiations with, or provide any information or assistance to, any
corporation, partnership, individual, person or other entity or group with
respect to the sale of Seller or the Assets (other than sales of inventory in
the ordinary course of business) or assist or participate in, facilitate or
encourage any effort or attempt by any other person to do or seek any of the
foregoing. Seller shall promptly communicate to Purchaser the terms of any
proposal or contact which it may receive in respect of any such transaction.
6.8. Noncompetition and Nonsolicitation. During the period commencing
with the Execution Date and ending on the third (3rd) anniversary of the Closing
Date, neither Seller or any of its principal shareholders agreeing to be bound
by this Section 6.8 shall:
(a) enter into competition with Purchaser by establishing a remote
alarm system monitoring center in the State of New Jersey or providing
third party alarm system monitoring or similar services to those provided
by the Purchased Business from any location to any person within twenty
five (25) miles of any location where Purchaser or any affiliate or
subsidiary of Purchaser provides such services;
(b) solicit any Dealer or Subscriber for the purposes of providing
any services similar to those provided by the Purchased Business, either
by such party or by any other person or entity;
(c) reveal the customer list of Seller and the Purchased Business
to any person;
(d) employ any employee of Purchaser or its affiliates or
subsidiaries, or solicit or encourage any such employee to terminate his
employment with any of the foregoing; or
(e) take any other action which is intended to, or which would
reasonably be expected to:
(f) adversely affect Purchaser's interest in any Account;
(g) adversely affect Purchaser's interest in the Purchased
Business;
(h) adversely affect Purchaser's contractual relationship with any
Dealer or Subscriber; or
(i) discourage any Dealer, Subscriber or supplier from continuing
its business relationship with Purchaser after the Closing Date on the
same terms as were maintained with Seller.
Notwithstanding any other provision of this Agreement, Seller agrees that
neither money damages nor arbitration would be a sufficient remedy for breach of
this Section 6.8 and that the Purchaser shall be entitled to specific
performance, injunctive relief or other equitable relief as a
23
<PAGE> 24
remedy for breach of this Section 6.8. Such remedies shall be in addition to
any other remedies available at law or in equity. The parties agree that the
state and federal courts located in Cook County, Illinois are the proper venue
for seeking such relief, and no party shall attempt to have the venue of any
such action changed to any other court.
Notwithstanding the foregoing, the parties expressly agree that so long as
the provisions of this section 6.8 are not violated, Seller's principal
shareholders may be employed as supervisors or monitors at alarm stations not
owned by any of them.
6.9. Assistance in Transition. Seller agrees that commencing immediately
following the Closing Date and during the two (2) week period immediately
thereafter Seller will assist Purchaser in the process of transition. Such
assistance will include joint written announcements of the purchase by Purchaser
of the Purchased Business and of the ongoing services to be provided by
Purchaser. In addition, Seller's Principals will personally introduce Purchaser
and its President and operating personnel, as appropriate, to the ten (10)
Dealers representing the largest amount of RMR for Accounts being purchased
hereunder.
7. CONDITIONS TO OBLIGATIONS OF PURCHASER AND SELLER.
7.1. Conditions to Obligations of Purchaser. All obligations of Purchaser
hereunder are, at its option, subject to the fulfillment of each of the
following conditions on or before the Closing Date:
(a) The representations and warranties of Seller set forth in
Section 4 shall be true and correct on the Closing Date with the same
force and effect as if made at and as of such date;
(b) Seller shall have performed or complied with all of the terms,
covenants and conditions of this Agreement to be performed or complied
with by Seller at or prior to the Closing Date.
(c) No action or proceeding shall be pending by any person,
government, governmental, authority, regulatory body or agency to enjoin,
restrict or prohibit:
(d) the sale and purchase of the Assets contemplated hereby; or
(e) the right of Purchaser to own the Assets or conduct the
Purchased Business;
(f) No material Assets shall have been stolen, damaged or
destroyed and there shall have occurred no event or events having a
material adverse effect on the financial condition, assets, liabilities,
equity, results of operations, business or prospects of Seller, whether or
not in the ordinary course of business;
(g) Seller shall have delivered to Purchaser the opinion of
Seller's counsel substantially in the form of Exhibit 7.1(e);
24
<PAGE> 25
(h) Seller shall have delivered executed Personal Property Lease
Assignment Agreements, Contract Assignment Agreements, License Assignment
Agreements, and any and all other authorizations, permits and consents
necessary for Purchaser to lawfully own and operate the Purchased
Business, including executed consents where necessary to accomplish the
assignment in conformity with the underlying agreements, for all material
contracts, leases, agreements and permits to be acquired by Purchaser
pursuant to this Agreement;
(i) Seller shall have received any and all other authorizations,
permits and consents necessary to validly sell, assign and transfer the
Assets to Purchaser and for Purchaser's assumption of the Assumed
Liabilities; and
(j) Seller shall have completed and delivered all Schedules and
Exhibits to this Agreement in a manner reasonably satisfactory to
Purchaser and such Exhibits and Schedules as completed shall not contain
any material adverse information with respect to the economic value of the
transactions contemplated by this Agreement not previously disclosed to
Purchaser.
8. PURCHASER'S OPTION.
8.1. In case any condition referred to in Section 7.1 to be performed or
complied with at or prior to the Closing Date shall not have been so performed
or complied with, Purchaser may, without limiting any other right that Purchaser
may have, at its sole option, either:
(a) rescind this Agreement by notice to Seller, and in such event
Purchaser shall be released from all obligations hereunder; or
(b) waive compliance with any such term, covenant or condition in
whole or in part.
8.2. Conditions to Obligations of Seller. All Obligations of Seller
hereunder are, at its option, subject to the fulfillment of each of the
following conditions on or before the Closing Date.
(a) The representations and warranties of Purchaser set forth in
Section 5 shall be true and correct at the Closing Date with the force and
effect as if made at and as of such date;
(b) Purchaser shall have performed or complied with all of the
terms, covenants and conditions of this Agreement to be performed or
complied with by Purchaser at or prior to the Closing Date;
25
<PAGE> 26
(c) No action or proceeding shall be pending by an person,
government, governmental authority, regulatory body or agency to enjoin,
restrict, or prohibit the sale and purchase of the Assets contemplated
hereby; and
(d) Purchaser shall have received any and all other
authorizations, permits and consents necessary for Purchaser to purchase
the Assets and to assume the Assumed Liabilities.
8.3. Seller's Option. In case any condition referred to in Section 7.3 to
be performed or complied with as of the Closing Date shall not have been so
performed or complied with, Seller may, without limiting any other right that
Seller may have, at its sole option, either;
(a) rescind this Agreement by notice to Purchaser, and in such
event Seller shall be released from all obligations hereunder; or
(b) waive compliance with any such term, covenant or condition in
whole or in part.
9. INDEMNIFICATION.
Indemnification by Seller.
9.1. Seller and its principal shareholders, Jeffrey Goldberg, William
Paynton and Desmond Starr jointly and severally hereby agree to indemnify and
hold Purchaser harmless against any Loss arising out of or due to:
(a) breach of any representation or warranty by Seller contained
herein or in any document delivered hereunder;
(b) breach of any covenant or agreement by Seller contained herein
to be performed at, prior to or after the Closing Date.
(c) liabilities of Seller which relate to the ownership or use of
any of the Assets or the conduct of the Purchased Business prior to the
Closing Date which are not Assumed Liabilities including liabilities
arising from or relating to:
(i) taxes imposed on Seller, the Purchased Business or any
other Assets for any period prior to the Closing Date unless
disclosed, specifically assumed by Purchaser and reserved against;
(ii) injuries to, the death of, or the contraction of
diseases by, any person resulting from exposure to hazardous
substances or other materials prior to the Closing Date without
regard to when such injuries or diseases are first manifested;
(iii) the generation, processing, handling, storage or
disposition of or contamination by Waste Material prior to the
Closing Date, including costs and
26
<PAGE> 27
penalties incurred in the monitoring, cleanup or correction of any
such event or condition;
(iv) any pollution or other damage or injury to the
environment arising out of events occurring or conditions existing
prior to the Closing date, including costs and penalties incurred in
the monitoring, cleanup or correction of any such event or
condition; and
(v) any and all actions, suits, proceedings, demands,
assessments or judgments, costs and expenses incidental to any of
the foregoing matters set forth in Section 8.1(a) through (d).
9.2. Indemnification by Purchaser. Purchaser shall indemnify and hold
Seller harmless against any Loss arising out of or resulting from:
(a) breach of any representation or warranty by Purchaser
contained herein or in any document delivered hereunder;
(b) breach of any covenant or agreement by Purchaser contained
herein to be performed at, prior to or after the Closing Date; or
(c) the Assumed Liabilities and any other liabilities with respect
to the conduct of the Purchased Business on and after the Closing Date,
including liabilities arising from or relating to:
(i) any taxes imposed on the Assets or the conduct by the
Purchaser of the Purchased Business for periods on or after the
Closing date;
(ii) injuries to, the death of or the contraction of any
diseases by, any person resulting from exposure to hazardous
substances or other materials on or after the Closing Date;
(iii) the generation, processing, handling, storage or
disposition of or contamination by any Waste Material on or after
the Closing Date, including costs and penalties incurred in the
monitoring, cleanup or correction of any such event; and
(iv) any pollution or other damage or injury to the
environment occurring on or after the Closing Date, and caused to by
Purchaser, including costs and penalties incurred in the monitoring,
cleanup or correction of any such event
(d) Providing monitoring services for the Accounts purchased
hereunder following the Closing Date.
9.3. Indemnification Procedures.
27
<PAGE> 28
For the purposes of this Section 9.3, the term "Indemnitee" shall refer to the
person or persons entitled, or claiming to be entitled, to be indemnified,
pursuant to the provisions of Section 9.1 or 9.2. The term "Indemnitor" shall
refer to the person or persons having the obligation to indemnify pursuant to
such provisions.
(a) An Indemnitee shall promptly give the Indemnitor written
notice of any matter which an Indemnitee has determined has given or could
give rise to a right of indemnification under this Agreement, stating the
amount of the Loss, if known, and method of computation thereof, all with
reasonable particularity and containing a reference to the provisions of
this Agreement in respect of which such right of indemnification is
claimed or arises. If an Indemnitee shall receive notice of any claim by a
third party which is or may be subject to indemnification (a "Third Party
Claim"), the Indemnitee shall give the Indemnitor prompt written notice of
such Third Party Claim and shall permit the Indemnitor, at its option, to
participate in the defense of such Third Party Claim by counsel of its own
choice and at its expense. If, however, the Indemnitor acknowledges in
writing its obligation to indemnify the Indemnitee hereunder against all
Losses that may result from such Third Party Claim (subject to the
limitations set forth herein), then the Indemnitor shall be entitled, at
its option, to assume and control the defense of such Third Party Claim at
its expense and through counsel of its choice. In the event the Indemnitor
exercises its right to undertake the defense of any such Third Party
Claim, the Indemnitee shall co-operate with the Indemnitor in such defense
and make available to the Indemnitor, at the Indemnitor's expense, all
witnesses, pertinent records, materials and information in its possession
or under its control relating thereto as is reasonably required by the
Indemnitor. Similarly, in the event the Indemnitee is, directly or
indirectly, conducting the defense against any such Third Party Claim, the
Indemnitor shall co-operate with the Indemnitee in such defense and make
available to it all such witnesses, records, materials and information in
its possession or under its control relating thereto as is reasonably
required by the Indemnitee. No such Third Party Claim may be settled by
the Indemnitor without the written consent of the Indemnitee, unless the
settlement involves only the payment of money by the Indemnitor.
Similarly, no Third Party Claim which is being defended in good faith by
the Indemnitor shall be settled by the Indemnitee without the written
consent of the Indemnitor.
9.4. Survival of Representations, Warranties and Indemnity Obligations.
All representations, warranties, covenants and indemnification obligations
contained in this Agreement, shall survive the Closing and any investigation
made at any time by or on behalf of a party.
9.5. Calculation of Losses.
Losses shall be determined after taking into account any insurance
proceeds received by an Indemnitee or its affiliates from a non-affiliated
insurance company on account of such Losses (after taking into account any costs
incurred in obtaining such proceeds and any increase, determined in the
reasonable judgment of the Indemnitee and confirmed by insurance company, in
insurance premiums as a result of a claim with respect to such proceeds).
28
<PAGE> 29
10. MISCELLANEOUS.
10.1. Brokerage. Purchaser and Seller each represent and warrant to the
other that they have retained no broker or other person entitled to a
commission, finder's fee or other like payment in connection with the
transactions contemplated by this Agreement, other than Lee Jones whose fees
will be paid by Purchaser. Each party will indemnify the other for any claims
made against such other party for brokerage commissions which result from the
actions or agreements of the indemnifying party.
10.2. Assignment. The respective rights and obligations of Purchaser and
Seller under this Agreement shall not be assignable by Purchaser or Seller
without the prior written consent of the other; provided however, that Purchaser
shall not be required to obtain Seller's prior written consent for an assignment
of the rights and liabilities of Purchaser under this Agreement or of this
Agreement in its entirety to any subsidiary of Purchaser, to the parent company
of Purchaser, to a sister corporation of Purchaser, or to a sister limited
liability company of Purchaser. Upon such assignment and demonstration of the
requisite relationship by Purchaser, all the rights and powers of Purchaser and
remedies available to it hereunder shall extend to and be enforceable by such
subsidiary, parent, or sister company, and appropriate changes shall be made in
all appropriate documents and in applicable parts of this Agreement, reflecting
such assignment but no such assignment shall release Purchaser from its
obligations hereunder. Nothing herein expressed or implied shall confer upon any
person, other than the parties hereto or their respective successors, assigns,
heirs and legal representatives, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.3. Notices. Any notice, consent, request, claim, demand, instruction or
other communication to be given hereunder by Purchaser or Seller shall be in
writing and shall be deemed to have been given when actually received. Any such
notice, consent, request, claim, demand, instruction or other communication may
be given by mail, overnight courier service, telex, or telefax, and shall be
addressed as follows:
If to Purchaser, to:
Security Associates International, Inc..
2101 S. Arlington Heights Road
Arlington Heights, IL 60005-4142
Attention: President
If to Seller, to:
Northern Central Station
Clove Road
Little Falls, New Jersey 07424
Attention: President
with a copy to:
29
<PAGE> 30
Williams, Caliri, Miller & Otley
Route 23
Wayne, New Jersey 07474-0995
Attention: John H. Hague, Esq.
or to such other address as a party may from time to time designate by
notice to the other.
10.4. Costs. The expenses of each party in connection with this Agreement
shall be the sole responsibility of such party.
10.5. Incorporation by Reference. The Schedules, Exhibits, certificates
and other documents attached hereto or referred to herein are deemed to be a
part of this Agreement and are incorporated herein by this reference.
10.6. Entire Agreement. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties relating to the
subject matter hereof and supersede all prior agreements, understandings, and
representations, whether oral or written. This Agreement shall not be modified,
amended or terminated except by written agreement of the parties. Captions
appearing in this Agreement are for convenience only and shall not be deemed to
explain, limit or amplify the provisions hereof. Unless and only to the extent
specified in this Agreement, Seller and Purchaser do not intend to confer any
rights or benefits on any third parties arising out of or related to this
Agreement or the transactions contemplated herein.
10.7. Set Off Rights. In addition to the rights of the parties to
indemnification pursuant to Section 8 hereunder, Seller and Purchaser shall each
have the right to set off against any debt owed to the other party any damages
or losses of any kind suffered as a result of the other party's failure to
perform its obligations under this Agreement, breach of warranty or covenant, or
any other act or failure to act in connection with this Agreement; provided that
such right of set off is not modified or prohibited by an award in arbitration
or a judgment by a court of competent jurisdiction.
10.8. Counterparts. This Agreement may be executed in two or more
identical counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
10.9. Arbitration. Except as provided in Section 6.8.5 or, any controversy
or claim arising out of or related to this Agreement, or the breach thereof,
shall be resolved by binding arbitration administered by the American
Arbitration Association in accordance with its Commercial Arbitration Rules. The
award rendered by the arbitrator may include attorneys' fees. Judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in Cook County, Illinois, or at any other
place selected by mutual agreement of Seller and Purchaser; shall be decided by
one neutral arbitrator who has been a member in good standing of the appropriate
state bar for at least 15 years, has expertise in the process of arbitration and
interpreting contracts in mergers and acquisitions and commercial transactions,
and is selected in accordance with the Commercial Arbitration Rules; and shall
30
<PAGE> 31
proceed under the Expedited Procedures of those rules, irrespective of the
amount in dispute. Except to the extent the arbitrator may award attorneys' fees
to a prevailing party, each party shall bear its own costs and expenses and an
equal share of the arbitrator's fee and the administrative fees of the
arbitration. Purchaser agrees that if the Seller prevails in any arbitration
action pursuant to this Section 9.9, Purchaser will pay to Seller the reasonable
incremental costs to Seller of conducting such arbitration in Cook County,
Illinois over the costs to Seller of conducting such arbitration in Passaic
County, New Jersey, as determined by the arbitrator.
10.10. Governing Law. This Agreement shall be construed in accordance with
the law of the State of Illinois excluding its conflict of laws rules.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ATTEST: All-Security Monitoring Services, L.L.C..
By:/s/ James S. Brannen
-------------------------------
As Its Manager
ATTEST: Northern Central Station, Inc.
By:/s/ William Paynton, President
-------------------------------
As Its President
The undersigned, being all of the shareholders of Northern Central Station,
Inc. acknowledge that they will receive substantial economic benefits upon the
consummation of the transactions contemplated by this Agreement. In order to
induce Purchaser to enter into this Agreement and to consummate the
transactions contemplated herein the undersigned hereby agrees to be bound by
Sections 6.9 and 8 hereof.
DATED: February 25, 1997
By: /s/ Jeffrey Goldberg
-------------------------------
Jeffrey Goldberg
By: /s/ William Paynton
-------------------------------
William Paynton
By: /s/ Desmond Starr
-------------------------------
Desmond Starr
31
<PAGE> 1
EXHIBIT 10.14
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of December 31, 1996, is among SECURITY
ASSOCIATES INTERNATIONAL, INC., a Delaware corporation ("SAI"), SECURITY
ASSOCIATES COMMAND CENTER II, L.L.C., a Michigan limited liability company
("SACC"), MONITOR SERVICE GROUP, L.L.C., a Delaware limited liability company
("MSG"), ALL-SECURITY MONITORING SERVICES, L.L.C., an Illinois limited
liability company ("ASMS"), and FINOVA CAPITAL CORPORATION, a Delaware
corporation ("FINOVA"), in its individual capacity and as agent for all Lenders
(this and all other capitalized terms used herein are defined in Section 1.1
below).
R E C I T A L S:
A. Borrowers desire to borrow up to a maximum of $15,000,000 from
FINOVA for the purpose of (i) paying the Existing Debt, (ii) consummating
Funded Acquisitions, (iii) paying transaction costs and (iv) providing working
capital.
B. FINOVA has agreed to make the Loan upon the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS AND DETERMINATIONS
1.1 DEFINITIONS. As used in this Loan Agreement and in the
other Loan Instruments, unless otherwise expressly indicated herein or therein,
the following terms shall have the following meanings (such meanings to be
applicable equally to both the singular and plural forms of the terms defined):
Account Debtor: any Person who is obligated on or under an
Account Receivable.
Accountants: Arthur Andersen, L.L.P. or any other
independent certified public accounting firm selected by Borrowers
and reasonably satisfactory to Lenders.
Accounting Changes: has the meaning assigned to that term
in Section 1.3.
Accounts Receivable: all presently existing and hereafter
arising accounts receivable and other rights to payment owing to
any Borrower under Security Monitoring
<PAGE> 2
Contracts and/or Central Station Contracts.
Accounts Receivable Decrease: for any period, the excess
of the Eligible Accounts at the beginning of such period over the
Eligible Accounts at the end of such period.
Accounts Receivable Increase: for any period, the excess
of Eligible Accounts at the end of such period over the Eligible
Accounts at the beginning of such period.
Acquisition: the acquisition by of (i) Security Monitoring
Contracts by MSG or (ii) a Central Station Business by any
Borrower.
Acquisition Adjustment to Cash Flow: for any period in
which an Acquisition has occurred, an amount equal to the RMR of
the Property that is the subject of such Acquisition from the
beginning of such period until the date such Acquisition was
consummated, minus the aggregate of the pro forma expenses directly
and indirectly related to such RMR for such period, as determined
to the satisfaction of Agent based on financial and other
information submitted to Agent by Borrowers and subject to such
adjustments for such period as Agent deems appropriate.
Acquisition Closing: the consummation of a Funded
Acquisition.
Acquisition Closing Date: the date of an Acquisition
Closing.
Acquisition Instruments: the purchase agreement and
all other documents executed in connection with a Funded
Acquisition.
Acquisition Loan Instruments: collectively, the following
documents, as applicable, to be executed and delivered in
connection with a Funded Acquisition:
(i) any amendments to the Loan Instruments or any
mortgages, security agreements, UCC Financing
Statements and other agreements reasonably required
by Agent to (A) reflect the effect of such Funded
Acquisition and (B) grant to Agent a perfected
first Lien upon all Property acquired by any
Borrower pursuant to the applicable Acquisition
Instruments, subject only to Permitted Prior Liens;
-2-
<PAGE> 3
(ii) a Landlord Consent and Waiver executed by each
Landlord under each Lease assumed or executed by
any Borrower on such Acquisition Closing Date; and
(iii) such other instruments and documents as Agent may
reasonably require in connection with such Funded
Acquisition.
ADA: the Americans with Disabilities Act of 1990, as
amended, any successor statute thereto, and the rules and regulations
issued thereunder, as in effect from time to time.
Advance: a disbursement of the Future Portion.
Adjusted Annualized Operating Cash Flow: as of any date,
the Annualized Operating Cash Flow for the applicable period, plus the
Acquisition Adjustment to Cash Flow for the twelve month period ending
on such date.
Adjusted Leverage Ratio: as of any Funding Date, the ratio
of the Adjusted Total Debt as of such date to Adjusted Annualized
Operating Cash Flow for the period ending two months before such date.
Adjusted Total Debt: as of any applicable date, the Total
Debt as of such date plus the requested Advance.
Adjusted Operating Cash Flow: for any period for each
Borrower, the Operating Cash Flow of such Borrower for such period
plus the Acquisition Adjustment to Cash Flow for such period.
Affiliate: any Person that directly or indirectly, through
one or more intermediaries, controls or is controlled by or is under
common control with another Person. The term "control" means
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through
the ownership of voting securities or equity interests, by contract or
otherwise. For the purposes hereof, any Person which owns or
controls, directly or indirectly, 10% or more of the securities or
equity interests, as applicable, whether voting or non-voting, of any
other Person shall be deemed to "control" such Person.
Agent: FINOVA, as agent for all Lenders.
-3-
<PAGE> 4
Alarm Licenses: a license or licenses issued by a state
licensing authority that authorize a Person to provide remote security
monitoring services to consumers and/or businesses within such state.
Annualized Operating Cash Flow: as of any applicable date,
the product of (i) the consolidated Operating Cash Flow of Borrowers
for the six month period ending on such date, multiplied by (ii) two.
Applicable Margin: as defined in subsection 2.4.1.
Applicable Margin Ratio: the ratio of Total Debt as of the
last day of any quarter to the consolidated Adjusted Operating Cash
Flow of Borrowers for the twelve month period ending on such day.
Applicable Ratio: on any day during a period set forth
below, the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Each Day During the Period Ratio
-------------------------- -----
<S> <C>
Closing Date through 06/30/98 3.75
07/01/98 through 12/31/98 3.60
01/01/99 through 06/30/99 3.25
07/01/99 through 12/31/99 3.00
01/01/00 through 06/30/00 2.75
07/01/00 through 12/31/00 2.50
01/01/01 through 12/31/01 2.25
</TABLE>
ASMS: has the meaning assigned to that term in the
Preamble to this Loan Agreement.
ASMS Membership Interests: all of the issued and
outstanding membership interests and options, warrants and other
rights to acquire membership interests of ASMS.
ASMS Membership Interest Pledge Agreement: a pledge
agreement with respect to the ASMS Membership Interests executed by
SAI and SACC, in form and substance satisfactory to Agent.
Assignee: any Person to which a Loan Assignment is made in
compliance with the provisions of subsection 9.1.1.
Assignments of Leases: collateral assignments of leases
executed by each Borrower in favor of Agent with respect to each Lease
under which such Borrower is the lessee, in each case in form and
substance satisfactory to Agent.
-4-
<PAGE> 5
Bankruptcy Code: the United States Bankruptcy Code and any
successor statute thereto, and the rules and regulations issued
thereunder, as in effect from time to time.
Base Rate: the per annum rate of interest announced or
published publicly from time to time by Citibank, N.A. in New York,
New York as its corporate base (or equivalent) rate of interest, which
rate shall change automatically without notice and simultaneously with
each change in such corporate base rate. The Base Rate is a reference
rate and does not necessarily represent the lowest or best rate
actually charged to any customer by Citibank, N.A. in New York, New
York.
Basic Financial Statements: as defined in subsection
6.3.3.
Borrower: any of the Borrowers.
Borrowers: SAI, SACC, MSG, ASMS and each Permitted
Subsidiary.
Borrowers' Obligations: (i) any and all Indebtedness due
or to become due, now existing or hereafter arising, of each Borrower
to Lenders and/or Agent, including, without limitation, the Loan Fee,
pursuant to the terms of this Loan Agreement or any other Loan
Instrument and (ii) the performance of the covenants of Borrowers
contained in the Loan Instruments.
Brannen: James S. Brannen.
Business Day: any day other than a Saturday, Sunday or
other day on which banks in Phoenix, Arizona are required to close.
Business Insurance: such property, casualty, business
interruption and other insurance, other than the Key Man Life
Insurance, as Agent from time to time reasonably requires Borrowers to
maintain.
Capital Expenditures: payments that are made or
liabilities that are incurred by any Borrower for the lease, purchase,
improvement, construction or use of any Property, the value or cost of
which under GAAP is required to be capitalized and appears on such
Borrower's balance sheet in the category of property, plant or
equipment, without regard to the manner in which such payments or the
instruments
-5-
<PAGE> 6
pursuant to which they are made are characterized by any Borrower or
any other Person. Except for the purpose of determining Excess Cash
Flow, a Capital Expenditure shall be deemed to be made as of the time
the Property which is the subject thereof is put into service by the
applicable Borrower.
Capital Stock: collectively, all of the issued and
outstanding capital stock, warrants, options and other equity
interests of SAI and each of the Holding Companies.
Capitalized Lease: any lease of Property, the obligations
for the rental of which are required to be capitalized in accordance
with GAAP.
Cash Equivalents: the aggregate of each Borrower's (i)
cash on hand or in any bank or trust company, and checks on hand and
in transit, (ii) monies on deposit in any money market account, and
(iii) treasury bills, certificates of deposit, commercial paper and
readily marketable securities at current market value having, in each
instance, a maturity of not more than 180 days.
Cash Instruments: all cash, checks, drafts and other
similar writings for the payment of money.
Central Station Business: the business of owning and
operating a central monitoring station, including but not limited to,
contracts between Dealers and SACC, ASMS or a Permitted Subsidiary.
Central Station Contracts: contracts with Dealers to
provide monitoring services to the customers of the Dealers.
Chief Financial Officer: the chief financial officer of
each Borrower, who shall be a duly elected officer, member or manager
of such Borrower.
Closing: the disbursement of the Initial Portion.
Closing Certificate: a closing certificate executed by
Borrowers in form and substance satisfactory to Agent.
Closing Date: the date of the Closing.
Code: the Internal Revenue Code of 1986, as amended, and
any successor statute thereto, and the rules and regulations issued
thereunder, as in effect from time to time.
-6-
<PAGE> 7
Collateral: (i) all existing and after-acquired Property
of Borrowers, including without limitation all existing and
after-acquired Accounts Receivable, equipment, inventory and general
intangibles, (ii) the Membership Interests and (iii) all proceeds of
the foregoing.
Compliance Certificate: a Compliance Certificate executed
by Borrowers in the form of EXHIBIT 1.1(A) attached hereto.
Contribution Agreement: a contribution agreement among
Borrowers with respect to Borrowers' Obligations, in form and
substance satisfactory to Agent.
Covenant Leverage Ratio: the ratio of Total Debt as of the
last day of any quarter to Adjusted Annualized Operating Cash Flow for
the period ending on such day.
Davis: Ronald Davis.
Dealer: any Person whose primary business is the
installation of servicing alarm equipment and the sale of monitoring
services.
Dealer Holdback Debt: any Indebtedness for Borrowed Money
owed by MSG to Dealers in connection with the purchase of Security
Monitoring Contracts.
Dealer Holdback Report: the monthly report produced by
Borrowers which provides due dates and amounts owed to each Dealer to
whom a portion of the Dealer Holdback Debt is owed.
Debt Service: during any period, all payments of
principal, interest, premium, fees and other charges with respect to
Indebtedness for Borrowed Money, which payments are required or
permitted to be made pursuant to this Loan Agreement and are due and
payable during such period.
Debt Service Coverage Ratio: as of the end of any quarter,
the ratio of the consolidated Adjusted Operating Cash Flow of
Borrowers for the four quarter period ending as of such quarter to the
Debt Service for such four quarter period.
Default Rate: a per annum rate equal to the applicable
Base Rate in effect plus 4.0% per annum.
Default Rate Period: a period of time commencing on the
date that an Event of Default has occurred and ending on the date that
such Event of Default is cured or waived.
-7-
<PAGE> 8
Eligible Accounts: at any given time, the aggregate of the
face amount of the accounts receivable of each Borrower not over 75
days past due.
Employee Benefit Plan: any employee benefit plan within
the meaning of Section 3(3) of ERISA which (i) is maintained for
employees of any Borrower or any ERISA Affiliate or (ii) has at any
time within the preceding six years been maintained for the employees
of any Borrower or any current or former ERISA Affiliate.
Environmental Audit: (i) a Phase I audit report with
respect to a parcel of real estate and such other studies and reports
as Agent deems necessary after review of the results of such Phase I
audit report, including, if reasonably required by Agent, soil and
ground water tests, each such report and study to be in form and
content and issued by Persons reasonably acceptable to Agent and (ii)
a letter from each Person issuing each such report or study entitling
Lenders to rely thereon.
Environmental Certificate: an environmental certificate
executed by Borrowers in form and substance reasonably satisfactory to
Agent.
Environmental Compliance Certificate: an Environmental
Compliance Certificate in the form of EXHIBIT 1.1(B).
Environmental Laws: any and all federal, state and local
laws that relate to or impose liability or standards of conduct
concerning public or occupational health and safety or protection of
the environment, as now or hereafter in effect and as have been or
hereafter may be amended or reauthorized, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C Section 9601 et seq.), the Hazardous Materials
Transportation Act (42 U.S.C. Section 1802 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the
Clean Air Act (42 U.S.C. Section 7901 et seq.), the National
Environmental Policy Act (42 U.S.C. Section 4231, et seq.), the Refuse
Act (33 U.S.C. Section 407, et seq.), the Safe Drinking Water Act (42
U.S.C. Section 300(f) et seq.), the Occupational Safety and Health Act
(29 U.S.C. Section 651 et seq.), and all rules, regulations, codes,
ordinances and guidance documents promulgated or published thereunder,
and the
-8-
<PAGE> 9
provisions of any licenses, permits, orders and decrees issued
pursuant to any of the foregoing.
ERISA: the Employee Retirement Income Security Act of
1974, as amended, any successor statute thereto, and the rules and
regulations issued thereunder, as in effect from time to time.
ERISA Affiliate: any Person who is a member of a group
which is under common control with any Borrower, who together with any
Borrower is treated as a single employer within the meaning of Section
414(b), (c) and (m) of the Code.
Event of Default: any of the Events of Default set forth
in Section 8.1.
Excess Cash Flow: for any period, (i) the consolidated
Operating Cash Flow of Borrowers for such period, (ii) plus, the
Accounts Receivable Decrease, if any, for such period and (iii) minus,
the sum of the following for such period: (A) Debt Service actually
paid during such period, (B) all Capital Expenditures made by
Borrowers during such period permitted pursuant to subsection 7.6, (C)
all expenditures made by Borrowers during such period for Non-Funded
Acquisitions and (D) the Accounts Receivable Increase, if any, for
such period.
Excess Interest: as defined in subsection 2.4.3.
Existing Debt: the Indebtedness described in EXHIBIT
1.1(C).
Funded Acquisition: an Acquisition that is funded with an
Advance.
Funding Date: the date of the disbursement of an Advance.
Future Portion: a portion of the Loan in an aggregate
amount not to exceed $7,696,000.
Future Portion Closing: the disbursement of any portion of
the Future Portion.
Future Portion Closing Date: the date of any Future
Portion Closing.
GAAP: generally accepted accounting principles as in
effect from time to time, which shall include but shall not
-9-
<PAGE> 10
be limited to the official interpretations thereof by the Financial
Accounting Standards Board or any successor thereto.
Good Funds: United States Dollars available in Federal
funds to (i) FINOVA at or before 2:00 p.m., Phoenix time, on a
Business Day and (ii) any other Lender at the place and at or before
the time designated in the written direction delivered by such Lender
to Borrowers pursuant to clause (ii) of Section 2.11.2.
Governmental Body: any foreign, federal, state, municipal
or other government or any department, commission, board, bureau,
agency, public authority or instrumentality thereof or any court or
arbitrator.
Hazardous Materials: any hazardous, toxic, dangerous or
other waste, substance or material defined as such in, regulated by or
for purposes of any Environmental Law.
Holding Companies: collectively, RMR Management Corp.,
Winnetka Investors, Inc. and MCAP Investors, Inc., each a Delaware
corporation.
Hurdle Amount: the monthly estimate of Borrowers' accrued
interest on the Principal Balance, as determined by Agent in its sole
and absolute discretion.
Incipient Default: any event or condition which, with the
giving of notice or the lapse of time, or both, would become an Event
of Default.
Indebtedness: all liabilities, obligations and reserves,
contingent or otherwise, which, in accordance with GAAP, would be
reflected as a liability on a balance sheet or would be required to be
disclosed in a financial statement, including, without duplication:
(i) Indebtedness for Borrowed Money, (ii) obligations secured by any
Lien upon Property, (iii) guaranties, letters of credit and other
contingent obligations and (iv) liabilities in respect of unfunded
vested benefits under any Pension Plan or in respect of withdrawal
liabilities incurred under ERISA by any Borrower or any ERISA
Affiliate to any Multiemployer Plan.
Indebtedness for Borrowed Money: without duplication, all
Indebtedness (i) in respect of money borrowed, (ii) evidenced by a
note, debenture or other like written obligation to pay money
(including, without limitation, all of Borrowers' Obligations and
Permitted Senior Indebtedness), (iii) in respect of rent or hire of
-10-
<PAGE> 11
Property under Capitalized Leases or for the deferred purchase price
of Property, (iv) in respect of obligations under conditional sales or
other title retention agreements and (v) all guaranties of any or all
of the foregoing.
Initial Portion: a portion of the Loan in the amount of
$7,304,000 to be disbursed on the Closing Date.
Instruments: collectively, the (i) Loan Instruments, (ii)
Contribution Agreement and (iii) Subordinated Debt Instruments.
Key Man Life Insurance: the life insurance on the lives of
Brannen and Davis required pursuant to subsection 6.6.1.
Landlord: a lessor under a lease of real property.
Landlord Consent and Waiver: a landlord consent and waiver
in the form of EXHIBIT 1.1(D) attached hereto.
Leases: the leases of real property described in EXHIBIT
5.5.5.
Leasehold Property: any real estate which is the subject
of a Lease under which any Borrower is the lessee.
Lender Addition Agreement: an agreement executed by a
Lender and an Assignee pursuant to Section 9.1.
Lenders: FINOVA and each Assignee.
Lenders' Decisions: all determinations to be made by
Lenders pursuant to the terms of the Loan Instruments, including,
without limitation, any amendment or modification of any of the Loan
Instruments, determinations with respect to the declaration of Events
of Default and acceleration of Borrowers' Obligations or any other
obligation of any Obligor, waivers of affirmative or negative
covenants or other provisions of the Loan Instruments, advancement of
funds pursuant to any of the Loan Instruments or the exercise of any
rights or remedies granted to Lenders or Agent pursuant to the terms
of any of the Loan Instruments.
Lien: any mortgage, pledge, assignment, lien, charge,
encumbrance or security interest of any kind, or the interest of a
vendor or lessor under any conditional sale agreement, Capitalized
Lease or other title retention agreement.
-11-
<PAGE> 12
Loan: the term loan to be made by Lenders to Borrowers in
the maximum amount of $15,000,000, subject to the terms and conditions
of this Loan Agreement.
Loan Agreement: this Loan Agreement.
Loan Assignment: the assignment by a Lender of (i) any
portion of such Lender's interest in Borrowers' Obligations and (ii)
any of such Lender's other rights under any of the Loan Instruments.
Loan Fee: the fee to be paid by Borrowers to FINOVA in
accordance with Section 2.7.
Loan Instruments:
(i) Loan Agreement;
(ii) Note;
(iii) Security Instruments;
(iv) Subordination Agreement;
(v) Closing Certificate;
(vi) Solvency Certificate;
(vii) Environmental Certificate;
(viii) Uniform Commercial Code financing statements
filed in connection with the Closing; and
(ix) other instruments and documents as Agent
reasonably may require in connection with the
transactions contemplated by this Loan
Agreement.
Loan Year: a period of time from the Closing Date or any
anniversary of the Closing Date to the immediately succeeding
anniversary of the Closing Date.
Lockbox: the lockbox identified in the Lockbox Account
Agreement into which all Cash Instruments received by any Borrower
from an Account Debtor shall be deposited.
Lockbox Account: the account identified in the Lockbox
Account Agreement which shall be credited for all Cash Instruments
deposited in the Lockbox.
-12-
<PAGE> 13
Lockbox Account Agreement: an agreement among Lenders,
Borrowers and Lockbox Bank, in form and substance satisfactory to
Agent.
Lockbox Bank: shall mean American National Bank and Trust
Company of Chicago (or any other financial institution acceptable to
Lenders and Borrowers).
Manager: Brannen.
Material Adverse Effect: (i) a material adverse effect upon
the business, operations, Property or financial condition of any
Borrower or (ii) a material impairment of the ability of any Obligor
to perform its obligations under any Loan Instrument to which it is a
party.
Maximum Rate: as defined in subsection 2.4.3.
Membership Interests: collectively, the SACC Membership
Interests, the ASMS Membership Interests and the MSG Membership
Interests.
Mortgages: mortgages or deeds of trust executed by each
Borrower in favor of Agent encumbering each parcel of real estate
owned by such Borrower, in each case in form and substance reasonably
satisfactory to Agent.
MSG: has the meaning assigned to that term in the Preamble to
this Loan Agreement.
MSG Membership Interests: all of the issued and outstanding
membership interests and options, warrants and other rights to acquire
membership interests of MSG.
MSG Membership Interest Pledge Agreement: a pledge agreement
with respect to the MSG Membership Interests executed by the Holding
Companies, in form and substance satisfactory to Agent.
Multiemployer Plan: any multiemployer plan as defined
pursuant to Section 3(37) of ERISA to which any Borrower or any ERISA
Affiliate makes, or accrues an obligation to make, contributions, or
has made, or been obligated to make, contributions within the
preceding six years.
Non-Funded Acquisition: an Acquisition which is not funded
with an Advance, provided that immediately after such Acquisition,
Borrowers have Cash Equivalents of not less than (i) $25,000, if such
Acquisition occurs on or before June 30, 1997, or (ii) $150,000, if
such Acquisition occurs after
-13-
<PAGE> 14
June 30, 1997.
Note: a promissory note in form and substance satisfactory to
FINOVA in the principal amount of $15,000,000 executed and delivered
by Borrowers to FINOVA to evidence the Loan, and any notes issued in
substitution therefor pursuant to subsection 9.1.3.
Obligor: any of the Obligors.
Obligors: collectively, Borrowers and the Holding Companies.
Operating Cash Flow: for any period for each Borrower, the
net income of such Borrower for such period:
(i) plus the sum of the following (without
duplication), to the extent deducted in determining such
net income for such period:
(A) losses from sales, exchanges and
other dispositions of Property or other
extraordinary losses not in the ordinary course
of business;
(B) interest paid or accrued on
Indebtedness, including, without limitation,
interest on Capitalized Leases that is imputed
in accordance with GAAP and any other Debt
Service;
(C) depreciation and amortization of
assets; and
(D) income taxes which are accrued but
not paid during such period; and
(ii) minus the sum of the following (without
duplication), to the extent included in determining net
income for such period:
(A) gains from sales, transactions,
exchanges and other dispositions of Property or
other extraordinary gains not in the ordinary
course of business; and
(B) proceeds of any insurance other than
business interruption insurance.
Operating Lease: any lease which, under GAAP, is not required
to be capitalized.
-14-
<PAGE> 15
Participant: any Person to which a Lender sells or assigns a
Participation.
Participation: a sale or an assignment by a Lender of a
participating interest in (i) any portion of such Lender's interest in
Borrowers' Obligations and (ii) any of such Lender's rights under any
of the Loan Instruments.
Pay-Off Letters: collectively, a pay-off letter from each
holder of a portion of the Existing Debt, in form and substance
reasonably satisfactory to Agent.
PBGC: the Pension Benefit Guaranty Corporation or any
Governmental Body succeeding to the functions thereof.
Pension Plan: any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Part 3 of
Title I of ERISA, Title IV of ERISA, or Section 412 of the Code and
which (i) is maintained for employees of any Borrower or any ERISA
Affiliate, or (ii) has at any time within the preceding six years been
maintained for the employees of any Borrower or any of their current
or former ERISA Affiliates.
Permitted Liens: any of the following Liens:
(i) the Security Interests;
(ii) the Permitted Senior Indebtedness Liens;
(iii) Liens for taxes or assessments and similar
charges, which either are (A) not delinquent
or (B) being contested diligently and in good
faith by appropriate proceedings, and as to
which the applicable Borrower has set aside
reserves on its books which are satisfactory
to Agent;
(iv) statutory Liens, such as mechanic's,
materialman's, warehouseman's, carrier's or
other like Liens, incurred in good faith in
the ordinary course of business, provided
that the underlying obligations relating to
such Liens are paid in the ordinary course of
business, or are being contested diligently
and in good faith by appropriate proceedings
and as to which the applicable Borrower has
set aside reserves on its books satisfactory
to Agent, or the payment of which obligations
-15-
<PAGE> 16
are otherwise secured in a manner reasonably
satisfactory to Agent;
(v) zoning ordinances, easements, licenses,
reservations, provisions, covenants,
conditions, waivers or restrictions on the
use of Property and other title exceptions,
in each case, that are reasonably acceptable
to Agent;
(vi) Liens in respect of judgments or awards with
respect to which no Event of Default would
exist pursuant to subsection 8.1.6; and
(vii) Liens to secure payment of insurance premiums
(A) to be paid in accordance with applicable
laws in the ordinary course of business
relating to payment of worker's compensation,
or (B) that are required for the
participation in any fund in connection with
worker's compensation, unemployment
insurance, old-age pensions or other social
security programs.
Permitted Prior Liens: any of the following Liens:
(i) the Permitted Senior Indebtedness Liens;
(ii) the Permitted Liens described in clauses
(iii) and (iv) of the definition of Permitted
Liens that are accorded priority to the
Security Interests by law; and
(iii) the Permitted Liens described in clauses (v)
and (vii) of the definition of Permitted
Liens, subject to the limitations set forth
therein.
Permitted Senior Indebtedness: Indebtedness, other than
Borrowers' Obligations, incurred by any Borrower to purchase tangible
personal property or Indebtedness incurred to lease tangible personal
property pursuant to Capitalized Leases, provided that (i) the
aggregate amount of such Indebtedness of all Borrowers existing as of
the Closing Date shall not exceed $50,000, (ii) during any Loan Year
after the Closing Date the aggregate amount of such Indebtedness of
all Borrowers at any one time outstanding during such Loan Year shall
not exceed $50,000, and (iii) no Event of Default exists at the time
or will be caused as a result of the incurrence of any Indebtedness
described in clause (ii).
-16-
<PAGE> 17
Permitted Senior Indebtedness Liens: Liens that secure
Permitted Senior Indebtedness, provided that (i) each such Lien
attaches only to the Property purchased or leased with the proceeds of
the Permitted Senior Indebtedness incurred with respect to such
Property and (ii) Agent is granted a Lien upon such Property, subject
only to the Lien granted to the holder of the applicable Permitted
Senior Indebtedness.
Permitted Subsidiaries: any wholly owned subsidiary of any of
SAI, ASMS or SACC, provided that concurrently with its formation (i)
such subsidiary (A) becomes a "Borrower" under this Loan Agreement,
(B) grants Agent a perfected first Lien, subject to Permitted Prior
Liens, on all of its existing and after acquired property, (C)
executes such instruments and documents as Agent may reasonably
require to effectuate the foregoing, (D) becomes a party to the
Contribution Agreement and (E) delivers or causes to be delivered such
opinions of legal counsel and documents as Agent may reasonably
require in connection with the formation of such subsidiary and (ii)
Agent is granted a perfected first Lien on all of the capital stock of
such subsidiary pursuant to such instruments and documents as Agent
may reasonably require.
Person: any individual, firm, corporation, limited liability
company, business enterprise, trust, association, joint venture,
partnership, Governmental Body or other entity, whether acting in an
individual, fiduciary or other capacity.
Pledge Agreements: collectively, the SACC Membership
Interest Pledge Agreement, the ASMS Membership Interest Pledge
Agreement and the MSG Membership Interest Pledge Agreement.
Prepayment Premium: defined in subsection 2.9.1(a).
Principal Balance: the unpaid principal balance of the Loan
or any specified portion thereof outstanding from time to time.
Property: all types of real, personal or mixed property and
all types of tangible or intangible property.
Qualified Depository: a member bank of the Federal Reserve
System having a combined capital and surplus of at least $100,000,000.
RMR: the amount payable on Security Monitoring Contracts or
Central Station Contracts per month by an
-17-
<PAGE> 18
Account Debtor.
Rubin: Steven Rubin.
SACC Membership Interests: all of the issued and outstanding
membership interests and options, warrants and other rights to acquire
membership interests of SACC.
SACC Membership Interest Pledge Agreement: a pledge agreement
with respect to the SACC Membership Interests executed by SAI and MSG,
in form and substance satisfactory to Agent.
SAI: has the meaning assigned to that term in the Preamble to
this Loan Agreement.
Securities Act: the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, as in
effect from time to time.
Security Agreement: a security agreement executed by
Borrowers in favor of Agent in form and substance satisfactory to
Agent.
Security Interests: the Liens in the Collateral granted to
Agent pursuant to the Security Instruments and any other document now
or hereafter executed by any Obligor which purports to grant a Lien on
the Property of such Obligor in favor of Agent.
Security Instruments: collectively, the Assignments of
Leases, the Mortgages, the Assignments of Acquisition Instruments, the
Security Agreement, the Pledge Agreements and the Lockbox Account
Agreement.
Security Monitoring Business: the business of providing
remote security monitoring services and operating Central Station
Businesses.
Security Monitoring Contracts: any contract between MSG and a
retail customer involving the provision of remote security monitoring
services to such customer.
Solvency Certificate: a solvency certificate executed by
Borrowers in form and substance reasonably satisfactory to Agent.
Stated Rate: as defined in subsection 2.4.3.
-18-
<PAGE> 19
Subordinated Debt: the Indebtedness in the principal amount
of $8,441,639 owed by SAI to TJS Partners, as evidenced by the
Subordinated Debt Instruments.
Subordinated Debt Instruments: all instruments and documents
executed and/or delivered in connection with the Subordinated Debt.
Subordination Agreement: collectively, the (i) TJS
Subordination Agreement No. 1 of even date herewith and (ii) TJS
Subordinated Agreement No. 2 of even date herewith, each among Agent,
TJS Partners and SAI and each in form and substance reasonably
satisfactory to Agent.
Termination Event: (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder; or (ii)
the withdrawal of any Borrower or any ERISA Affiliate from a Pension
Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2); or (iii) the termination of a Pension
Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA; or (iv) the institution of proceedings to
terminate, or the appointment of a trustee with respect to, any
Pension Plan by the PBGC; or (v) any other event or condition which
would constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any
Pension Plan; or (vi) the partial or complete withdrawal of any
Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii)
the imposition of a lien pursuant to Section 412 of the Code or
Section 302 of ERISA; or (viii) any event or condition which results
in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA; or (ix) any event or condition which
results in the termination of a Multiemployer Plan under Section 4041A
of ERISA or the institution by the PBGC of proceedings to terminate a
Multiemployer Plan under Section 4042 of ERISA.
TJS Partners: TJS Partners, L.P., a New York limited
partnership.
Total Debt: as of any applicable date, the sum of Borrowers'
Obligations and Dealer Holdback Debt as of such date.
UL Certification: underwriters laboratories approval of a
Central Station Business.
-19-
<PAGE> 20
Unused Commitment Fee: the fee to be paid by Borrowers to
FINOVA in accordance with Section 2.8.
1.2 TIME PERIODS. In this Loan Agreement and the other Loan
Instruments, in the computation of periods of time from a specified date to a
later specified date, (i) the word "from" means "from and including," (ii) the
words "to" and "until" each mean "to, but excluding" and (iii) the words
"through," "end of" and "expiration" each mean "through and including." Unless
otherwise specified, all references in this Loan Agreement and the other Loan
Instruments to (i) a "month" shall be deemed to refer to a calendar month, (ii)
a "quarter" shall be deemed to refer to a calendar quarter and (iii) a "year"
shall be deemed to refer to a calendar year.
1.3 ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms not
specifically defined herein shall be construed, all accounting determinations
hereunder shall be made and all financial statements required to be delivered
pursuant hereto shall be prepared in accordance with GAAP as in effect at the
time of such interpretation, determination or preparation, as applicable. In
the event that any "Accounting Changes" (as hereinafter defined) occur and such
changes result in a change in the method of calculation of financial covenants,
standards or terms contained in this Loan Agreement, then Borrowers and Lenders
agree to enter into negotiations to amend such provisions of this Loan
Agreement so as to reflect such Accounting Changes with the desired result that
the criteria for evaluating the financial condition of Borrowers shall be the
same after such Accounting Changes as if such Accounting Changes had not been
made. For purposes hereof, "Accounting Changes" shall mean (i) changes in
generally accepted accounting principles required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants (or
any successor thereto) or other appropriate authoritative body and (ii) changes
in accounting principles as approved by the Accountants.
1.4 REFERENCES. All references contained in (i) this Loan
Agreement to "Article," "Section," "subsection," "subparagraph," "clause" or
"Exhibit," unless otherwise indicated, shall be deemed to refer to an Article,
Section, subsection, subparagraph, clause or Exhibit, as applicable, of this
Loan Agreement, and (ii) any Loan Instrument to any Loan Instrument at any
given time shall be to such Loan Instrument as the same shall have been
amended, supplemented, restated or otherwise modified as of such time.
1.5 LENDER'S OR AGENT'S DISCRETION. Whenever the terms
"satisfactory to Lenders or Agent," "determined by Lenders or Agent,"
"acceptable to Lenders or Agent," "Lenders or Agent shall
-20-
<PAGE> 21
elect," "Lenders or Agent shall request," "at the option or election of Lenders
or Agent," or similar terms are used in the Loan Instruments, except as
otherwise specifically provided therein, such terms shall mean satisfactory to,
at the election or option of, determined by, acceptable to or requested by
Lenders or Agent, as applicable, in their or its sole and unlimited discretion.
1.6 BORROWERS' KNOWLEDGE. Any statements, representations or
warranties that are based upon the best knowledge of Borrowers or an officer or
manager thereof shall be deemed to have been made after due inquiry by
Borrowers or an officer or manager, as applicable, with respect to the matter
in question.
ARTICLE II
LOAN AND TERMS OF PAYMENT
2.1 INITIAL PORTION.
2.1.1 AMOUNT AND DISBURSEMENT. The Initial Portion shall
consist of a disbursement to be made by Agent to Borrowers in the
amount of $7,304,000 on the Closing Date, provided that all of the
terms and conditions set forth in Section 4.1 have been satisfied.
2.1.2 USE OF PROCEEDS. The proceeds of the Initial Portion
shall be used (i) to pay the Existing Debt, (ii) to pay transaction
costs and (iii) for working capital.
2.2 FUTURE PORTION.
2.2.1 AMOUNT AND DISBURSEMENT. The Future Portion shall
consist of Advances to be made by Lenders to Borrowers up to the
maximum amount of $7,696,000 from time to time after the Closing Date
until the end of the first Loan Year, provided that all of the terms
and conditions set forth in subsection 2.2.3 have been satisfied.
2.2.2 USE OF PROCEEDS. The proceeds of the Future Portion
shall be used to (i) consummate Funded Acquisitions and (ii) pay
transaction costs.
2.2.3 CONDITIONS PRECEDENT TO ADVANCES. The obligation of
each Lender to make any Advance shall be subject to the satisfaction
of the following conditions:
(a) no Incipient Default or Event of Default
exists or would be created by the disbursement of such
-21-
<PAGE> 22
Advance;
(b) each such Advance shall be in a minimum
amount of $250,000 and integral multiples of $50,000 in excess
of that amount;
(c) Agent shall have received a Request for
Advance from Borrowers in the form of EXHIBIT 2.2.3 with
respect to each such Advance no later than 12:00 p.m., Chicago
time, at least three (3) Business Days prior to the proposed
Funding Date with respect to such Advance, which Funding Date
shall be on a Business Day;
(d) the terms and conditions of Section 4.2 shall
have been satisfied;
(e) the Property being acquired and the terms and
conditions of the Acquisition to be consummated with such
Advance must be approved by Agent; and
(f) on the applicable Funding Date the
representations and warranties of each Obligor set forth in
the Loan Instruments to which such Obligor is a party shall be
true and correct in all material respects when made and at and
as of the time of the Funding Date, except to the extent that
such representations and warranties expressly relate to an
earlier date.
2.3 NOTE AND REBORROWING.
2.3.1 NOTE. The Loan shall be evidenced by the Note.
2.3.2 REBORROWING. Borrowers shall not be entitled to
reborrow any portion of the Loan which is repaid or prepaid.
2.4 INTEREST.
2.4.1 INTEREST RATE. Except during a Default Rate Period as
provided in Section 2.10, Borrowers' Obligations shall bear interest
at the Base Rate in effect from time to time plus the Applicable
Margin. As used in this Loan Agreement, the term "Applicable Margin"
shall be determined on the first day of each quarter and shall mean,
as set forth below, the percentage opposite the Applicable Margin
Ratio calculated as of the last day of the second quarter immediately
preceding such quarter:
-22-
<PAGE> 23
<TABLE>
<CAPTION>
Applicable Applicable
Margin Ratio Margin
------------ ----------
<S> <C>
greater than 2.00%
or equal to 3.5
greater than 1.75%
or equal to 2.5
but less than 3.5
less than 2.5 1.50%
</TABLE>
The Applicable Margin shall be 2.00% per annum until Lenders receive
(i) written notice from Borrowers requesting an adjustment in the
Applicable Margin accompanied by (ii) the financial statements
indicating that the requested adjustment is appropriate.
2.4.2 INTEREST COMPUTATION. Interest shall be computed on
the basis of a year consisting of 360 days and charged for the actual
number of days during the period for which interest is being charged.
In computing interest, the date of funding of an advance of the Loan
shall be included and the date of payment shall be excluded.
2.4.3 MAXIMUM INTEREST. Notwithstanding any provision to the
contrary contained herein or in any other Loan Instrument, Lenders
shall not collect a rate of interest on any obligation or liability
due and owing by Borrowers to Lenders in excess of the maximum
contract rate of interest permitted by applicable law ("Excess
Interest"). Lenders and Borrowers agree that the interest laws of the
State of Arizona govern the relationship among them, but in the event
of a final adjudication to the contrary, Borrowers shall be obligated
to pay, nunc pro tunc, to Lenders only such interest as then shall be
permitted by the laws of the state found to govern the contract
relationship among Lenders and Borrower. If any Excess Interest is
provided for or determined by a court of competent jurisdiction to
have been provided for in this Loan Agreement or any other Loan
Instrument, then in such event (i) no Obligor shall be obligated to
pay such Excess Interest, (ii) any Excess Interest collected by
Lenders shall be, at Lenders' option, (A) applied to the Principal
Balance or to accrued and unpaid interest not in excess of the maximum
rate permitted by applicable law or (B) refunded to the payor thereof,
(iii) the interest rates provided for herein (collectively, the
"Stated Rate") shall be automatically reduced to the maximum rate
allowed from time to time under applicable law (the "Maximum Rate")
and this Loan Agreement and the other Loan
-23-
<PAGE> 24
Instruments, as applicable, shall be deemed to have been, and shall
be, modified to reflect such reduction, and (iv) neither any Borrower
nor any other Obligor shall have any action against Lenders for any
damages arising out of the payment or collection of such Excess
Interest; provided, however, that if at any time thereafter the Stated
Rate is less than the Maximum Rate, Borrowers shall, to the extent
permitted by law, continue to pay interest at the Maximum Rate until
such time as the total interest received by Lenders is equal to the
total interest which Lenders would have received had the Stated Rate
been (but for the operation of this provision) the interest rate
payable. Thereafter, the interest rate payable shall be the Stated
Rate unless and until the Stated Rate again exceeds the Maximum Rate,
in which event the provisions contained in this subsection 2.4.3 shall
again apply.
2.5 PRINCIPAL AND INTEREST PAYMENTS.
2.5.1 INTEREST. Except as otherwise provided in subsections
2.9.1(c) and 2.9.2(c), interest on the Principal Balance shall be
payable monthly in arrears on the first Business Day of each month
beginning with the month following the month in which the Closing Date
occurs.
2.5.2 PRINCIPAL. The Principal Balance shall be payable in
consecutive quarterly installments on the first Business Day of each
quarter set forth below in an amount equal to the product of (i) the
percentage set forth below opposite such quarter, multiplied by (ii)
the outstanding Principal Balance as of the end of the first Loan Year
as follows:
<TABLE>
<CAPTION>
Percentage of Outstanding
Principal Balance as of end
of first Loan Year Due as
Quarter Beginning an Installment
----------------- --------------------------
<S> <C>
January, 1998 3.5%
April, 1998 3.5%
July, 1998 3.5%
October, 1998 3.5%
January, 1999 4.0%
April, 1999 4.0%
July, 1999 4.0%
October, 1999 4.0%
January, 2000 4.5%
April, 2000 4.5%
July, 2000 4.5%
</TABLE>
-24-
<PAGE> 25
<TABLE>
<S> <C>
October, 2000 4.5%
January, 2001 5.0%
April, 2001 5.0%
July, 2001 5.0%
October, 2001 5.0%
</TABLE>
The remaining Principal Balance, together with any other sums which
then are due and payable pursuant to the terms of the Loan
Instruments, shall be due and payable in full on the last Business Day
of the quarter commencing October, 2001.
2.6 LATE CHARGES. If a payment of principal or interest to be
made pursuant to this Loan Agreement becomes past due for a period in excess of
five days, Borrowers shall pay on demand to Lenders a late charge of 2% of the
amount of such overdue payment.
2.7 LOAN FEE. Borrowers shall pay a loan fee to FINOVA in the
amount of $262,500, which shall be deemed to be fully earned and payable on the
Closing Date. FINOVA shall credit the $50,000 deposit (net of expenses)
previously paid by Borrowers against the Loan Fee.
2.8 UNUSED COMMITMENT FEE. For the first Loan Year, Borrowers
shall pay to Agent a fee (the "Unused Commitment Fee") monthly in arrears on
the first Business Day of each month beginning with the month following the
month in which the Closing Date occurs in an amount equal to the product of (i)
(A) $15,000,000 minus (B) the average daily balance of the outstanding
Principal Balance during such preceding month, multiplied by (ii) one-half of
one percent (.50%) on a per annum basis. The Unused Commitment Fee expires at
the end of the first Loan Year.
2.9 PREPAYMENTS.
2.9.1 VOLUNTARY PREPAYMENT OF LOAN. Borrowers may at any
time voluntarily prepay in whole or in part the Principal Balance,
subject to the following conditions:
(a) PREPAYMENT PREMIUM. Except as provided in
subsection 2.9.3, concurrently with any voluntary prepayment
of all or any part of the Principal Balance, Borrowers shall
pay to Lenders a prepayment premium (the "Prepayment Premium")
equal to a percentage of the amount of the Principal Balance
prepaid, determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Percentage of Principal
Period of Prepayment Balance Prepaid
-------------------- ---------------
<S> <C>
First Loan Year 4.0%
</TABLE>
-25-
<PAGE> 26
<TABLE>
<S> <C>
Second Loan Year 3.0%
Third Loan Year 2.0%
Thereafter 0.0%
</TABLE>
Notwithstanding the foregoing, with respect to prepayments of
the entire Principal Balance during the second or third Loan
Years, the Prepayment Premium shall be reduced to an amount
equal to 1.0% of such prepayment if the following terms and
conditions are satisfied: (i) Borrowers make a written request
for additional financing from FINOVA, which request shall set
forth the amount and terms of financing proposed by Borrowers
and be accompanied by all financial statements and other due
diligence information with respect to the proposed additional
financing as FINOVA reasonably shall request; (ii) within 30
days after such request FINOVA fails to commit in writing that
it will provide such additional financing on such terms or
proposes other terms not acceptable to Borrowers; (iii) within
30 days thereafter Borrowers obtain a written commitment for
such financing on terms and conditions substantially similar
to those proposed by Borrowers from another lender; and (iv)
within 60 days thereafter Borrowers prepay the entire balance
of Borrowers' Obligations from the proceeds of the financing
from such other lender.
(b) NOTICE OF PREPAYMENT; NUMBER AND AMOUNT OF
PREPAYMENTS. Not less than 20 days prior to the date upon
which Borrowers desire to make any voluntary prepayment of the
Principal Balance, Borrowers shall deliver to Lenders notice
of their intention to prepay, which notice shall state the
prepayment date and the amount of the Principal Balance to be
prepaid. The amount of any partial prepayment of the
Principal Balance shall be not less than $100,000 or integral
multiples thereof. A prepayment of the Principal Balance
shall not be made more frequently than once a month. If
Borrowers deliver to Lenders a notice of prepayment and fail
to make such prepayment, Borrowers shall reimburse Lenders on
demand in the amount of any loss, cost and/or expense
reasonably incurred by Lenders as a result of Lenders'
reliance on such notice, including without limitation, any
loss, cost or expense resulting from Lenders' contractual
obligations in connection with the reinvestment of the amount
indicated in such notice of prepayment.
(c) ADDITIONAL PAYMENTS. Concurrently with any
prepayment of the Principal Balance pursuant to this
-26-
<PAGE> 27
subsection 2.9.1, Borrowers shall pay to Lenders accrued and
unpaid interest on the portion of the Principal Balance which
is being prepaid to the date on which Lenders are in receipt
of Good Funds, and any other sums which are due and payable
pursuant to the terms of any of the Loan Instruments.
(d) APPLICATION OF PARTIAL PREPAYMENTS. Any
partial prepayment of the Principal Balance pursuant to this
subsection 2.9.1 shall be applied to the installments of the
Principal Balance in the inverse order of maturity.
2.9.2 MANDATORY PREPAYMENTS OF THE LOAN.
(a) EXCESS CASH FLOW PAYMENTS. Until the Loan is
paid in full, for each year commencing with the year 1997
Borrowers shall pay to Lenders not later than the earlier of
(x) 30 days after receipt by Lenders of the Basic Financial
Statements for such year and (y) 120 days after the end of
such year, an amount equal to the lesser of (i) 75% of the
Excess Cash Flow for such year and (ii) the amount by which
the Cash Equivalents as of December 31 of such year exceeds
$300,000.
(b) PROCEEDS OF KEY MAN LIFE INSURANCE. All
proceeds of Key Man Life Insurance received by Agent shall be
applied as a prepayment of Borrowers' Obligations in
accordance with subparagraph (c) below.
(c) APPLICATION OF MANDATORY PREPAYMENTS.
Prepayments received by Lenders pursuant to this subsection
2.9.2 shall be applied in the following order of priority to
the payment of: (i) any and all sums which are due and
payable pursuant to the terms of the Loan Instruments, except
the Principal Balance and accrued interest thereon, (ii)
accrued and unpaid interest on the portion of the Principal
Balance being prepaid and (iii) the installments of the
Principal Balance in the inverse order of maturity.
2.9.3 NO PREPAYMENT PREMIUM. No Prepayment Premium shall be
payable with respect to prepayments pursuant to subsection 2.9.2.
2.9.4 INVOLUNTARY PREPAYMENT. Concurrently with any payment
of the Principal Balance received by Lenders resulting from the
exercise by Agent and/or Lenders of any remedy available to Agent
and/or Lenders subsequent to the occurrence of an Event of Default and
the acceleration of
-27-
<PAGE> 28
Borrowers' Obligations, Borrowers shall pay to Lenders a Prepayment
Premium in an amount equal to the Prepayment Premium which would be
payable if such payment was made pursuant to subsection 2.9.1.
2.10 DEFAULT RATE PERIOD. During a Default rate period, (i)
Borrowers' Obligations shall bear interest at the Default Rate and (ii) all
payments received by Lenders shall be applied in accordance with Section 8.4.
2.11 METHOD OF PAYMENT.
2.11.1 LOCKBOX AND LOCKBOX ACCOUNT; PAYMENTS; APPLICATION OF
FUNDS.
(a) MAINTENANCE OF LOCKBOX AND LOCKBOX ACCOUNT.
Borrowers shall maintain at Lockbox Bank the Lockbox and
Lockbox Account. The Lockbox and Lockbox Account shall be
under the sole dominion and control of Agent and no Borrower
shall have any right of withdrawal therefrom. Promptly after
the Closing Date, each Borrower shall notify such Borrower's
Account Debtors under Security Monitoring Contracts that all
payments shall be made directly to the Lockbox or, if by wire
transfer, to the Lockbox Account. All items deposited in the
Lockbox shall be credited to the Lockbox Account.
(b) HURDLE AMOUNT. On the first Business Day of
each month, Agent shall notify Lockbox Bank of the Hurdle
Amount for such month. Upon the opening of business on each
Business Day of each month, Lockbox Bank shall calculate the
amount of collected funds on deposit in the Lockbox Account
for such month (the "Collected Funds"). For each month,
beginning with the second Business Day following the Business
Day on which the Lockbox Bank has determined that the
Collected Funds exceed the Hurdle Amount for such month (the
amount of such excess hereinafter is referred to as the
"Remainder Funds"), Lockbox Bank shall remit the Remainder
Funds to Borrowers until the end of such month.
(c) MONTHLY PAYMENTS FROM THE LOCKBOX. Beginning
with the first Business Day of the month following the month
in which the Closing Occurs, Lockbox Bank shall remit the
Hurdle Amount to Agent in Good Funds prior to 1:00 P.M.
Chicago time for application to Borrowers' Obligations in the
following order of priority: (i) first, to the payment of all
Borrowers' Obligations
-28-
<PAGE> 29
then due and payable other than the Principal Balance and
accrued and unpaid interest thereon, and (ii) second, to the
payment of accrued and unpaid interest then due and payable on
the Principal Balance. If no Event of Default or Incipient
Default then exists, Agent shall remit the remainder, if any,
to Borrowers. If an Event of Default exists such remainder
may, at the option of Agent, be applied in accordance with
Section 8.4.
(d) CASH INSTRUMENTS RECEIVED BY BORROWERS. At
the close of each Business Day following the Closing Date,
each Borrower shall transmit, in the form received, all Cash
Instruments received by such Borrower since the close of
business on the preceding Business Day to the Lockbox or
directly to the Lockbox Bank for deposit in the Lockbox
Account. All Cash Instruments received by each Borrower shall
be held in express trust for Lenders until delivery thereof is
made to the Lockbox or the Lockbox Bank for deposit in the
Lockbox Account and shall not be commingled with any other
Property of such Borrower.
2.11.2 OTHER PAYMENTS. All payments other than those
specified in subsection 2.11.1 to be made pursuant to the Loan
Instruments by Borrowers to (i) FINOVA shall be made by wire transfer
of Good Funds to the account of FINOVA at Citibank, N.A., 399 Park
Avenue, New York, New York, ABA 021000089, Credit: FINOVA Capital
Corporation, Credit Account No. 40680477, or to such other account as
FINOVA shall have given five Business Days prior written notice to
Borrowers, and (ii) any other Lender shall be made by wire transfer of
Good Funds to such account as such Lender shall notify Borrowers.
ARTICLE III
SECURITY
Borrowers' Obligations shall be secured by a Lien upon all of the
Collateral, which at all times shall be superior and prior to all other Liens,
except Permitted Prior Liens.
-29-
<PAGE> 30
ARTICLE IV
CONDITIONS OF CLOSING
4.1 INITIAL PORTION. The obligation of FINOVA to disburse the
Initial Portion shall be subject to the satisfaction of all of the following
conditions on or before the Closing Date in a manner, form and substance
reasonably satisfactory to FINOVA:
4.1.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date
the representations and warranties of each Obligor set forth in the
Instruments to which such Obligor is a party shall be true and correct
in all material respects.
4.1.2 MINIMUM OPERATING CASH FLOW OF THE SECURITY
MONITORING BUSINESS. Borrowers shall demonstrate to the reasonable
satisfaction of FINOVA that the Annualized Operating Cash Flow of
Borrowers for the consecutive twelve month period ending one month
prior to the month in which Closing occurs is not less than
$1,850,000.
4.1.3 APPRAISAL. FINOVA shall have received an appraisal
of the Borrowers prepared by an independent firm of appraisers
acceptable to FINOVA indicating that the aggregate current fair market
value of the Borrowers' Security Monitoring Business is not less than
$12,750,000, which appraisal shall include an operational review
reasonably satisfactory to FINOVA.
4.1.4 DELIVERY OF DOCUMENTS. The following shall have been
delivered to FINOVA, each duly authorized and executed, where
applicable:
(a) the Loan Instruments;
(b) a good standing or similar certificate, dated
a recent date prior to the Closing Date, for each Borrower
from the Secretary of State in each state in which such
Borrower is qualified to transact business;
(c) copies of (i) the articles of organization of
ASMS, SACC and MSG, certified by the Secretaries of State of
Illinois, Michigan and Delaware, respectively, as of a recent
date prior to the Closing Date, (ii) the operating agreements
of each of ASMS, SACC and MSG, (iii) all other agreements
among the holders of any Membership Interests, (iv) the
articles of incorporation of SAI and each of the Holding
Companies, certified by the Secretary of State of Delaware as
of a recent date prior to the Closing Date, (v) the by-laws
-30-
<PAGE> 31
of SAI and each of the Holding Companies and (vi) all other
agreements among the shareholders of any of the Capital Stock,
together with all amendments thereto, certified by the Manager
or President of such Borrower, as applicable;
(d) certified copies of resolutions adopted by
the board of directors of SAI authorizing the execution and
delivery of the Instruments to which SAI is a party;
(e) signature and incumbency certificates of the
members or Manager of ASMS, SACC and MSG and the President of
SAI executing any of the Loan Instruments on behalf of such
Persons;
(f) certified or executed original copies of each
of the following, the terms and conditions of all of which
shall be satisfactory to FINOVA:
(i) the Contribution Agreement;
(ii) the Leases;
(iii) the Subordinated Debt Instruments; and
(iv) all instruments and documents
evidencing Permitted Senior Indebtedness existing as
of the Closing Date;
(g) such other instruments, documents,
certificates, consents, waivers and opinions as Lender may
reasonably request; and
(h) the Pay-Off Letters.
4.1.5 PERFORMANCE; NO DEFAULT. Each Obligor shall have, in
all material respects, performed and complied with all agreements and
conditions contained in the Instruments to be performed by or complied
with by such Person prior to or at the Closing, and no Event of
Default or Incipient Default then shall exist.
4.1.6 OPINIONS OF COUNSEL; DIRECTION FOR DELIVERY. FINOVA
shall have received (i) an opinion dated the Closing Date from
Sachnoff & Weaver, Ltd., special counsel to the Obligors, addressed
to FINOVA, as a Lender and as Agent, in such form and covering such
matters as FINOVA may require and (ii) a copy of the letter from
Borrowers addressed to the counsel described in clause (i), in form
and substance
-31-
<PAGE> 32
satisfactory to FINOVA, directing such counsel to deliver to FINOVA
the foregoing opinion.
4.1.7 APPROVAL OF INSTRUMENTS AND SECURITY INTERESTS.
FINOVA shall have received evidence that the approval or consent shall
have been obtained from all Governmental Bodies and all other Persons
whose approval or consent is required to enable (i) each Obligor to
enter into and perform their respective obligations under the
Instruments to which each such Person is a party and (ii) each Obligor
to grant to Agent the Security Interests contemplated in the
Instruments to which such Obligor is a party.
4.1.8 SECURITY INTERESTS. All filings of Uniform
Commercial Code financing statements, all recordings of the Mortgages
and all other filings and actions necessary to perfect and maintain
the Security Interests as first, valid and perfected Liens in the
Property covered thereby, subject only to Permitted Prior Liens, shall
have been filed or taken and FINOVA shall have received such UCC,
state and federal tax Lien, pending suit, judgment and other Lien
searches as it deems necessary to confirm the foregoing.
4.1.9 FINANCIAL STATEMENTS, REPORTS AND PROJECTIONS.
FINOVA shall have received (i) the statements of income and balance
sheets for Borrowers for the year ended December 31, 1995 and the nine
month period ended September 30, 1996, accompanied by a certificate of
Borrowers certifying that such statements of income and balance sheets
present fairly in all material respects the financial condition of
Borrowers for such periods, (ii) such other financial statements
relating to the operations of Borrowers as FINOVA shall request and
(iii) pro-forma balance sheets and operating projections for
Borrowers.
4.1.10 MATERIAL ADVERSE CHANGE. No event shall have
occurred since September 30, 1996 which has had or reasonably could be
expected to have a Material Adverse Effect.
4.1.11 PROCEEDINGS AND DOCUMENTS. All corporate, limited
liability company and other proceedings in connection with the
transactions contemplated by the Instruments and all documents and
instruments incident to such transactions shall be reasonably
satisfactory to FINOVA, and FINOVA shall have received all such
counterpart originals or certified or other copies as FINOVA may
reasonably request.
-32-
<PAGE> 33
4.1.12 USE OF ASSETS. FINOVA shall be reasonably satisfied
that Borrowers at all times shall be entitled to the use and quiet
enjoyment of all Property necessary for the continued ownership and
operation of the Security Monitoring Business conducted by Borrowers,
including, without limitation, the use of equipment, fixtures,
licenses, offices and means of ingress and egress thereto, and any
easements or rights-of-way necessary to reach any equipment or other
items necessary for the operation of such Security Monitoring
Business.
4.1.13 BROKER FEES. If the services of a broker or other
agent have been used in connection with the Loan, all fees owed to
such broker or agent shall have been paid by Borrowers and FINOVA
shall have received evidence of such payment.
4.1.14 LANDLORD CONSENT AND WAIVER. FINOVA shall have
received a Landlord Consent and Waiver from each Landlord under each
Lease designated by Agent.
4.1.15 INSURANCE. At least three Business Days prior to the
Closing Date Borrowers shall have delivered to FINOVA evidence
satisfactory to FINOVA that all insurance coverage required pursuant
to Section 6.6 is in full force and effect and all premiums then due
thereon have been paid in full.
4.1.16 ENVIRONMENTAL AUDIT. At the request of Agent, Agent
shall have received an Environmental Audit with respect to any real
estate which is the subject of a Lease.
4.1.17 EXISTING INDEBTEDNESS. FINOVA shall have received
evidence that all existing Indebtedness for Borrowed Money has been
paid in full or will be paid in full concurrently with the Closing,
except the (i) Permitted Senior Indebtedness, (ii) Subordinated Debt
and (iii) Dealer Holdback Debt.
4.1.18 PAYMENT OF FEES AND EXPENSES. Borrowers shall have
paid the Loan Fee and all fees and expenses described in subsection
11.1.1 incurred in connection with the Loan.
4.1.19 SECURITY MONITORING CONTRACTS. FINOVA shall have
received a certified copy of the assignment assigning all the Security
Monitoring Contracts owned by SAI to MSG prior to or on the Closing
Date.
4.1.20 UL CERTIFICATIONS. Agent shall have received
-33-
<PAGE> 34
(i) certified copies of the UL Certifications which are necessary for
the operation of Borrowers' Security Monitoring Business and (ii)
evidence that (A) such UL certifications are in full force and effect
as of the Closing Date and (B) no event has occurred which could
result in the termination, revocation or non-renewal of any such UL
Certification.
4.1.21 ALARM LICENSES. Agent shall have received (i)
certified copies of the Alarm Licenses which are necessary for the
operation of Borrowers' Security Monitoring Business and (ii) evidence
that (A) such Alarm Licenses are in full force and effect as of the
Closing Date and (B) no event has occurred which could result in the
termination, revocation or non-renewal of any such Alarm License.
4.1.22 COVENANT LEVERAGE RATIO. Agent shall have received
evidence that the Covenant Leverage Ratio does not exceed 3.75:1 as
calculated as of the quarter ended September 30, 1996.
4.1.23 RMR. Agent shall have received evidence that the
Total Debt as of the Closing Date does not exceed the sum of (i) 22
times the RMR for Security Monitoring Contracts which are owned by
Borrowers on the Closing Date and (ii) 12 times the RMR for Central
Station Contracts which are owned by Borrowers on the Closing Date.
4.2 ACQUISITIONS. The right of any Borrower to make a Funded
Acquisition shall be subject to the satisfaction of all of the following
conditions in a manner reasonably satisfactory to Agent:
4.2.1 CONSUMMATION OF ACQUISITIONS. Prior to or
concurrently with each Acquisition Closing, Agent shall have received
evidence that (i) such Acquisition is in accordance with the terms of
the applicable Acquisition Instruments with such modifications as are
reasonably satisfactory to Agent, (ii) the Borrower consummating such
Acquisition shall have acquired, or will acquire concurrently with the
Acquisition Closing, good and marketable title to all of the Property
which is being purchased pursuant to such Acquisition Instruments,
free and clear of all Liens and Indebtedness, except the Dealer
Holdback Debt.
4.2.2 DELIVERY OF DOCUMENTS. The following shall have been
delivered to Agent, each duly authorized and executed where
applicable:
-34-
<PAGE> 35
(a) the Acquisition Loan Instruments;
(b) such certificates of incumbency,
good-standing and corporate and limited liability company
resolutions as Agent may reasonably require in connection with
such Acquisition;
(c) certified or executed original copies of each
of the following, the terms and conditions of all of which
shall be reasonably satisfactory to Agent:
(i) the applicable Acquisition
Instruments; and
(ii) the Leases assumed or entered into
by any Borrower in connection with
such Acquisition; and
(d) such other instruments, documents,
certificates, consents, waivers and opinions as Agent may
reasonably require.
4.2.3 FINANCIAL STATEMENTS, REPORTS AND PROJECTIONS. Agent
shall have received such financial statements, reports and projections
with respect to the operation of the business which is the subject of
the Acquisition as Agent may reasonably require.
4.2.4 COMPLIANCE WITH APPLICABLE RATIO. After giving
effect to such Acquisition, the Adjusted Leverage Ratio shall not
exceed the Applicable Ratio as calculated as of the most recent month
preceding the date of closing of such Acquisition for which Borrowers
have delivered to Lenders the financial statements and other
information reasonably necessary to enable Lenders to make such
calculation, provided that such delivery shall occur not less than 30
days prior to such date of closing.
4.2.5 MAXIMUM TIMES RMR. The Adjusted Total Debt as of the
requested Funding Date shall not exceed the sum of (i) 22 times the
RMR for Security Monitoring Contracts which are (A) the subject of the
Acquisition and (B) owned by Borrowers prior to the consummation of
such Acquisition, and (ii) 12 times the RMR for Central Station
Contracts which are (A) the subject of the Acquisition and (B) owned
by Borrowers prior to the consummation of such Acquisition, in each
case as of the most recent month preceding the date of closing of such
Acquisition for which Borrowers have delivered to Lenders the
financial statements and other information reasonably necessary to
enable Lenders to make
-35-
<PAGE> 36
such calculation, provided that such delivery shall occur not less
than 30 days prior to such date of closing.
4.2.6 OPINIONS OF COUNSEL. Agent shall have received such
opinions of counsel as Agent reasonably may require in connection with
such Acquisition and the Liens to be granted to Agent upon the
Property acquired in connection therewith.
4.2.7 UL CERTIFICATIONS. With respect to any Central
Station Business which is the subject of such Acquisition, Agent shall
have received evidence that such Borrower has acquired, or will
acquire concurrently with the Acquisition Closing, the UL
Certification necessary for the operation of such Central Station
Business.
4.2.8 ALARM LICENSES. Agent shall have received (i)
certified copies of the Alarm Licenses which are necessary to own or
operate the Property which is the subject of such Acquisition and (ii)
evidence that (A) the transfer or assignment of such Alarm Licenses to
the applicable Borrower is final, (B) such Alarm Licenses are in full
force and effect as of the Acquisition Closing Date and (C) no event
has occurred which could reasonably be expected to result in the
termination, revocation or non-renewal of any such Alarm License.
4.2.9 SECURITY INTEREST. Agent shall have received
evidence that it has or will acquire upon the Acquisition Closing Date
a perfected first lien on all of the Property which is the subject of
such Acquisition, subject only to Permitted Prior Liens.
4.2.10 ENVIRONMENTAL AUDIT. Agent shall have received an
Environmental Audit with respect to any real estate which is being
acquired by any Borrower pursuant to such Acquisition and, at the
request of Agent, any real estate which is the subject of a Lease
which is being assumed or entered into by such Borrower in connection
with such Acquisition.
4.2.11 INSURANCE; SURVEY. Borrower shall deliver to Agent
such title insurance and surveys with respect to each parcel of real
estate being acquired in connection with such Acquisition.
4.2.12 PAYMENT OF FEES. Borrowers shall have paid all fees
and expenses described in subsection 11.1.1 incurred in connection
with such Acquisition and any Advance made in connection therewith.
-36-
<PAGE> 37
4.2.13 ACQUISITION OF A CENTRAL STATION BUSINESS. If the
subject of the Acquisition is a Central Station Business, SACC, ASMS
or a Permitted Subsidiary are the only Persons permitted to consummate
such Acquisition.
4.2.14 ACQUISITION OF SECURITY MONITORING CONTRACTS. If the
subject of the Acquisition is Security Monitoring Contracts, MSG shall
be the Borrower making such Acquisition.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to Agent and Lenders as follows:
5.1 EXISTENCE AND POWER. SAI and each of the Holding Companies is
a corporation duly formed and validly existing under the laws of the State of
Delaware. SACC is a limited liability company duly formed and validly existing
under the laws of the State of Michigan. MSG is a limited liability company
duly formed and validly existing under the laws of the State of Delaware. ASMS
is a limited liability company duly formed and validly existing under the laws
of the State of Illinois. Each Obligor is in good standing and qualified to
transact business in each jurisdiction in which the failure so to qualify could
have a Material Adverse Effect. Each Obligor has all requisite power and
authority to own its Property and to carry on its business as now conducted and
as proposed to be conducted following the Closing Date.
5.2 AUTHORITY. Each Obligor has full power and authority to enter
into, execute, deliver and carry out the terms of the Instruments to which it
is a party and to incur the obligations provided for therein, all of which have
been duly authorized by all proper and necessary action and are not prohibited
by the organizational instruments of such Obligor.
5.3 CAPITAL STOCK, MEMBERSHIP INTERESTS AND RELATED MATTERS.
5.3.1 CAPITALIZATION. There is set forth in EXHIBIT 5.3.1 a
complete description of the Capital Stock and the Membership
Interests. The Capital Stock and the Membership Interests are validly
issued, fully paid and non-assessable, and have been issued and sold
in compliance with all applicable federal and state laws, rules and
regulations, including, without limitation, all so-called "Blue-Sky"
laws.
-37-
<PAGE> 38
The Capital Stock and the Membership Interests are owned beneficially
and of record by the Persons and in the respective percentages set
forth on EXHIBIT 5.3.1, and are free and clear of all Liens except the
Security Interests.
5.3.2 RESTRICTIONS. Except as set forth on EXHIBIT 5.3.2, no
Obligor (i) is a party to or has knowledge of any agreements
restricting the transfer of the Capital Stock or the Membership
Interests, except the Loan Instruments, (ii) has issued any rights
which can be convertible into or exchangeable or exercisable for any
of such Obligor's capital stock or membership interests, or any rights
to subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise)
of, or any calls, commitments or claims of any character relating to,
any of such Obligor's capital stock or membership interests or any
securities convertible into or exchangeable or exercisable for any of
such Obligor's capital stock or membership interests and (iii) is
subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any of such Obligor's capital stock or
membership interests or any convertible rights or options. No Obligor
is required to file or has filed, pursuant the Securities Act of 1933
or Section 12 of the Securities Exchange Act of 1934, as amended, a
registration statement relating to any class of debt or equity
securities.
5.4 BINDING AGREEMENTS. This Loan Agreement and the other
Instruments, when executed and delivered, will constitute the valid and legally
binding obligations of each Obligor to the extent such Obligor is a party
thereto, enforceable against such Obligor in accordance with their respective
terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect affecting the enforcement of creditors' rights generally,
and (ii) equitable principles (whether or not any action to enforce such
document is brought at law or in equity).
-38-
<PAGE> 39
5.5 BUSINESS AND PROPERTY OF BORROWERS.
5.5.1 BUSINESS AND PROPERTY. Each Borrower is the owner of
all Property and the holder of all UL Certifications, Alarm Licenses,
Central Station Contracts and Security Monitoring Contracts necessary
to conduct such Borrower's Security Monitoring Business in the places
where it is now conducted. All of such UL Certifications, Alarm
Licenses, Central Station Contracts and Security Monitoring Contracts
are in full force and effect and no invalidity, default or breach
exists thereunder. There is set forth in EXHIBIT 5.5.1 a description
of all UL Certifications and Alarm Licenses which have been issued to
any Borrower. Borrowers do not engage or propose to engage in any
business or activity other than the Security Monitoring Business.
5.5.2 FACILITY SITES. There is set forth in EXHIBIT 5.5.2
the location of the chief executive office of each Borrower and the
locations all central station monitoring operations, offices and other
Property used in the operation of each Borrower's Security Monitoring
Business.
5.5.3 LEASES. There is set forth in EXHIBIT 5.5.3 a list of
all leases of real property under which any Borrower is the lessee,
together with a complete and accurate address and legal description of
each such parcel of Leasehold Property and the current Landlord under
each Lease. Each Lease is in full force and effect, there has been no
material default in the performance of any of its terms or conditions
by any party thereto, and no claims of default have been asserted with
respect thereto. To the best knowledge of Borrowers, the present and
contemplated use of the Leasehold Property is in material compliance
with all applicable zoning ordinances and regulations and other laws
and regulations.
5.5.4 REAL ESTATE. There is set forth in EXHIBIT 5.5.4 a
complete and accurate address and legal description of each parcel of
real property owned by any Borrower, together with the tax
identification numbers applicable thereto. To the best knowledge of
Borrowers, the present and contemplated use of the real estate is in
material compliance with all applicable zoning ordinances and
regulations and other laws and regulations.
5.5.5 OPERATION AND MAINTENANCE OF EQUIPMENT. To the best
knowledge of each Borrower, no Person owning or operating any
equipment necessary for the operation of Borrowers' Security
Monitoring Business has used, operated or maintained the same in a
manner which now or hereafter could result in the cancellation or
termination of the right of any
-39-
<PAGE> 40
Borrower to use or make use of the same or which could result in any
material liability of any Borrower for damages in connection
therewith. All of the equipment and other tangible personal property
owned by each Borrower on the Closing Date is, in all material
respects, in good operating condition and repair (subject to normal
wear and tear) and has to the best knowledge of each Borrower, been
used, operated and maintained in substantial compliance with all
applicable laws, rules and regulations.
5.6 TITLE TO PROPERTY; LIENS. Upon the Closing each Borrower
shall have (i) good and marketable title to all of its Property, except (A) any
UL Certification which cannot be transferred without the consent of a
Governmental Body and (B) the portion thereof consisting of a leasehold estate
and (ii) a valid leasehold estate in each portion of its Property which
consists of a leasehold estate. Upon the Closing, all of such Property shall
be free and clear of all Liens, except Permitted Liens. Upon the proper filing
with the appropriate Governmental Bodies of the Mortgages and appropriate
Uniform Commercial Code financing statements, the applicable Loan Instruments
will create valid and perfected Liens in the Property described therein,
subject only to Permitted Prior Liens.
5.7 PROJECTIONS AND FINANCIAL STATEMENTS.
5.7.1 FINANCIAL STATEMENTS. Borrowers have delivered to
FINOVA the financial statements described in EXHIBIT 5.7.1 pertaining
to Borrowers' Security Monitoring Business. Such financial statements
present fairly in all material respects the results of operations of
Borrowers' Security Monitoring Business for the periods covered
thereby and the financial condition of Borrowers' Security Monitoring
Business as of the dates indicated therein. All of such financial
statements have been prepared in conformity with GAAP. Since
September 30, 1996, there has been no change which has had a Material
Adverse Effect. Borrowers also have delivered to FINOVA a pro-forma
balance sheet as of the Closing Date. Such pro-forma balance sheet,
which assumes the consummation of the transactions contemplated by the
Loan Instruments, presents fairly in all material respects the
anticipated financial condition of Borrowers as of the Closing Date.
5.7.2 PROJECTIONS. Borrowers have delivered to FINOVA the
projections described in EXHIBIT 5.7.2 of the future operations of
Borrowers. Such projections represent the best estimates of Borrowers
as of the Closing Date of Borrowers' future financial performance.
5.8 LITIGATION. There is set forth in EXHIBIT 5.8 a
-40-
<PAGE> 41
description of all actions and suits, arbitration proceedings and claims
pending or, to the best knowledge of Borrowers, threatened against any Obligor
or maintained by any Obligor at law or in equity or before any Governmental
Body. None of the matters set forth in such EXHIBIT 5.8, if adversely
determined, could have a Material Adverse Effect.
5.9 DEFAULTS IN OTHER AGREEMENTS; CONSENTS; CONFLICTING
AGREEMENTS. No Borrower is in default under any agreement to which such
Borrower is a party or by which such Borrower or any of the Property of such
Borrower is bound, the effect of which default could have a Material Adverse
Effect. No authorization, consent, approval or other action by, and no notice
to or filing with, any Governmental Body or any other Person which has not
already been obtained, taken or filed, as applicable, is required (i) for the
due execution, delivery or performance by any Borrower of any of the Loan
Instruments to which such Borrower is a party or (ii) as a condition to the
validity or enforceability of any of the Loan Instruments to which any Borrower
is a party or any of the transactions contemplated thereby or the priority of
the Security Interests, except for certain filings to establish and perfect the
Security Interests. No provision of any material mortgage, indenture,
contract, agreement, statute, rule, regulation, judgment, decree or order
binding on any Borrower or affecting the Property of any Borrower conflicts
with, or requires any consent which has not already been obtained under, or
would in any way prevent the execution, delivery or performance of the terms of
any of the Loan Instruments or affect the validity or priority of the Security
Interests. The execution, delivery or performance of the terms of the Loan
Instruments will not constitute a default under, or result in the creation or
imposition of, or obligation to create, any Lien upon the Property of Borrowers
pursuant to the terms of any such material mortgage, indenture, contract or
agreement, other than the Loan Instruments.
5.10 TAXES. Each Borrower has filed all tax returns required to be
filed, and has paid, or made adequate provision for the payment of, all taxes
shown to be due and payable on such returns or in any assessments made against
any such Person, and no tax Liens have been filed and no claims are being
asserted in respect of such taxes which are required by GAAP to be reflected in
the financial statements of any Borrower and are not so reflected therein. The
charges, accruals and reserves on the books of each Borrower with respect to
all federal, state, local and other taxes are considered by the management of
such Borrower to be adequate, and there is no unpaid assessment which is or
might be due and payable by any Borrower or create a Lien against any
Borrower's Property, except such assessments as are being contested in good
faith and by appropriate proceedings diligently conducted, and for which
adequate reserves have been set aside in
-41-
<PAGE> 42
accordance with GAAP. None of the tax returns of any Borrower are under audit.
5.11 COMPLIANCE WITH APPLICABLE LAWS. No Borrower is in default in
respect of any judgment, order, writ, injunction, decree or decision of any
Governmental Body, which default would have a Material Adverse Effect. Except
as otherwise provided herein, each Borrower is in compliance in all material
respects with all applicable statutes and regulations, including, without
limitation, all laws, statutes and regulations relating to UL Certification,
all Environmental Laws, ERISA, ADA and all laws and regulations relating to
unfair labor practices, equal employment opportunity and employee safety, of
all Governmental Bodies, a violation of which could have a Material Adverse
Effect. No material condemnation, eminent domain or expropriation has been
commenced or, to the best knowledge of Borrowers, threatened against the
Property which Borrowers will own upon the Closing.
5.12 PATENTS, TRADEMARKS, FRANCHISES, AGREEMENTS. Upon the
Closing, Borrowers will own, possess or have the right to use all patents,
trademarks, service marks, tradenames, copyrights, franchises and rights with
respect thereto, necessary for the conduct of Borrowers' Security Monitoring
Business as proposed to be conducted by Borrowers after the Closing Date,
without any known conflict with the rights of others and, in each case, free of
any Liens.
5.13 ENVIRONMENTAL MATTERS. Each Borrower is in compliance with
all applicable Environmental Laws and no portion of the Leasehold Property has
been used as a land fill. There currently are not any known Hazardous
Materials generated, manufactured, released, stored, buried or deposited over,
beneath, in or on (or used in the construction and/or renovation of) the
Leasehold Property in violation of applicable Environmental Laws which could
have a Material Adverse Effect.
5.14 APPLICATION OF CERTAIN LAWS AND REGULATIONS. No Borrower or
Affiliate of any Borrower is:
5.14.1 INVESTMENT COMPANY ACT. An "investment company," or a
company "controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940, as amended.
5.14.2 HOLDING COMPANY ACT. A "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
as such terms are defined in the Public Utility Holding Company Act of
1935, as amended.
-42-
<PAGE> 43
5.14.3 FOREIGN OR ENEMY STATUS. (i) An "enemy" or an "ally
of an enemy" within the meaning of Section 2 of the Trading with the
Enemy Act, (ii) a "national" of a foreign country designated in
Executive Order No. 8389, as amended, or of any "designated enemy
country" as defined in Executive Order No. 9095, as amended, of the
President of the United States of America, in each case within the
meaning of such Executive Orders, as amended, or of any regulation
issued thereunder, (iii) a "national of any designated foreign
country" within the meaning of the Foreign Assets Control Regulations
or of the Cuban Assets Control Regulations of the United States of
America (Code of Federal Regulations, Title 31, Chapter V, Part 515,
Subpart B, as amended), or (iv) an alien or a representative of any
alien or foreign government within the meaning of Section 310 of Title
47 of the United States Code.
5.14.4 REGULATIONS AS TO BORROWING. Subject to any statute
or regulation which regulates the incurrence of any Indebtedness for
Borrowed Money, including, without limitation, statutes or regulations
relative to common or interstate carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public
utility services.
5.15 MARGIN REGULATIONS. None of the transactions contemplated by
this Loan Agreement or any of the other Loan Instruments, including the use of
the proceeds of the Loan, will violate or result in a violation of Section 7 of
the Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto, including, without limitation, Regulations G, T, U and X, and
no Borrower owns or intends to carry or purchase any "margin security" within
the meaning of such Regulation U or G.
5.16 OTHER INDEBTEDNESS. Upon the Closing, no Borrower will have
any Indebtedness for Borrowed Money, except (i) Borrowers' Obligations, (ii)
Permitted Senior Indebtedness permitted to exist as of the Closing Date
pursuant to this Loan Agreement, (iii) the Subordinated Debt and (iv) the
Dealer Holdback Debt. There is set forth in EXHIBIT 5.16 a true, correct and
complete copy of the Dealer Holdback Report dated as of November 30, 1996.
5.17 NO MISREPRESENTATION. Neither this Loan Agreement nor any
other Loan Instrument, certificate, information or report furnished or to be
furnished by or on behalf of any Borrower to Agent or any Lender in connection
with any of the transactions contemplated hereby or thereby, contains or will
contain a misstatement of material fact, or omits or will omit to state a
material fact required to be stated in order to make the statements contained
herein or therein, taken as a whole, not
-43-
<PAGE> 44
misleading in the light of the circumstances under which such statements were
made. There is no fact, other than information known to the public generally,
known to or reasonably foreseen by Borrowers after diligent inquiry, that would
be expected to have a Material Adverse Effect that has not expressly been
disclosed to FINOVA in writing.
5.18 EMPLOYEE BENEFIT PLANS.
5.18.1 NO OTHER PLANS. Neither any Borrower nor any ERISA
Affiliate maintains or contributes to, or has any obligation under,
any Employee Benefit Plan other than those identified on EXHIBIT
5.18.1. Borrowers have provided Agent accurate and complete copies of
all contracts, agreements and documents described on EXHIBIT 5.18.1.
5.18.2 ERISA AND CODE COMPLIANCE AND LIABILITY. Each
Borrower and each ERISA Affiliate is in compliance with all applicable
provisions of ERISA with respect to all Employee Benefit Plans except
where failure to comply would not result in a material liability to
any Borrower and except for any required amendments for which the
remedial amendment period as defined in Section 401(b) of the Code has
not yet expired. Each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified, and each trust related to
such plan has been determined to be exempt under Section 501(a) of the
Code, except for any amendments for which the remedial amendment
period as defined in Section 401(b) of the Code has not yet expired.
No material liability has been incurred by any Borrower or ERISA
Affiliate which remains unsatisfied for any taxes or penalties with
respect to any Employee Benefit Plan or any Multiemployer Plan.
5.18.3 FUNDING. No Pension Plan has been terminated, nor has
any accumulated funding deficiency (as defined in Section 412 of the
Code) been insured (without regard to any waiver granted under Section
412 of the Code), nor has any funding waiver from the Internal Revenue
Service been received or requested with respect to any Pension Plan,
nor has any Borrower or any ERISA Affiliate failed to make any
contributions or to pay any amounts due and owing as required by
Section 412 of the Code, Section 302 of ERISA or the terms of any
Pension Plan prior to the due dates of such contributions under
Section 412 of the Code or Section 302 of ERISA, nor has there been
any event requiring any disclosure under Section 4041(c)(3)(C),
4063(a) or 4068 of ERISA with respect to any Pension Plan.
-44-
<PAGE> 45
5.18.4 PROHIBITED TRANSACTIONS AND PAYMENTS. Neither any
Borrower nor any ERISA Affiliate has: (i) engaged in a nonexempt
"prohibited transaction" as such term is defined in Section 406 of
ERISA or Section 4975 of the Code; (ii) incurred any liability to the
PBGC which remains outstanding other than the payment of premiums and
there are no premium payments which are due and unpaid; (iii) failed
to make a required contribution or payment to a Multiemployer Plan; or
(iv) failed to make a required installment or other required payment
under Section 412 of the Code.
5.18.5 NO TERMINATION EVENT. No Termination Event has
occurred or is reasonably expected to occur.
5.18.6 ERISA LITIGATION. No material proceeding, claim,
lawsuit and/or investigation is existing or, to the best knowledge of
Borrowers, threatened concerning or involving any (i) employee welfare
benefit plan (as defined in Section 3(1) of ERISA) currently
maintained or contributed to by any Borrower, or any ERISA Affiliate,
(ii) Pension Plan or (iii) Multiemployer Plan.
5.19 EMPLOYEE MATTERS.
5.19.1 COLLECTIVE BARGAINING AGREEMENTS; GRIEVANCES. (i)
None of the employees of any Borrower is subject to any collective
bargaining agreement, (ii) no petition for certification or union
election is pending with respect to the employees of any Borrower and
no union or collective bargaining unit has sought such certification
or recognition with respect to the employees of any Borrower and (iii)
there are no strikes, slowdowns, work stoppages, unfair labor practice
complaints, grievances, arbitration proceedings or controversies
pending or, to the best knowledge of Borrowers, threatened against any
Borrower by any Borrower's employees, other than employee grievances
or controversies arising in the ordinary course of business that could
not in the aggregate be expected to have a Material Adverse Effect.
5.19.2 CLAIMS RELATING TO EMPLOYMENT. Neither any Borrower
nor, to Borrower's best knowledge, any partner, shareholder or
employee of any Borrower, is subject to any employment agreement or
non-competition agreement with any former employer or any other Person
which agreement would have a Material Adverse Effect due to (i) any
information which such Borrower would be prohibited from using under
the terms of such agreement or (ii) any legal considerations relating
to unfair competition, trade secrets or proprietary information.
-45-
<PAGE> 46
5.20 BURDENSOME OBLIGATIONS. After giving effect to the
transactions contemplated by the Loan Instruments, (i) neither Borrower (A)
will be a party to or be bound by any franchise, agreement, deed, lease or
other instrument, or be subject to any restriction, which is so unusual or
burdensome so as to cause, in the foreseeable future, a Material Adverse Effect
and (B) intends to incur, or believes that it will incur, debts beyond its
ability to pay such debts as they become due, and (ii) each Borrower (A) owns
and will own Property, the fair saleable value of which is (I) greater than the
total amount of its liabilities (including contingent liabilities) and (II)
greater than the amount that will be required to pay the probable liabilities
of its then existing debts as they become absolute and matured, and (B) has and
will have capital that is not unreasonably small in relation to its business as
presently conducted and as proposed to be conducted. No Borrower presently
anticipates that future expenditures needed to meet the provisions of federal
or state statutes, orders, rules or regulations will be so burdensome so as to
have a Material Adverse Effect.
5.21 SECURITY MONITORING CONTRACTS AS OF CLOSING DATE. As of the
Closing Date, Borrowers in the aggregate own not less than 13,500 Security
Monitoring Contracts. The number of Security Monitoring Contracts owned by
each Borrower as of November 30, 1996 is set forth on EXHIBIT 5.21.
5.22 CENTRAL STATION CONTRACTS AS OF CLOSING DATE. As of the
Closing Date, Borrowers in the aggregate monitor not less than 54,500 Central
Station Contracts. The number of Central Station Contracts monitored by each
Borrower as of November 30, 1996 is set forth on EXHIBIT 5.22.
5.23 HOLDING COMPANIES. the Holding Companies do not engage in any
business other than the ownership of the MSG Membership Interests.
ARTICLE VI
AFFIRMATIVE COVENANTS
Until all of Borrowers' Obligations are paid and performed in full
each Borrower agrees that it will:
6.1 LEGAL EXISTENCE; GOOD STANDING. Maintain its existence and
its good standing in the jurisdiction of its formation and its qualification in
each jurisdiction in which the failure so to qualify would have a Material
Adverse Effect, and in any event in each jurisdiction in which any portion of
the System owned or operated by such Borrower is located.
-46-
<PAGE> 47
6.2 INSPECTION. Permit representatives of Agent and Lenders, upon
two Business Days prior notice if no Event of Default exists, or at any time if
any Event of Default exists, to (i) visit its offices, (ii) examine its books
and records and Accountants' reports relating thereto, (iii) make copies or
extracts therefrom, (iv) discuss its affairs with its employees, (v) examine
and inspect its Property and (vi) meet and discuss its affairs with the
Accountants, and such Accountants, as a condition to their retention by such
Borrower, are hereby irrevocably authorized by such Borrower to fully discuss
and disclose all such affairs with Agent and Lenders (the foregoing items (i)
through (vi) hereinafter are referred to collectively as an "Inspection").
Notwithstanding the foregoing, if no Event of Default exists, Agent shall not
(A) conduct an Inspection more than once a quarter and (B) charge the Borrowers
more than $2,000 on account of such Inspection. For purposes of this Section
6.2, Agent agrees to comply with the rules and regulations with respect to UL
Certifications.
6.3 FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a
standard system of accounting in accordance with GAAP and furnish to each
Lender:
6.3.1 MONTHLY STATEMENTS. As soon as available and in any
event within 30 days after the close of each month:
(a) the consolidated balance sheet of Obligors
and the consolidating balance sheet for each Borrower as of
the end of such month,
(b) the consolidated statements of operations and
Operating Cash Flow of Obligors and the consolidating
statements of operations and Operating Cash Flow of each
Borrower for such month and for the period from the beginning
of the then current year to the end of such month, setting
forth in each case in comparative form the corresponding
figures for the corresponding period in the preceding year,
and
(c) a report providing the following information
as of the end of such month: (i) the number of Security
Monitoring Contracts owned by each Borrower; (ii) the number
of Central Station Contracts monitored by each Borrower; and
(iii) the RMR for the Security Monitoring Contracts and
Central Station Contracts.
all in reasonable detail, containing such information as Lenders
reasonably may require, and certified by the Chief Financial Officer
of such Borrower as complete and correct,
-47-
<PAGE> 48
subject to normal year-end adjustments.
6.3.2 QUARTERLY AGINGS. As soon as available and in any
event within 45 days after the close of each quarter of each year, an
aging of each Borrower's outstanding accounts payable and accounts
receivable as of the end of such quarter, all in reasonable detail,
containing such information as Lenders reasonably may require, and
certified by the Chief Financial Officer of such Borrower as complete
and correct, subject to normal year-end adjustments.
6.3.3 ANNUAL STATEMENTS. As soon as available and in any
event within 120 days after the close of each year:
(a) the consolidated balance sheet of Obligors as
of the end of such year and the consolidated statements of
operations, cash flows, shareholders' equity or members'
equity of Obligors for such year (collectively, the "Basic
Financial Statements"), the consolidating balance sheet of
each Borrower as of the end of such year, the consolidated
statements of operations, cash flows and shareholders' equity
or members' equity, as applicable, of Obligors for such year
and the consolidated and consolidating statements of Operating
Cash Flow and Excess Cash Flow of Obligors for such year,
setting forth in each case in comparative form the
corresponding figures for the preceding year,
(b) an opinion of the Accountants which shall
accompany the Basic Financial Statements, which opinion shall
be unqualified as to going concern and scope of audit, stating
that (i) the examination by the Accountants in connection with
such Basic Financial Statements has been made in accordance
with generally accepted auditing standards, (ii) such Basic
Financial Statements have been prepared in conformity with
GAAP and in a manner consistent with prior periods, and (iii)
such Basic Financial Statements fairly present in all material
respects the financial position and results of operations of
Borrowers, and
(c) a letter from the Accountants stating that
the statements of Operating Cash Flow and Excess Cash Flow
were computed in accordance with the requirements of this Loan
Agreement.
6.3.4 COMPLIANCE CERTIFICATES. The financial statements
described in subsections 6.3.1, 6.3.2 and 6.3.3 shall be accompanied
by a Compliance Certificate.
-48-
<PAGE> 49
6.3.5 ACCOUNTANTS' CERTIFICATE. Simultaneously with the
delivery of the certified Basic Financial Statements required by
subsection 6.3.3, copies of a certificate of the Accountants stating
that (i) they have checked the computations delivered by Borrowers in
compliance with subsection 6.3.3, and (ii) in making the examination
necessary for their audit of the Basic Financial Statements of
Borrowers for such year, nothing came to their attention of a
financial or accounting nature that caused them to believe that (A)
Borrowers were not in compliance with the terms, covenants, provisions
or conditions of any of the Loan Instruments, or (B) there shall have
occurred any condition or event which would constitute an Event of
Default, or, if so, specifying in such certificate all such instances
of non-compliance and the nature and status thereof.
6.3.6 AUDIT REPORTS. Promptly upon receipt thereof, a copy
of each report, other than the reports referred to in subsection
6.3.3, including any so-called "Management Letter" or similar report,
submitted to Borrowers by the Accountants in connection with any
annual, interim or special audit made by the Accountants of the books
of Borrowers.
6.3.7 BUSINESS PLANS. Before the end of each year, a
business plan for the following year setting forth in reasonable
detail the projected operations budget of the System for such year and
such other information as Lenders reasonably may request, for such
following year.
6.3.8 NOTICE OF DEFAULTS; LOSS. Prompt notice if: (i) any
Indebtedness of any Borrower is declared or shall become due and
payable prior to its declared or stated maturity, or called and not
paid when due, (ii) an event has occurred that enables the holder of
any note, or other evidence of such Indebtedness, certificate or
security evidencing any such Indebtedness of any Borrower to declare
such Indebtedness due and payable prior to its stated maturity, (iii)
there shall occur and be continuing an Incipient Default or Event of
Default, accompanied by a statement setting forth what action
Borrowers propose to take in respect thereof, or (iv) any event shall
occur which has a Material Adverse Effect, including the amount or the
estimated amount of any loss or depreciation or adverse effect.
6.3.9 NOTICE OF SUITS, ADVERSE EVENTS. Prompt notice of:
(i) any citation, summons, subpoena, order to show cause or other
order naming any Borrower a party to any proceeding before any
Governmental Body which might reasonably be
-49-
<PAGE> 50
expected to have a Material Adverse Effect and include with such
notice a copy of such citation, summons, subpoena, order to show cause
or other order, (ii) any lapse or other termination of any UL
Certification, Alarm License, license, permit, franchise, agreement or
other authorization issued to any Borrower by any Governmental Body or
any other Person that is material to the operation of Borrowers'
Security Monitoring Business, (iii) any refusal by any Governmental
Body or any other Person to renew or extend any such UL Certification,
Alarm License, license, permit, franchise, agreement or other
authorization and (iv) any dispute between Borrowers and any
Governmental Body or any other Person, which lapse, termination,
refusal or dispute referred to in clauses (ii) and (iii) above or in
this clause (iv) could reasonably be expected to have a Material
Adverse Effect.
6.3.10 REPORTS TO SHAREHOLDERS, MEMBERS, CREDITORS AND
GOVERNMENTAL BODIES.
(a) Promptly upon becoming available, copies of
all financial statements, reports, notices and other
statements sent or made available generally by any Borrower to
such Borrower's shareholders or members to the extent the same
contain any information not included in any financial
statements previously furnished to Lenders pursuant to
subsections 6.3.1, 6.3.2 or 6.3.3, of all regular and periodic
reports and all registration statements and prospectuses filed
by any Borrower with any securities exchange or with the
Securities and Exchange Commission or any Governmental Body
succeeding to any of its functions, and of all statements
generally made available by each Borrower or others concerning
material developments in the business of any Borrower.
(b) Promptly upon becoming available, copies of
any periodic or special reports filed by any Borrower with any
Governmental Body or Person, if such reports indicate any
material change in the business, operations, affairs or
condition of such Borrower, or if copies thereof are requested
by Lender, and copies of any material notices and other
communications from any Governmental Body or Person which
specifically relate to any Borrower.
6.3.11 ERISA NOTICES AND REQUESTS.
(a) With reasonable promptness, and in any event
within 25 Business Days after occurrence of any of the
following, Borrowers will give notice of and/or deliver
-50-
<PAGE> 51
to Agent copies of: (i) the establishment of any new Pension
Plan or Multiemployer Plan; (ii) the commencement of
contributions to any Pension Plan or Multiemployer Plan to
which any Borrower or any of its ERISA Affiliates was not
previously contributing or any increase in the benefits of any
existing Pension Plan or Multiemployer Plan; (iii) each
funding waiver request filed with respect to any Pension Plan
and all communications received or sent by any Borrower or any
ERISA Affiliate with respect to such request; and (iv) the
failure of any Borrower or ERISA Affiliate to make a required
installment or payment to a Pension Plan under Section 302 of
ERISA or Section 412 of the Code by the due date.
(b) Promptly and in any event within 10 Business
Days of becoming aware of the occurrence of or forthcoming
occurrence of any (i) Termination Event or (ii) non-exempt
"prohibited transaction", as such term is defined in Section
406 of ERISA or Section 4975 of the Code, in connection with
any Pension Plan or any trust created thereunder, Borrowers
will deliver to Agent a notice specifying the nature thereof,
what action the applicable Borrower has taken, is taking or
proposes to take with respect thereto and, when known, any
action taken or threatened by the Internal Revenue Service,
the Department of Labor or the PBGC with respect thereto.
(c) With reasonable promptness but in any event
within 10 Business Days after the occurrence of, or receipt
of, any of the following, Borrowers will deliver to Agent
copies of: (i) any favorable or unfavorable determination
letter from the Internal Revenue Service regarding the
qualification of an Employee Benefit Plan under Section 401(a)
of the Code; (ii) all notices received by any Borrower or any
ERISA Affiliate of the PBGC's intent to terminate any Pension
Plan or to have a trustee appointed to administer any Pension
Plan; (iii) each Schedule B (Actuarial Information) to the
annual report (Form 5500 Series) filed by any Borrower or any
ERISA Affiliate with the Internal Revenue Service with respect
to each Pension Plan; and (iv) all notices received by any
Borrower or any ERISA Affiliate from a Multiemployer Plan
sponsor concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA. Borrowers will
notify Agent in writing within two Business Days of any
Borrower or any ERISA Affiliate that has filed a notice of
intent to terminate any Pension Plan under a
-51-
<PAGE> 52
distress termination within the meaning of Section 4041(c) of
ERISA.
6.3.12 OTHER INFORMATION.
(a) Immediate notice of any change in the
location of any Property of any Borrower which is material to
or necessary for the continued operation of such Borrower's
Security Monitoring Business, any change in the name of any
Borrower, any sale or purchase of Property outside the regular
course of business of any Borrower, and any change in the
business or financial affairs of any Borrower, which change
would have a Material Adverse Effect.
(b) Promptly upon request therefor, such other
information and reports relating to the past, present or
future financial condition, operations, plans and projections
of Borrowers as Lenders reasonably may request from time to
time.
6.4 REPORTS TO GOVERNMENTAL BODIES AND OTHER PERSONS. Timely file
all material reports, applications, documents, instruments and information
required to be filed pursuant to all rules, regulations or requests of any
Governmental Body or other Person having jurisdiction over the operation of
Borrowers' Security Monitoring Business, including, but not limited to, such of
the Loan Instruments as are required to be filed with any such Governmental
Body or other Person pursuant to applicable rules and regulations promulgated
by such Governmental Body or other Person.
6.5 MAINTENANCE OF UL CERTIFICATIONS, ALARM LICENSES, LICENSES,
FRANCHISES AND OTHER AGREEMENTS.
6.5.1 MAINTENANCE OF UL CERTIFICATIONS AND ALARM LICENSES.
Maintain in full force and effect at all times, and apply in a
timely manner for renewal of, all UL Certifications and Alarm Licenses
necessary for the operation of Borrowers' Security Monitoring
Business, the loss of any of which would have a Material Adverse
Effect, and deliver to Agent (i) at least 30 days prior notice of the
proposed amendment of any of such UL Certifications and Alarm Licenses
and (ii) (A) evidence of the filing of any application for renewal of
such UL Certifications and Alarm Licenses not less than the earlier of
(x) 60 days prior to the expiration of such UL Certifications and
Alarm Licenses or (y) the last day such application may be filed in
accordance with applicable law and (B) copies of any petition or other
document filed to
-52-
<PAGE> 53
deny or object to any such renewal application promptly after receipt
thereof by Borrowers.
6.5.2 MAINTENANCE OF LICENSES, FRANCHISES AND AGREEMENTS.
Maintain in full force and effect at all times, and apply in a
timely manner for renewal of licenses, franchises, trademarks,
tradenames and agreements necessary for the operation of Borrowers'
Security Monitoring Business, the loss of any of which would have a
Material Adverse Effect, and deliver to Agent (i) at least 30 days
prior notice of the proposed amendment of any of such licenses,
franchises, trademarks, tradenames and agreements and (ii) (A)
evidence of the filing of any application for renewal of such
licenses, franchises, trademarks, tradenames and agreements not less
than the earlier of (x) 60 days prior to the expiration of such
licenses, license or franchise or (y) the last day such application
may be filed in accordance with applicable law and (B) copies of any
petition or other document filed to deny or object to any such renewal
application promptly after receipt thereof by Borrowers.
6.6 INSURANCE.
6.6.1 KEY MAN LIFE INSURANCE. Maintain in full force and
effect at all times policies of insurance in such form and issued by
such insurers as shall be reasonably acceptable to Agent, insuring the
life of (i) Brannen in the amount of $2,000,000 and (ii) Davis in the
amount of $500,000, and deliver to Agent, from time to time as Agent
reasonably may request, evidence of compliance with this subsection
6.6.1.
6.6.2 BUSINESS INSURANCE. Maintain in full force and
effect at all times Business Insurance as required by the insurance
letter agreement between Borrowers and FINOVA, a copy of which is
attached hereto as EXHIBIT 6.6.2, all of which shall be written by
insurers and in amounts and forms reasonably satisfactory to Agent and
otherwise comply with the terms of such insurance letter agreement,
and deliver to Agent, from time to time as Agent reasonably may
request, evidence of compliance with this subsection 6.6.2.
6.6.3 CLAIMS AND PROCEEDS. Each Borrower hereby directs all
insurers under all policies of Business Insurance to pay all proceeds
payable thereunder directly to Agent and each Borrower hereby
authorizes Agent to collect all such proceeds. Each Borrower
irrevocably appoints Agent (and all officers, employees or agents
designated by Agent) as such Borrower's true and lawful attorney and
agent in fact for the
-53-
<PAGE> 54
purpose of and with power to make, settle and adjust claims under such
policies of insurance, endorse the name of such Borrower on any check,
draft, instrument or other item of payment for the proceeds of such
policies of insurance, and to make all determinations and decisions
with respect to such policies of insurance. Each Borrower
acknowledges that such appointment of Agent as its attorney and agent
in fact is a power coupled with an interest and therefore is
irrevocable. Each Borrower shall promptly notify Agent of any loss,
damage, destruction or other casualty to the Collateral. The
insurance proceeds received on account of any loss, damage,
destruction or other casualty shall, at the option of Lenders, be (i)
applied in reduction of Borrowers' Obligations in the following order
of priority: (A) first, to the payment of any and all sums which are
then due and payable pursuant to the terms of the Loan Instruments,
other than the Principal Balance and accrued and unpaid interest
thereon, (B) next, to accrued and unpaid interest on the Principal
Balance and (C) then to the Principal Balance in the inverse order of
the maturity of the installments thereof, or (ii) held by Agent and
applied to pay for the cost of repair or replacement of the Collateral
subject to such loss, damage, destruction or other casualty, in which
event such proceeds shall be made available in the manner and under
such conditions as Agent reasonably may require. Notwithstanding
anything to the contrary contained in this subsection 6.6.3, if the
amount of the proceeds from any loss, damage, destruction or other
casualty to the Collateral reasonably is expected to be less than
$100,000 and neither an Event of Default nor an Incipient Default then
shall exist, Borrowers shall have the right to make, settle and adjust
any claim regarding such proceeds and Agent shall collect such
proceeds and make such proceeds available to Borrowers to pay for the
repair or replacement of the Collateral which was the subject of such
loss, damage, destruction or other casualty in the manner and under
such terms and conditions as Agent reasonably may require. In the
event the proceeds are to be applied to the repair or replacement of
Collateral, the Collateral shall be repaired or replaced so as to be
of at least equal value and substantially the same character as prior
to such loss, damage, destruction or other casualty.
6.7 FUTURE LEASES. Deliver to Agent, concurrently with the
execution by any Borrower, as lessee, of any lease pertaining to real property,
(i) an executed copy thereof, (ii) at the option of Agent, either a leasehold
mortgage upon or a collateral assignment of such lease in favor of Agent, in
either case in a form reasonably acceptable to Agent, and (iii) a Landlord
Consent and Waiver from the lessor under such lease.
-54-
<PAGE> 55
6.8 FUTURE ACQUISITIONS OF REAL PROPERTY. Deliver to Agent
concurrently with the (i) execution by any Borrower of any contract relating to
the purchase by such Borrower of real property, an executed copy of such
contract and (ii) closing of the purchase of such real property, (A) a first
mortgage or deed of trust in favor of Agent on such real property, in form and
content satisfactory to Agent, (B) a lender's policy of title insurance, in
such form and amount and containing such endorsements as shall be reasonably
satisfactory to Agent, (C) an ALTA/ACSM survey of such real property and (D)
such other documents and assurances with respect to such real property as Agent
may require.
6.9 ENVIRONMENTAL MATTERS.
6.9.1 COMPLIANCE. At all times comply with, and be
responsible for, its obligations under all Environmental Laws
applicable to the Leasehold Property, any parcel of real estate
acquired in connection with an Acquisition and any other Property
owned by such Borrower or used by such Borrower in the operation of
its business. At its sole cost and expense, each Borrower shall (i)
comply in all respects with (A) any notice of any violation or
administrative or judicial complaint or order having been filed
against such Borrower, any portion of the Leasehold Property, any
parcel of real estate acquired in connection with an Acquisition or
any other Property owned by such Borrower or used by such Borrower in
the operation of its business alleging violations of any law,
ordinance and/or regulation requiring such Borrower to take any action
in connection with the release, transportation and/or clean-up of any
Hazardous Materials, and (B) any notice from any Governmental Body or
any other Person alleging that such Borrower is or may be liable for
costs associated with a response or clean-up of any Hazardous
Materials or any damages resulting from such release or
transportation, or (ii) diligently contest in good faith by
appropriate proceedings any demands set forth in such notices,
provided (A) reserves in an amount satisfactory to Agent to pay the
costs associated with complying with any such notice are established
by such Borrower and (B) no Lien would or will attach to the Property
which is the subject of any such notice as a result of any compliance
by such Borrower which is delayed during any such contest. Promptly
upon receipt of any notice described in the foregoing clause (i),
Borrowers shall deliver to Agent a copy thereof.
6.9.2 CERTIFICATION. Deliver to Agent, not later than
January 1 of each year, an Environmental Compliance Certificate.
-55-
<PAGE> 56
6.10 COMPLIANCE WITH LAWS. Comply with all laws, statutes and
regulations relating to UL Certification and all other federal, state and local
laws, ordinances, requirements and regulations and all judgments, orders,
injunctions and decrees applicable to such Borrower and its operations, the
failure to comply with which would have a Material Adverse Effect.
6.11 TAXES AND CLAIMS. Pay and discharge all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any Property belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might become
a Lien (other than a Permitted Lien) upon the Property of such Borrower,
provided that so long as no Lien has attached to the Property of any Borrower
as a result of any of the foregoing, no Borrower shall be required by this
Section 6.11 to pay any such amount if the same is being contested diligently
and in good faith by appropriate proceedings and as to which the applicable
Borrower has set aside reserves on its books satisfactory to Agent.
6.12 MAINTENANCE OF PROPERTIES. Maintain all of its Property
necessary in the operation of such Borrower's Security Monitoring Business in
good working order and condition.
6.13 GOVERNMENTAL APPROVALS. Upon the exercise by Agent and/or
Lenders of any power, right or privilege pursuant to the provisions of any of
the Loan Instruments requiring any consent, approval or authorization of any
Governmental Body (including, without limitation, transfers of UL
Certifications), promptly execute and cause the execution of all applications,
certificates, instruments and other documents that Agent and/or Lenders may
reasonably be required to obtain for such consent, approval or authorization.
6.14 NON-FUNDED ACQUISITION. Promptly after the consummation of
each Non-Funded Acquisition, Borrowers shall notify Agent of the terms and
conditions of such acquisition and provide Agent with any other information
with respect thereto as Agent may reasonably request.
ARTICLE VII
NEGATIVE COVENANTS
Until all of Borrowers' Obligations are paid and performed in full, no
Borrower shall:
7.1 BORROWING. Create, incur, assume or suffer to exist
-56-
<PAGE> 57
any liability for Indebtedness for Borrowed Money except (i) Borrowers'
Obligations, (ii) Permitted Senior Indebtedness, (iii) the Subordinated Debt
and (iv) the Dealer Holdback Debt.
7.2 LIENS. Create, incur, assume or suffer to exist any Lien upon
any of its Property, whether now owned or hereafter acquired, except Permitted
Liens.
7.3 MERGER AND ACQUISITION. Consolidate with or merge with or
into any Person, or acquire directly or indirectly all or substantially all of
the capital stock, equity interests membership interests or Property of any
Person, except Funded Acquisitions and Non-Funded Acquisitions.
7.4 CONTINGENT LIABILITIES. Assume, guarantee, endorse,
contingently agree to purchase, become liable in respect of any letter of
credit, or otherwise become liable upon the obligation of any Person, except
(i) Dealer Holdback Debt, (ii) liabilities arising from the endorsement of
negotiable instruments for deposit or collection or (iii) the posting of bonds
to secure performance to the extent necessary in connection with Borrowers'
Security Monitoring Business and similar transactions in the ordinary course of
business.
7.5 DISTRIBUTIONS. Pay any dividends or make any distributions
with respect to, or purchase or redeem all or any portion of, the Capital Stock
or the Membership Interests.
7.6 CAPITAL EXPENDITURES. Make or incur any Capital Expenditures
in any year set forth in EXHIBIT 7.6 if the aggregate amount of all Capital
Expenditures made by Borrowers with respect to such year would exceed the
amount set forth opposite such year.
7.7 PAYMENTS OF INDEBTEDNESS FOR BORROWED MONEY. Make any
voluntary or optional prepayment of any Indebtedness for Borrowed Money other
than Borrowers' Obligations and payments made in the ordinary course of
business with respect to the Dealer Holdback Debt.
7.8 OBLIGATIONS AS LESSEE UNDER OPERATING LEASES. Enter into any
arrangement as lessee of Property under any Operating Lease if the aggregate
rentals for Borrowers for all such Operating Leases during any year set forth
in EXHIBIT 7.8 would exceed the amount set forth opposite such year.
7.9 INVESTMENTS, LOANS. At any time purchase or otherwise
acquire, hold or invest in the capital stock of, or any other interest in, any
Person, or make any loan or advance to, or enter into any arrangement for the
purpose of providing funds or credit to, or make any other investment, whether
by way of capital
-57-
<PAGE> 58
contribution or otherwise, in or with any Person, including, without
limitation, any Affiliate, except (i) investments in direct obligations of, or
instruments unconditionally guaranteed by, the United States of America or in
certificates of deposit issued by a Qualified Depository, (ii) investments in
commercial or finance paper which, at the time of investment, is rated either
"A" or better by Moody's Investors Service, Inc., or Standard & Poor's
Corporation, respectively, or at the equivalent rate by any of their respective
successors, (iii) any interests in any money market account maintained, at the
time of investment, with a Qualified Depository, the investments of which, at
the time of investment, are restricted to the types specified in clause (i)
above and (iv) the formation and capitalization of Permitted Subsidiaries. All
investments permitted pursuant to clauses (i), (ii) and (iii) of this Section
7.9 shall have a maturity not exceeding one year.
7.10 FUNDAMENTAL BUSINESS CHANGES. Materially change the nature of
its business or engage in any business other than the Security Monitoring
Business.
7.11 FACILITY SITES. Change the locations of its chief executive
office, Central Station Businesses, studios, offices or other Property used in
the operation of such Borrower's Security Monitoring Business unless (i) Agent
shall have received at least 30 days' prior notice thereof, (ii) Borrowers
shall have complied with all applicable laws, rules and regulations and shall
have received all required consents and approvals from any Governmental Body,
(iii) Agent shall have received satisfactory evidence that such change could
not reasonably be expected to affect adversely the operations or business
prospects of Borrowers and (iv) Borrowers shall have executed and delivered to
Agent any documents Agent may reasonably require in order to maintain the
validity and priority of the Security Interests.
7.12 SALE OR TRANSFER OF ASSETS. Sell, lease, assign, transfer or
otherwise dispose of any Property (other than in the ordinary course of
business) except for the sale or disposition of (i) Property which is not
material to or necessary for the continued operation of its business and (ii)
obsolete or unusable items of equipment which promptly are replaced with new
items of equipment of like function and comparable value to the unusable items
of equipment when the same were new or not obsolete or unusable, provided such
replacement items of equipment shall become subject to the Security Interests.
7.13 AMENDMENT OF CERTAIN DOCUMENTS. Amend, modify or waive any
term or provision of the (i) the articles of organization or operating
agreements of SACC, MSG or ASMS, (ii) the articles of incorporation or by-laws
of SAI or the Holding Companies or (iii)
-58-
<PAGE> 59
the Contribution Agreement.
7.14 ACQUISITION OF ADDITIONAL PROPERTIES. Acquire any additional
Property except (i) such Property as is necessary to or useful in the operation
of such Borrower's Security Monitoring Business, provided such acquisitions
shall be subject to the conditions and limitations set forth in this Loan
Agreement, (ii) Funded Acquisitions and (iii) Non-Funded Acquisitions.
7.15 ISSUANCE OF MEMBERSHIP INTERESTS. Issue or sell, permit to be
issued or sold, or otherwise consent to the transfer of, any additional
membership interests or any interests convertible into or exercisable for any
such additional membership interests, other than membership interests issued by
a Permitted Subsidiary upon its formation.
7.16 TRANSACTIONS WITH AFFILIATES. Sell, lease, assign, transfer
or otherwise dispose of any Property to any Obligor or any Affiliate of any
Obligor, lease Property, render or receive services or purchase assets from any
Obligor or any such Affiliate, or otherwise enter into any contractual
relationship with any Obligor or any Affiliate of any Obligor, except that (i)
subject to the restrictions contained in Section 7.21, Borrowers may pay an
annual salaries to Brannen, Davis and Rubin and (ii) Borrowers may engage in
the transactions described on EXHIBIT 7.16.
7.17 COMPLIANCE WITH ERISA.
(a) Permit the occurrence of any Termination Event which
would result in a liability to any Borrower or ERISA Affiliate in
excess of $50,000;
(b) Permit the present value of all benefit liabilities
under all Pension Plans to exceed the current value of the assets of
such Pension Plans allocable to such benefit liabilities by more than
$50,000;
(c) Permit any accumulated funding deficiency in excess
of $50,000 (as defined in Section 302 of ERISA and Section 412 of the
Code) with respect to any Pension Plan, whether or not waived;
(d) Fail to make any contribution or payment to any
Multiemployer Plan which any Borrower or ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer
Plan, or any law pertaining thereto which results in or is likely to
result in a liability in excess of $50,000;
-59-
<PAGE> 60
(e) Engage, or permit any Borrower or ERISA Affiliate to
engage, in any "prohibited transaction" as such term is defined in
Section 406 of ERISA or Section 4975 of the Code for which a civil
penalty pursuant to Section 502(i) of ERISA or a tax pursuant to
Section 4975 of the Code in excess of $50,000 is imposed;
(f) Permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or amend any
Employee Benefit Plan which establishment or amendment could result in
liability to any Borrower or ERISA Affiliate or increase the
obligation of any Borrower or ERISA Affiliate to a Multiemployer Plan
which liability or increase, individually or together with all similar
liabilities and increases, is material to any Borrower or ERISA
Affiliate; or
(g) Fail, or permit any Borrower or ERISA Affiliate to
fail, to establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with ERISA, the Code and all other
applicable laws and regulations and interpretations thereof.
7.18 COVENANT LEVERAGE RATIO. Permit the Covenant Leverage Ratio
as of the last day of any quarter to be greater than the Applicable Ratio for
such day.
7.19 DEBT SERVICE COVERAGE RATIO. Permit the Debt Service Coverage
Ratio for each four quarter period ending as of each quarter to be less than
the ratio of 1.25:1.
7.20 MINIMUM RMR.
7.20.1 MINIMUM RMR FOR SECURITY MONITORING CONTRACTS.
Permit the RMR with respect to Security Monitoring Contracts for any
quarter set forth in EXHIBIT 7.20.1 to be less than the amount set
forth opposite such quarter.
7.20.2 MINIMUM RMR FOR CENTRAL STATION CONTRACTS. Permit
the RMR with respect to Central Station Contracts for any quarter set
forth in EXHIBIT 7.20.2 to be less than the amount set forth opposite
such quarter.
7.21 COMPENSATION. Pay any salary, bonuses, fees or other forms of
compensation to Brannen, Davis or Rubin if the aggregate amount thereof paid by
all Borrowers to (i) Brannen would exceed $250,000 per year, (ii) Davis would
exceed $250,000 per year and (iii) Rubin would exceed $200,000 per year.
-60-
<PAGE> 61
7.22 HOLDING COMPANIES. Permit any Holding Company to engage in
any business other than the ownership of the MSG Membership Interests.
7.23 NON-FUNDED ACQUISITION. Consummate a Non-Funded Acquisition
if Cash Equivalents after such consummation are less than (i) $25,000, if such
Acquisition occurs on or before June 30, 1997, or (ii) $150,000, if such
Acquisition occurs after June 30, 1997.
ARTICLE VIII
DEFAULT AND REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an Event of Default under the Loan Instruments:
8.1.1 DEFAULT IN PAYMENT. If any Borrower shall fail to pay
all or any portion of Borrowers' Obligations when the same become due
and payable.
8.1.2 BREACH OF COVENANTS.
(a) If any Borrower shall fail to observe or
perform any covenant or agreement made by such Borrower
contained in Section 6.1, 6.2, 6.5.1, 6.6, 6.9 or in Article
VII;
(b) If any Obligor shall fail to observe or
perform any covenant or agreement (other than those referred
to in subparagraph (a) above or specifically addressed
elsewhere in this Section 8.1) made by such Person in any of
the Loan Instruments to which such Person is a party, and such
failure shall continue for a period of 30 days after notice of
such failure is given by Lenders, provided that, if such
failure is in connection with subsection 6.5.2, such Obligor
shall have an additional 30 days to cure such failure, if such
Obligor (i) is diligently pursuing a cure for such failure and
(ii) provides Agent with evidence to that effect in form and
substance reasonably satisfactory to Agent.
8.1.3 BREACH OF WARRANTY. If any representation or warranty
made by or on behalf of any Obligor in or pursuant to any of the Loan
Instruments or in any instrument or document furnished in compliance
with the Loan Instruments shall prove to be false or misleading in any
material respect
-61-
<PAGE> 62
on the date as of which made.
8.1.4 DEFAULT UNDER OTHER INDEBTEDNESS FOR BORROWED MONEY.
If (i) any Borrower at any time shall be in default (as principal or
guarantor or other surety) in the payment of any principal of or
premium or interest on any Indebtedness for Borrowed Money (other than
Borrowers' Obligations) beyond the grace period, if any, applicable
thereto and the aggregate amount of such payments then in default
beyond such grace period shall exceed $25,000 or (ii) any default
shall occur in respect of any issue of Indebtedness for Borrowed Money
of any Borrower (other than Borrowers' Obligations) outstanding in a
principal amount of at least $50,000, or in respect of any agreement
or instrument relating to any such issue of Indebtedness for Borrowed
Money, and such default shall continue beyond the grace period, if
any, applicable thereto.
8.1.5 BANKRUPTCY.
(a) If any Obligor shall (i) generally not be
paying its, his or her debts as they become due, (ii) file, or
consent, by answer or otherwise, to the filing against it, him
or her of a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or insolvency
under the laws of any jurisdiction, (iii) make an assignment
for the benefit of creditors, (iv) consent to the appointment
of a custodian, receiver, trustee or other officer with
similar powers for such Obligor, or for any substantial part
of the Property of such Obligor or (v) be adjudicated
insolvent.
(b) If any Governmental Body of competent
jurisdiction shall enter an order appointing, without consent
of such Obligor, a custodian, receiver, trustee or other
officer with similar powers with respect to such Obligor, or
with respect to any substantial part of the Property belonging
to any such Person, or if an order for relief shall be entered
in any case or proceeding for liquidation or reorganization or
otherwise to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of any Obligor or if any petition
for any such relief shall be filed against any Obligor and
such petition shall not be dismissed or stayed within 60 days.
8.1.6 JUDGMENTS. If there shall exist a final judgment or
award against any Borrower which shall have been
-62-
<PAGE> 63
outstanding for a period of 30 days or more from the date of the entry
thereof and shall not have been discharged or paid in full or stayed
pending appeal, if the aggregate amount of all such judgments and
awards exceeds $50,000.
8.1.7 IMPAIRMENT OF LICENSES; OTHER AGREEMENTS. If (i) any
Governmental Body shall revoke, terminate, suspend or adversely modify
any UL Certification or Alarm License of any Borrower, the
non-continuation of which could reasonably be expected to have a
Material Adverse Effect, or (ii) there shall exist any violation or
default in the performance of, or a material failure to comply with
any agreement, or condition or term of any UL Certification or Alarm
License, which violation, default or failure has a Material Adverse
Effect, or any such UL Certification or Alarm Licenses shall cease to
be in full force and effect, or (iii) any agreement which is necessary
to the operation of any Borrower's Security Monitoring Business shall
be revoked or terminated and not replaced by a substitute acceptable
to Lenders within 30 days after the date of such revocation or
termination, and such revocation or termination and non-replacement
could reasonably be expected to have a Material Adverse Effect.
8.1.8 COLLATERAL. If any material portion of the Collateral
shall be seized or taken by a Governmental Body or Person, or
Borrowers shall fail to maintain or cause to be maintained the
Security Interests and priority of the Loan Instruments as against any
Person, or the title and rights of any Obligor to any material portion
of the Collateral shall have become the subject matter of litigation
which could reasonably be expected to result in impairment or loss of
the security provided by the Loan Instruments.
8.1.9 INTERRUPTION OF OPERATIONS. If the operations of any
portion of Borrowers' Security Monitoring Business is interrupted at
any time for more than 48 hours during any period of 10 consecutive
days, unless Borrowers shall be entitled to receive during such period
of interruption proceeds of business interruption insurance sufficient
to assure that the per diem Operating Cash Flow of such portion of
Borrowers' Security Monitoring Business during such period is at least
equal to its per diem Operating Cash Flow for the month preceding the
initial date of interruption.
8.1.10 PLANS. If an event or condition specified in
subsection 6.3.11 hereof shall occur or exist with respect to any
Pension Plan or Multiemployer Plan and, as a result of such event or
condition, together with all other such events or conditions,
Borrowers or any member of a Controlled Group shall incur, or in the
opinion of Lender be reasonably likely
-63-
<PAGE> 64
to incur, a liability to a Pension Plan or Multiemployer Plan or the
PBGC (or any of them) which, in the reasonable judgment of Lender,
would have a Material Adverse Effect.
8.1.11 CHANGE IN CONTROL. If at any time (i) SAI ceases to
be the sole shareholder of each of the Holding Companies, (ii) SAI and
SACC cease to be the only members in ASMS, (iii) SAI and MSG cease to
be the only members in SACC or (iv) the Holding Companies cease to be
the only members in MSG.
8.1.12 CHANGE IN MANAGEMENT. If at any time (i) Brannen, or
any successor to Brannen reasonably acceptable to Agent, ceases to (A)
be the President and Chief Executive Officer of SAI, (B) be the
Manager of each of SACC, MSG and ASMS, or (C) manage the day to day
operation of Borrowers' Security Monitoring Business or (ii) Davis, or
any successor to Davis reasonably acceptable to Agent, ceases to be
the Chairman of SAI.
8.2 ACCELERATION OF BORROWERS' OBLIGATIONS. Upon the occurrence
of:
(a) any Event of Default described in clauses (ii),
(iii), (iv) and (v) of subsection 8.1.5(a) or in 8.1.5(b), all of
Borrowers' Obligations at that time outstanding automatically shall
mature and become due, and
(b) any other Event of Default, Lenders, at any time
(unless such Event of Default shall have been waived in writing or
remedied), at their option, without further notice or demand, may
declare all of Borrowers' Obligations due and payable, whereupon
Borrowers' Obligations immediately shall mature and become due and
payable,
all without presentment, demand, protest or notice (other than the declaration
referred to in clause (b) above), all of which hereby are waived.
8.3 REMEDIES ON DEFAULT. If Borrowers' Obligations have been
accelerated pursuant to Section 8.2, Lenders, at their option, may:
8.3.1 ENFORCEMENT OF SECURITY INTERESTS. Enforce their
rights and remedies under the Loan Instruments in accordance with
their respective terms.
8.3.2 OTHER REMEDIES. Enforce any of the rights or remedies
accorded to Lenders and/or Agent at equity or law, by virtue of
statute or otherwise.
-64-
<PAGE> 65
8.4 APPLICATION OF FUNDS. Any funds received by Lenders or Agent
pursuant to the exercise of any rights accorded to Lenders and/or Agent
pursuant to, or by the operation of any of the terms of, any of the Loan
Instruments, including, without limitation, insurance proceeds, condemnation
proceeds or proceeds from the sale of Collateral, shall be applied to
Borrowers' Obligations in the following order of priority:
8.4.1 EXPENSES. First, to the payment of (i) all reasonable
fees and expenses actually incurred, including, without limitation,
court costs, fees of appraisers, title charges, costs of maintaining
and preserving the Collateral, costs of sale, and all other costs
incurred by Lenders and Agent in exercising any rights accorded to
such Persons pursuant to the Loan Instruments or by applicable law,
including, without limitation, reasonable attorneys' fees, and (ii)
all Liens (excluding Permitted Liens other than the Security
Interests) superior to the Liens of Agent except such superior Liens
subject to which any sale of the Collateral may have been made.
8.4.2 BORROWERS' OBLIGATIONS. Next, to the payment of the
remaining portion of Borrowers' Obligations in such order as Lenders
may determine.
8.4.3 SURPLUS. Any surplus, to the Person or Persons
entitled thereto.
8.5 PERFORMANCE OF BORROWERS' OBLIGATIONS. If any Borrower fails
to (i) maintain in force and pay for any insurance policy or bond which such
Borrower is required to provide pursuant to any of the Loan Instruments, (ii)
keep the Collateral free from all Liens except for Permitted Liens, (iii) pay
when due all taxes, levies and assessments on or in respect of the Collateral,
except as otherwise permitted pursuant to the terms hereof, (iv) make all
payments and perform all acts on the part of such Borrower to be paid or
performed in the manner required by the terms hereof and by the terms of the
other Loan Instruments with respect to any of the Collateral, including,
without limitation, all expenses of protecting, storing, warehousing, insuring,
handling and maintaining the Collateral, (v) keep fully and perform promptly
any other of the obligations of such Borrower hereunder or under any of the
other Loan Instruments, and (vi) keep fully and perform promptly the
obligations of such Borrower with respect to any issue of Indebtedness for
Borrowed Money secured by a Permitted Prior Lien, then Agent or Lenders may
(but shall not be required to) procure and pay for such insurance policy or
bond, place such Collateral in good repair and operating condition, pay,
contest or settle such Liens or taxes or any judgments based thereon or
-65-
<PAGE> 66
otherwise make good any other aforesaid failure of such Borrower. Borrowers
shall reimburse Agent and Lenders immediately upon demand for all reasonable
sums paid or advanced on behalf of any Borrower for any such purpose, together
with reasonable and/or necessary costs and expenses (including reasonable
attorneys' fees) paid or incurred by Agent and Lenders in connection therewith
and interest on all sums advanced from the date of advancement until repaid to
Agent and Lenders at the Default Rate. All such sums advanced by Agent and
Lenders, with interest thereon, immediately upon advancement thereof, shall be
deemed to be part of Borrowers' Obligations.
ARTICLE IX
ADDITIONAL LENDERS AND PARTICIPANTS
9.1 ASSIGNMENT TO OTHER LENDERS.
9.1.1 ASSIGNMENT. FINOVA may make one or more Loan
Assignments, and each Assignee, with the prior written consent of
FINOVA (which may be given or denied in the sole discretion of
FINOVA), may make a Loan Assignment of the rights and obligations
which were assigned to such Assignee. Each Person making a Loan
Assignment shall give notice thereof to Borrowers within 10 Business
Days thereafter. Notwithstanding the foregoing, FINOVA shall not
assign at any one time or collectively during the term of the Loan
more than 49.9% of FINOVA's interest in Borrowers' Obligations.
9.1.2 EFFECT OF LOAN ASSIGNMENT. Each Assignee to which
FINOVA makes a Loan Assignment, and each subsequent Assignee, to the
extent of such Loan Assignment, shall have the same rights, benefits
and obligations under the Loan Instruments as such Assignee would have
had if such Assignee were an original party to the Loan Instruments.
Borrowers shall not incur any costs or expenses in connection with any
Loan Assignment.
9.1.3 SUBSTITUTION OF NOTE. Simultaneously with the delivery
by any Lender to Borrowers of any Note which is the subject of a Loan
Assignment and which is marked "cancelled," Borrowers shall execute
and deliver to such Lender for delivery to (i) the Assignee to which
such Loan Assignment is made, a promissory note payable to the order
of such Assignee in an amount equal to the amount assigned to such
Assignee, and (ii) such Lender making such Loan Assignment, a
promissory note payable to the order of such assigning Lender in an
amount equal to the amount retained by such Lender, each such Note to
be substantially in the form of the
-66-
<PAGE> 67
canceled Note.
9.1.4 INSPECTIONS. Any action which any Assignee shall
desire to undertake pursuant to Section 6.2 of the Loan Agreement
shall be coordinated by such Assignee through Agent, and Agent shall
accompany each such Assignee which desires to undertake any such
action pursuant to such Section 6.2.
9.2 PARTICIPATIONS. Each Lender shall have the right to sell
Participations. In the event of the sale of a Participation, the obligations
of the Lender selling such a Participation shall remain unchanged, such Lender
shall remain solely responsible for the performance thereof, such Lender shall
remain the holder of any Note which previously has been delivered to Lender
pursuant to the terms of this Loan Agreement, and Borrowers shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Loan Agreement. Notwithstanding the sale of
any Participation, all amounts payable by Borrowers pursuant to the terms of
the Loan Instruments shall be determined as if no such Participation had been
sold. No Participant shall be entitled to require a Lender to take or omit to
take any action pursuant to the Loan Instruments except as provided in the
Participation Agreement executed by and between the Participant and such
Lender.
9.3 APPOINTMENT AND FUNCTION OF AGENT. FINOVA is hereby appointed
as Agent hereunder to act in such capacity on behalf of all Lenders under this
Loan Agreement and the other Loan Instruments. FINOVA agrees that it shall
continue to act as Agent throughout the term of the Loan. In performing its
functions and duties under this Agreement, Agent shall act solely as an agent
of Lenders and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with or for any other
Person. Notwithstanding the appointment of FINOVA as Agent hereunder, Agent
shall have the same rights hereunder as any other Lender, and may exercise such
rights as though FINOVA had not been appointed as Agent hereunder.
9.4 SET OFF AND SHARING OF PAYMENTS. Upon the occurrence of any
Event of Default and the acceleration of Borrowers' Obligations, each Lender is
authorized by Borrowers, at any time or from time to time thereafter, without
notice to Borrowers or to any other Person, to set off and to appropriate and
apply any and all balances held by such Lender for the account of Borrowers,
and any other Property at any time held or owing by such Lender to or for the
credit or for the account of Borrowers, against and on account of any of
Borrowers' Obligations which are not paid when due. Borrowers agree that (i)
each Lender may exercise its right to set off with respect to amounts in excess
of such Lender's
-67-
<PAGE> 68
share of Borrowers' Obligations and may sell Participations in such excess to
other Lenders and (ii) any Lender so purchasing a Participation in the Loan
made or other of Borrowers' Obligations held by other Lenders may exercise all
rights of set-off, bankers' lien, counterclaim or similar rights with respect
to such Participation as fully as if such Lender were a direct holder of the
Loan and other of Borrowers' Obligations in the amount of such Participation.
9.5 LENDERS' DECISIONS. Until a Loan Assignment is made, all
Lenders' Decisions shall be made solely by FINOVA. After a Loan Assignment is
made, any Lenders' Decisions which may be made pursuant to the Loan Instruments
by Lenders or as to which the Lenders shall have the right to consent shall be
made as set forth in the applicable Lender Addition Agreements.
ARTICLE X
CLOSING
The Closing Date shall be such date as the parties shall determine,
and the Closing shall take place on such date, provided all conditions for the
Closing as set forth in this Loan Agreement have been satisfied or otherwise
waived by FINOVA. The Closing shall take place at the office of Katten Muchin
& Zavis, 525 W. Monroe Street, Chicago, Illinois, or such other place as the
parties hereto shall agree. Unless the Closing occurs on or before January 31,
1997, this Loan Agreement shall terminate and be of no further force or effect
and, except for any obligation of Borrowers to FINOVA pursuant to Article XI,
none of the parties hereto shall have any further obligation to any other
party.
ARTICLE XI
EXPENSES AND INDEMNITY
11.1 ATTORNEYS' FEES AND OTHER FEES AND EXPENSES. Whether or not any
of the transactions contemplated by this Loan Agreement shall be
consummated, Borrowers agree to pay to Lenders on demand all reasonable expenses
incurred by Lenders in connection with the transactions contemplated hereby
(including, without limitation, any appraisal fees, environmental audit fees and
title and recording charges) and in connection with any amendments,
modifications or waivers (whether or not the same become effective) under or in
respect of any of the Loan Instruments, including, without limitation:
11.1.1 FEES AND EXPENSES FOR PREPARATION OF LOAN
-68-
<PAGE> 69
INSTRUMENTS. All reasonable expenses, disbursements and reasonable
attorneys' fees, actually incurred (including, without limitation,
charges for required mortgagee's title insurance, lien searches,
reproduction of documents, long distance telephone calls and overnight
express carriers) of special counsel and other counsel retained by
Lenders in connection with the preparation and negotiation of the Loan
Instruments or any amendments, modifications or waivers hereto or
thereto.
11.1.2 FEES AND EXPENSES IN ENFORCEMENT OF RIGHTS OR DEFENSE
OF LOAN INSTRUMENTS. Any reasonable expenses or other costs,
including reasonable attorneys' fees and expert witness fees, actually
incurred by Agent or Lenders in connection with the enforcement or
collection against any Obligor of any provision of any of the Loan
Instruments, and in connection with or arising out of any litigation,
investigation or proceeding instituted by any Governmental Body or any
other Person with respect to any of the Loan Instruments, whether or
not suit is instituted, including, but not limited to, such costs or
expenses arising from the enforcement or collection against any
Obligor of any provision of any of the Loan Instruments in any state
or federal bankruptcy or reorganization proceeding.
11.2 INDEMNITY. Borrowers agree to indemnify and save Agent and
Lenders harmless of and from the following:
11.2.1 BROKERAGE FEES. The fees, if any, of brokers and
finders engaged by Borrowers.
11.2.2 GENERAL. Any loss, cost, liability, damage or expense
(including reasonable attorneys' fees and expenses) incurred by Agent
or Lenders in investigating, preparing for, defending against,
providing evidence, producing documents or taking other action in
respect of any commenced or threatened litigation, administrative
proceeding, suit instituted by any Person or investigation under any
law, including any federal securities law, the Bankruptcy Code, any
relevant state corporate statute or any other securities law,
bankruptcy law or law affecting creditors generally of any
jurisdiction, or any regulation pertaining to any of the foregoing, or
at common law or otherwise, relating to the transactions contemplated
by or referred to in, or any other matter related to, the Loan
Instruments, whether or not Agent or any Lender is a party to such
litigation, proceeding or suit, or is subject to such investigation.
11.2.3 OPERATION OF COLLATERAL; JOINT VENTURERS. Any loss,
cost, liability, damage or expense (including
-69-
<PAGE> 70
reasonable attorneys' fees and expenses) incurred in connection with
the ownership, operation or maintenance of the Collateral, the
construction of Agent or any Lender and Borrowers as having the
relationship of joint venturers or partners or the determination that
Agent or any Lender has acted as agent for Borrowers.
11.2.4 ENVIRONMENTAL INDEMNITY. Any and all claims, losses,
damages, out of pocket response costs, clean-up costs and expenses
suffered and/or incurred at any time by Agent or any Lender arising
out of or in any way relating to the existence at any time of any
Hazardous Materials in, on, under, at, transported to or from, or used
in the construction and/or renovation of, any of the Leasehold
Property, any parcel of real estate acquired in connection with an
Acquisition, or otherwise with respect to any Environmental Law,
and/or the failure of Borrowers to perform its obligations and
covenants hereunder with respect to environmental matters, including,
but not limited to: (i) claims of any Persons for damages, penalties,
response costs, clean-up costs, injunctive or other relief, (ii) costs
of removal and restoration, including fees of attorneys and experts,
and costs of reporting the existence of Hazardous Materials to any
Governmental Body, and (iii) any expenses or obligations, including
reasonable attorneys' fees and expert witness fees, incurred at,
before and after any trial or other proceeding before any Governmental
Body or appeal therefrom whether or not taxable as costs, including,
without limitation, witness fees, deposition costs, copying and
telephone charges and other expenses, all of which shall be paid by
Borrowers to Agent or such Lender when incurred by Agent or such
Lender, except where such costs were directly caused by the gross
negligence or willful misconduct of FINOVA, any Lender, or by any
agent or third party acting on behalf of and at the direction of
FINOVA or any Lender.
ARTICLE XII
MISCELLANEOUS
12.1 NOTICES. All notices and communications under this Loan
Agreement shall be in writing and shall be (i) delivered in person, (ii)
sent by facsimile, or (iii) mailed, postage prepaid, either by registered or
certified mail, return receipt requested, or by overnight express carrier,
addressed in each case as follows:
-70-
<PAGE> 71
<TABLE>
<S> <C>
To Borrowers: Security Associates International, Inc.
2101 Arlington Heights Road
Arlington Heights, Illinois 60005-4142
Attention: James S. Brannen, President
Facsimile No.: 847/956-9360
Copy to: Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606-7480
Attention: Jerold N. Siegan, Esq.
Facsimile No.: 312/207-6400
To Lender: FINOVA Capital Corporation
311 South Wacker Drive, Suite 4400
Chicago, Illinois 60606
Attention: Brendon Manson
Facsimile No.: 312/322-3530
Copy to: FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, Arizona 85004
Attention: Vice President, Law
Facsimile No.: 602/207-5036
Copy to: Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
Attention: Maurice Jacobs, Esq.
Facsimile No.: 312/902-1061
</TABLE>
or to any other address or facsimile number, as to any of the parties hereto,
as such party shall designate in a notice to the other parties hereto. All
notices sent pursuant to the terms of this Section 12.1 shall be deemed
received (i) if personally delivered, then on the Business Day of delivery,
(ii) if sent by facsimile before 2:00 p.m. Phoenix time, on the day sent if a
Business Day or if such day is not a Business Day or if sent after 2:00 p.m.
Phoenix time, then on the next Business Day, (iii) if sent by overnight,
express carrier, on the next Business Day immediately following the day sent,
or (iv) if sent by registered or certified mail, on the earlier of the fifth
Business Day following the day sent or when actually received. Any notice by
facsimile shall be followed by delivery on the next Business Day by overnight,
express carrier or by hand.
12.2 SURVIVAL OF LOAN AGREEMENT; INDEMNITIES. All covenants,
agreements, representations and warranties made in this Loan Agreement and in
the certificates delivered pursuant hereto shall survive the making by Lender of
the Loan and the execution
-71-
<PAGE> 72
and delivery to Lenders of the Note and of all other Loan Instruments, and
shall continue in full force and effect so long as any of Borrowers'
Obligations remain outstanding, unperformed or unpaid. Notwithstanding the
repayment of all amounts due under the Loan Instruments, the cancellation of
the Note and the release and/or cancellation of any and all of the Loan
Instruments or the foreclosure of any Liens on the Collateral, the obligations
of Borrowers to indemnify Agent and Lenders with respect to the expenses,
damages, losses, costs and liabilities described in Section 11.2 shall survive
until all applicable statute of limitations periods with respect to actions
which may be brought against Agent or any Lender have run.
12.3 FURTHER ASSURANCE. From time to time, Borrowers shall execute
and deliver to Agent and Lenders such additional documents as Lenders reasonably
may require to carry out the purposes of the Loan Instruments and to protect
Lenders' rights thereunder, including, without limitation, using its best
efforts in the event any Collateral is to be sold to secure the approval by any
Governmental Body of any application required by such Governmental Body in
connection with such sale, and not take any action inconsistent with such sale
or the purposes of the Loan Instruments.
12.4 TAXES AND FEES. Should any tax (other than taxes based upon the
net income of any Lender), recording or filing fees become payable in respect of
any of the Loan Instruments, or any amendment, modification or supplement
thereof, Borrowers agree to pay the same on demand, together with any interest
or penalties thereon attributable to any delay by Borrowers in meeting any
Lender's demand, and agree to hold Lenders harmless with respect thereto.
12.5 SEVERABILITY. In the event that any provision of this Loan
Agreement is deemed to be invalid by reason of the operation of any law, this
Loan Agreement shall be construed as not containing such provision and the
invalidity of such provision shall not affect the validity of any other
provisions hereof, and any and all other provisions hereof which otherwise are
lawful and valid shall remain in full force and effect.
12.6 WAIVER. No delay on the part of Agent or any Lender in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, and no single or partial exercise of any right, power or
privilege hereunder shall preclude other or further exercise thereof, or be
deemed to establish a custom or course of dealing or performance between the
parties hereto, or preclude the exercise of any other right, power or privilege.
12.7 MODIFICATION OF LOAN INSTRUMENTS. No modification or
-72-
<PAGE> 73
waiver of any provision of any of the Loan Instruments shall be effective
unless the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
No notice to or demand on Borrowers in any case shall entitle Borrowers to any
other or further notice or demand in the same, similar or other circumstances.
12.8 CAPTIONS. The headings in this Loan Agreement are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
12.9 SUCCESSORS AND ASSIGNS. This Loan Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.
12.10 REMEDIES CUMULATIVE. All rights and remedies of Agent and
Lenders pursuant to this Loan Agreement, any other Loan Instruments or
otherwise, shall be cumulative and non-exclusive, and may be exercised
singularly or concurrently. Neither Agent nor any Lender shall be required to
prosecute collection, enforcement or other remedies against any Obligor before
proceeding against any other Obligor or to enforce or resort to any security,
liens, collateral or other rights of Agent or Lenders. One or more successive
actions may be brought against Borrowers and/or any other Obligor, either in the
same action or in separate actions, as often as Lenders deem advisable, until
all of Borrowers' Obligations are paid and performed in full.
12.11 ENTIRE AGREEMENT; CONFLICT. This Loan Agreement and the other
Loan Instruments executed pursuant hereto constitute the entire agreement among
the parties hereto with respect to the transactions contemplated hereby or
thereby and supersede any prior agreements, whether written or oral, relating to
the subject matter hereof. In the event of a conflict between the terms and
conditions set forth herein and the terms and conditions set forth in any other
Loan Instrument, the terms and conditions set forth herein shall govern.
12.12 APPLICABLE LAW. THE LOAN INSTRUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF ARIZONA.
FOR PURPOSES OF THIS SECTION 12.12, THE LOAN INSTRUMENTS SHALL BE DEEMED TO
BE PERFORMED AND MADE IN THE STATE OF ARIZONA.
12.13 JURISDICTION AND VENUE. EACH BORROWER HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY SUCH BORROWER AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THE LOAN INSTRUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT
OF MARICOPA COUNTY, OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA OR, IF
-73-
<PAGE> 74
AGENT OR ANY LENDER INITIATES SUCH ACTION, IN ADDITION TO THE FOREGOING COURTS,
ANY COURT IN WHICH AGENT OR SUCH LENDER SHALL INITIATE OR TO WHICH AGENT OR
SUCH LENDER SHALL REMOVE SUCH ACTION, TO THE EXTENT SUCH COURT HAS
JURISDICTION. EACH BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY AGENT OR ANY
LENDER IN OR REMOVED BY AGENT OR ANY LENDER TO ANY OF SUCH COURTS, AND HEREBY
AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED THEREIN MAY BE SERVED IN THE MANNER PROVIDED FOR NOTICES HEREIN,
AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR
PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER
AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO SECTION 12.1. EACH
BORROWER WAIVES ANY CLAIM THAT MARICOPA COUNTY, ARIZONA OR THE DISTRICT OF
ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.
TO THE EXTENT PROVIDED BY LAW, SHOULD ANY BORROWER, AFTER BEING SO SERVED, FAIL
TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED
WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, SUCH
BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED
BY THE COURT AGAINST SUCH BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS,
COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWERS SET
FORTH IN THIS SECTION 12.13 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY
AGENT OR ANY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING
BY AGENT OR ANY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION, AND EACH BORROWER HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
12.14 WAIVER OF RIGHT TO JURY TRIAL. AGENT, LENDERS AND BORROWERS
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE LOAN
INSTRUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD BE
BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT
ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
12.15 TIME OF ESSENCE. TIME IS OF THE ESSENCE FOR THE PERFORMANCE BY
BORROWERS OF THE OBLIGATIONS SET FORTH IN THIS LOAN AGREEMENT AND THE OTHER LOAN
INSTRUMENTS.
12.16 ESTOPPEL CERTIFICATE. Within 15 days after Agent or any Lender
reasonably requests any Borrower to do so, such Borrower will execute and
deliver to Agent or such Lender a statement certifying (i) that this Loan
Agreement is in full force and effect and has not been modified except as
described in such statement, (ii) the date to which interest on the Note has
been paid, (iii) the Principal Balance, (iv) whether or not to its knowledge an
Incipient Default or Event of Default has occurred
-74-
<PAGE> 75
and is continuing, and, if so, specifying in reasonable detail each such
Incipient Default or Event of Default of which it has knowledge, (v) whether to
its knowledge it has any defense, setoff or counterclaim to the payment of the
Note in accordance with its terms, and, if so, specifying each defense, setoff
or counterclaim of which it has knowledge in reasonable detail (including where
applicable the amount thereof), and (vi) as to any other matter reasonably
requested by Agent or such Lender.
12.17 CONSEQUENTIAL DAMAGES. Neither Agent nor any Lender nor any
agent or attorney of Agent or such Lender shall be liable to any Borrower for
consequential damages arising from any breach of contract, tort or other wrong
relating to the establishment, administration or collection of the Borrowers'
Obligations, except in the case of such Person's gross negligence or willful
misconduct.
12.18 COUNTERPARTS. This Loan Agreement may be executed by the parties
hereto in several counterparts and each such counterpart shall be deemed to be
an original, but all such counterparts shall together constitute one and the
same agreement.
12.19 NO FIDUCIARY RELATIONSHIP. No provision in this Loan Agreement
or in any other Loan Instrument, and no course of dealing among the parties
hereto, shall be deemed to create any fiduciary duty by Agent or any Lender to
any Borrower.
12.20 NO STRICT CONSTRUCTION. The language used in this Loan Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party hereto.
[remainder of this page intentionally left blank]
-75-
<PAGE> 76
IN WITNESS WHEREOF, this Loan Agreement has been executed and
delivered by each of the parties hereto by a duly authorized officer of each
such party on the date first set forth above.
SECURITY ASSOCIATES INTERNATIONAL,
INC., a Delaware corporation
By: /s/ James S. Brannen
------------------------------------
James S. Brannen
President
FEIN: 87-0467198
SECURITY ASSOCIATES COMMAND CENTER II, L.L.C.,
a Michigan limited liability company,
ALL-SECURITY MONITORING SERVICES, L.L.C., an
Illinois limited liability company and MONITOR
SERVICE GROUP, L.L.C., a Delaware limited
liability company
By: /s/ Jams S. Brannen
------------------------------------
James S. Brannen, Manager of each of
the foregoing limited liability
companies
FEIN for SACC: 38-3318125
FEIN for ASMS: 36-4111798
FEIN for MSG: 36-3913261
FINOVA CAPITAL CORPORATION, a Delaware
corporation, in its individual capacity and as
agent for Lender
By: /s/ David J. Alexander
------------------------------------
David J. Alexander
Vice President
-76-
<PAGE> 1
EXHIBIT 10.15
FIRST AMENDMENT TO LOAN INSTRUMENTS
THIS FIRST AMENDMENT TO LOAN INSTRUMENTS (this "First Amendment"),
dated as of February 28, 1997, is among SECURITY ASSOCIATES INTERNATIONAL,
INC., a Delaware corporation ("SAI"), SECURITY ASSOCIATES COMMAND CENTER II,
L.L.C., a Michigan limited liability company ("SACC"), MONITOR SERVICE GROUP,
L.L.C., a Delaware limited liability company ("MSG"), ALL-SECURITY MONITORING
SERVICES, L.L.C., an Illinois limited liability company ("ASMS"), AMJ CENTRAL
STATION CORPORATION, INC., a Delaware corporation ("AMJ") (SAI, SACC, MSG, ASMS
and AMJ sometimes hereinafter are referred to individually as a "Borrower" and
collectively as "Borrowers"), and FINOVA CAPITAL CORPORATION, a Delaware
corporation ("FINOVA"), in its individual capacity and as agent for Lenders.
R E C I T A L S:
A. FINOVA and each Borrower other than AMJ are parties to that
certain Loan Agreement dated as of December 31, 1996 (the "Loan Agreement"),
pursuant to which FINOVA agreed, among other things, to make certain loans to
Borrowers.
B. AMJ is a wholly owned subsidiary of SAI.
C. AMJ has acquired a Central Station in the State of Florida.
D. AMJ and each Borrower other than AMJ has requested that AMJ
become a Borrower under the Loan Agreement.
E. FINOVA is willing to make AMJ a Borrower under the Loan
Agreement upon the terms and subject to the conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and subject to the terms and conditions hereof, the parties hereto
hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used but not elsewhere
defined herein shall have the respective meanings ascribed to such terms in the
Loan Agreement, as amended by this First Amendment.
2. AMENDMENTS. The Loan Instruments are amended as set forth
below:
2.1 LOAN AGREEMENT. The Loan Agreement is amended as set
forth below:
<PAGE> 2
2.1.1 JOINDER. AMJ hereby joins into the Loan
Agreement with the other Borrowers with the same effect as if
AMJ had been an original signatory thereto, mutatis mutandis.
2.1.2 SECTION 1.1 - AMENDED DEFINITIONS. Section 1.1
of the Loan Agreement is amended by substituting the following
definitions in lieu of the current version of such
definitions:
Borrowers: SAI, SACC, MSG, ASMS, AMJ and each
Permitted Subsidiary.
Contribution Agreement: that certain
Contribution Agreement dated December 31, 1996 among
Borrowers, as amended by this First Amendment.
Environmental Certificate: that certain
Environmental Certificate dated December 31, 1996 made
by Borrowers in favor of FINOVA, as amended by this
First Amendment.
Initial Closing Date: December 31, 1996.
Solvency Certificate: that certain Solvency
Certificate dated December 31, 1996 made by Borrowers
in favor of FINOVA, as amended by this First Amendment.
2.1.3 SECTION 1.1 - ADDITIONAL DEFINITIONS. Section
1.1 of the Loan Agreement is amended by adding the
following definitions in appropriate alphabetical order:
AMJ: AMJ Central Station Corporation, Inc., a
Delaware corporation.
First Amendment: that certain First Amendment
to Loan Instruments dated as of February 28, 1997 among
Borrowers and FINOVA.
Closing Date: the "Effective Date" (as defined
in the First Amendment) of the First Amendment.
2.1.4 EXHIBITS. Exhibits 1.1(A), 1.1(B), 2.2.3,
5.3.1, 5.3.2, 5.5.1, 5.5.2, 5.5.3, 5.5.4, 5.8, 5.18.1 and
6.6.2 to the Loan Agreement are hereby deleted and Exhibits
1.1(A), 1.1(B), 2.2.3, 5.3.1, 5.3.2, 5.5.1, 5.5.2, 5.5.3,
5.5.4, 5.8, 5.18.1 and 6.6.2 attached hereto are substituted
therefor in appropriate numerical order.
2
<PAGE> 3
2.2 CONTRIBUTION AGREEMENT - JOINDER. AMJ hereby joins
into the Contribution Agreement with the other Borrowers with the same
effect as if AMJ had been an original signatory thereto, mutatis
mutandis.
2.3 ENVIRONMENTAL CERTIFICATE - JOINDER. AMJ hereby
joins into the Environmental Certificate with the other Borrowers with
the same effect as if AMJ had been an original signatory thereto,
mutatis mutandis.
2.4 SOLVENCY CERTIFICATE - JOINDER. AMJ hereby joins
into the Solvency Certificate with the other Borrowers with the same
effect as if AMJ had been an original signatory thereto, mutatis
mutandis.
3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this First
Amendment shall be subject to the satisfaction of all of the following
conditions in a manner, form and substance satisfactory to FINOVA:
3.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the
representations and warranties of each Borrower set forth in the Loan
Instruments to which such Borrower is a party shall be true and
correct in all material respects.
3.2 AMJ PROPERTY. FINOVA shall have received evidence that
AMJ has good and marketable title to all Property necessary for the
operation of AMJ's Security Monitoring Business, free and clear of all
Liens other than Permitted Liens.
3.3 DELIVERY OF DOCUMENTS. The following shall have been
delivered to FINOVA, each duly authorized and executed and in form and
substance satisfactory to FINOVA:
(a) this First Amendment;
(b) the Term Loan Note;
(c) the AMJ Security Agreement;
(d) the AMJ Stock Pledge Agreement;
(e) the original stock certificate(s) for AMJ;
(f) an assignment separate from certificate with
respect to each AMJ stock certificate;
(g) the Collateral Assignment of Lease executed
by SAI with respect to SAI's leasehold interest in Pompano
Beach, Florida;
3
<PAGE> 4
(h) the Closing Certificate;
(i) UCC-1 financing statements to be filed in
such jurisdictions as FINOVA may request;
(j) certified copies of all UL Certifications and
Alarm Licenses with respect to AMJ;
(k) a certificate of good standing for AMJ from
the Florida Secretary of State dated as of a recent date prior
to the Closing Date;
(l) a copy of the by-laws of AMJ certified by the
secretary of AMJ;
(m) a copy of the certificate of incorporation of
AMJ certified by the Secretary of State of Delaware;
(n) a copy of the resolutions of AMJ adopted by
the board of directors of AMJ authorizing the execution,
delivery and performance by AMJ of this First Amendment and
the documents to be executed and delivered pursuant to the
terms hereof to which AMJ is a party, certified by the
secretary of AMJ;
(o) a signature and incumbency certificate of the
officers of AMJ executing this First Amendment and the
documents to be executed and delivered pursuant to the terms
hereof;
(p) a copy of the resolutions or written consent
of the manager, as applicable, of each Borrower other than
AMJ, adopted by the board of directors or pursuant to the
operating agreement, as applicable, of such Borrower,
authorizing the execution, delivery and performance by such
Borrower of this First Amendment and the documents to be
executed and delivered pursuant to the terms hereof to which
such Borrower is a party, certified by the secretary or
manager, as applicable, of such Borrower;
(r) a certificate of no change in the by-laws or
certificate of incorporation of SAI since the Initial Closing
Date, certified by the secretary of SAI;
(s) a certificate of no change in the operating
agreement or articles of organization of each of MSG, ASMS and
SACC since the Initial Closing Date, certified by the Manager
of each such Person;
4
<PAGE> 5
(t) such other instruments, documents,
certificates, consents, waivers and opinions as FINOVA
reasonably may request.
3.4 OPINION OF COUNSEL. FINOVA shall have received an opinion
dated the Closing Date from Howard Schickler, Esq., in-house counsel
to Borrowers, addressed to FINOVA and its counsel, in such form and
covering such matters as FINOVA may reasonably require.
3.5 APPROVALS. Approval and/or consent shall have been
obtained from all Persons whose approval or consent is necessary or
required to enable each Borrower and AMJ to enter into this First
Amendment and the documents delivered in connection herewith to the
extent such Borrower or AMJ is a party thereto, and to perform such
Borrower's or AMJ's obligations hereunder and thereunder.
3.6 SECURITY INTERESTS. All filings of Uniform Commercial
Code financing statements and all other filings and actions necessary
to perfect and maintain the Liens granted to FINOVA under the Loan
Instruments, as amended, as first, valid and perfected Liens in the
Property covered thereby shall have been filed or taken and FINOVA
shall have received such UCC, state and federal tax Lien, pending
suit, judgment and other Lien searches as it deems necessary to
confirm the foregoing;
3.7 MATERIAL ADVERSE CHANGE. No event shall have occurred
since December 31, 1996 which has had or reasonably could be expected
to have a Material Adverse Effect.
3.8 PERFORMANCE; NO DEFAULT. Borrowers shall have performed
and complied with all agreements and conditions contained in the Loan
Instruments to be performed by or complied with them prior to the date
hereof, and no Event of Default or Incipient Default then shall exist.
3.9 PROCEEDINGS AND DOCUMENTS. All corporate, limited
liability company and other proceedings in connection with the
execution and delivery of this First Amendment by Borrowers and AMJ
shall be satisfactory to FINOVA, and FINOVA shall have received all
such counterpart originals or certified or other copies as FINOVA may
request.
3.10 FINANCIAL STATEMENTS, REPORTS AND PROJECTIONS. FINOVA
shall have received such financial statements, reports and projections
of AMJ as FINOVA may request.
3.11 USE OF ASSETS. FINOVA shall be satisfied that Borrowers
and AMJ at all times shall be entitled to the use and quiet enjoyment
of all Property necessary for the
5
<PAGE> 6
continued ownership and operation of the Security Monitoring Business
conducted by Borrowers and AMJ.
3.12 INSURANCE. FINOVA shall have received evidence
satisfactory to FINOVA that all insurance coverage required by FINOVA
is in full force and effect and all premiums then due thereon have
been paid in full.
3.13 PAYMENT OF FEES AND EXPENSES. Borrowers shall have paid
all fees and expenses of FINOVA incurred in connection with this First
Amendment, including, without limitation, attorneys' fees and
expenses.
The date on which all of the conditions set forth in this Paragraph 3 have been
satisfied (or waived by FINOVA) is referred to herein as the "Effective Date."
4. REFERENCES. From and after the Effective Date, (i) all
references in the Loan Agreement and the other Loan Instruments to the Loan
Agreement, Contribution Agreement, Environmental Certificate and Solvency
Certificate shall be deemed to refer to the Loan Agreement, Contribution
Agreement, Environmental Certificate and Solvency Certificate, each as amended
hereby, and (ii) all references in the Loan Instruments to a term defined in
the Loan Agreement, Contribution Agreement, Environmental Certificate or
Solvency Certificate shall be deemed to refer to such defined term as amended
by this First Amendment.
5. REPRESENTATIONS AND WARRANTIES. Each Borrower and AMJ hereby
confirms to FINOVA that the representations and warranties set forth in Article
V of the Loan Agreement are true and correct in all material respects as of the
date hereof, and shall be deemed to be remade as of the date hereof. Each
Borrower and AMJ represents and warrants to FINOVA that (i) such Person has
full power and authority to execute and deliver this First Amendment and to
perform its obligations hereunder, (ii) upon the execution and delivery hereof,
this First Amendment will be valid, binding and enforceable upon such Person in
accordance with its terms, (iii) the execution and delivery of this First
Amendment does not and will not contravene, conflict with, violate or
constitute a default under (A) the certificate of incorporation, by-laws,
articles of organization or operating agreement, as applicable, of any Borrower
or AMJ or (B) any applicable law, rule, regulation, judgment, decree or order
or any agreement, indenture or instrument to which such Borrower or AMJ is a
party or is bound or which is binding upon or applicable to all or any portion
of such Borrower's or AMJ's Property, (iv) no Incipient Default or Event of
Default presently exists and (v) the certificate of incorporation, by-laws,
articles of organization or operating agreement, as applicable, of any Borrower
other than AMJ are in full force and effect and have not been amended or
modified since the Initial Closing Date.
6
<PAGE> 7
6. COSTS AND EXPENSES. Each Borrower and AMJ agrees to reimburse
FINOVA for all fees and expenses incurred in the preparation, negotiation and
execution of this First Amendment and the consummation of the transactions
contemplated hereby, including, without limitation, the fees and expenses of
counsel for FINOVA.
7. NO FURTHER AMENDMENTS; RATIFICATION OF LIABILITY. Except as
amended hereby, the Loan Agreement and each of the other Loan Instruments shall
remain in full force and effect in accordance with their respective terms.
Each Borrower and AMJ hereby ratifies and confirms its liabilities, obligations
and agreements under the Loan Agreement and the other Loan Instruments, all as
amended by this First Amendment, and the liens and security interests created
thereby, and acknowledges that (i) such Person has no defenses, claims or
set-offs to the enforcement by FINOVA of such liabilities, obligations and
agreements, (ii) FINOVA has fully performed all obligations to Borrowers and
AMJ which FINOVA may have had or has on and as of the date hereof and (iii)
other than as specifically set forth herein, FINOVA does not waive, diminish or
limit any term or condition contained in any of the Loan Agreement or the other
Loan Instruments. FINOVA's agreement to the terms of this First Amendment or
any other amendment of the Loan Agreement shall not be deemed to establish or
create a custom or course of dealing among FINOVA and Borrowers or AMJ. This
First Amendment and the documents executed and delivered pursuant to this First
Amendment contain the entire agreement among FINOVA, Borrowers and AMJ with
respect to the transactions contemplated by this First Amendment.
8. COUNTERPARTS. This First Amendment may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument.
9. FURTHER ASSURANCES. Each Borrower and AMJ covenants and
agrees that it will at any time and from time to time do, execute, acknowledge
and deliver, or will cause to be done, executed, acknowledged and delivered,
all such further acts, documents and instruments as reasonably may be required
by FINOVA in order to effectuate fully the intent of this First Amendment.
10. SEVERABILITY. If any term or provision of this First
Amendment or the application thereof to any party or circumstance shall be held
to be invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, the validity, legality and enforceability of the remaining terms
and provisions of this First Amendment shall not in any way be affected or
impaired thereby, and the affected term or provision shall be modified to the
minimum extent permitted by law so as most fully to achieve the intention of
this First Amendment.
7
<PAGE> 8
11. CAPTIONS. The captions in this First Amendment are inserted
for convenience of reference only and in no way define, describe or limit the
scope or intent of this First Amendment or any of the provisions hereof.
12. NO STRICT CONSTRUCTION. The language used in this First
Amendment shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be
applied against any party hereto.
13. INCORPORATION OF RECITALS. The Recitals set forth in this
First Amendment are incorporated herein and made a part hereof.
[remainder of this page intentionally left blank]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this First Amendment at Chicago, Illinois as of the day and year first above
written.
SECURITY ASSOCIATES INTERNATIONAL, INC.
and AMJ CENTRAL STATION CORPORATION,
INC., each a Delaware corporation
By: \s\ James Brannen
-----------------------------------
James S. Brannen, President of each
of the foregoing corporations
SECURITY ASSOCIATES COMMAND CENTER II,
L.L.C., a Michigan limited liability
company, ALL-SECURITY MONITORING
SERVICES, L.L.C., an Illinois limited
liability company and MONITOR SERVICE
GROUP, L.L.C., a Delaware limited
liability company
By: \s\ James Brannen
-----------------------------------
James S. Brannen, Manager of each of
the foregoing limited liability
companies
FINOVA CAPITAL CORPORATION, a Delaware
corporation, in its individual capacity
and as Agent for all Lenders
By: \s\ David J. Alexander
------------------------------------
David J. Alexander
Vice President
9
<PAGE> 1
EXHIBIT 10.16
1. BASIC LEASE PROVISIONS:
A. Building Address: 21101 So. Arlington Heights Road
Arlington Heights, Illinois 60005
B. Landlord and Address: American National Bank and
Trust Company of Chicago As
Trustee Under Trust No. 59948
Liz-Green, Inc.
S. Arlington Heights Road
Arlington Heights, Illinois 60005
C. Tenant and Current Address Security Associates International, Inc.
---------------------------------------
Miner Street
---------------------------------------
Des Plaines, Illinois 60016
---------------------------------------
D. Date of Lease: November 21, 1995
---------------------------------------
E. Length of Lease Term: Five (5) years
---------------------------------------
F. Commencement Date of Term: January 1, 1996
---------------------------------------
G. Expiration Date of Term: December 31, 2000
---------------------------------------
H. Annual Net Base Rent: See Exhibit "A"
---------------------------------------
I. Actual Combined Operating
& Real Estate Tax Adjustment See Exhibit "A"
---------------------------------------
J. Rentable Area of Premises: 4,520 Square Feet
---------------------------------------
K. Rentable Area of Building: 61,733 Square Feet
---------------------------------------
L. Tenant's Proportionate Share: 7.32% (Percent)
---------------------------------------
M. Security Deposit: $3,277.00
---------------------------------------
N. Suite Number of Premises: Suite #100
---------------------------------------
O. Broker Liz-Green, Inc.
---------------------------------------
P. Exhibits: Exhibit A - Annual Rent Schedule
---------------------------------------
Exhibit B - Rules & Regulations
---------------------------------------
Exhibit C - Plan Sheets A, A-2 &
------------|All Dated 11/21/95
--------------------------
Exhibit D - Publicly Trade Company
------------|Disclosure Letter.
<PAGE> 2
2. LEASING AGREEMENT. American National Bank and Trust Company of
Chicago. As Trustee Under Trust No. 59948 (the "Landlord") and the
beneficiaries of a certain Trust Agreement dated December 15, 1983. and known
as Trust Number 59948 at American National Bank and Trust Company of Chicago
(the "Beneficiary") leases to Tenant and Tenant leases from Landlord the
premises (the "Premises") which are or will be contained in the building (the
"Building") located at 2101 South Arlington Heights Road, Arlington Heights,
Illinois 60005. The terms of this lease (the "Term") shall commence on the
date (the "Commencement Date") which is the earlier to occur of the date stated
in Paragraph IF, or the date Tenant first occupies all or part of the Premises
for the conduct of business. The Term shall expire on the date (the
"Expiration Date") stated in Paragraph 1G, unless terminated earlier as
otherwise provided in this Lease.
3. SERVICES.
A. Basic Services. Landlord shall furnish the following services, subject
to applicable laws and governmental restrictions and to the other provisions of
this Lease:
(1) Cooled and heated air in season of all common areas within the
Building, daily from 7:30 A.M. to 6:00 P.M. (Saturdays from 8:00
A.M. to 1:00 P.M.), Sundays and holidays excepted. These utility
costs are a part of the Building's operating expense as more fully
described in 7.A.(I).
(2) Customary maintenance and repair of the exterior portion of the
Building (including the roof), the parking area for the Building,
the common areas of the Building and, subject to Tenant's
obligations under subsections (1), (2) and (3) of Paragraph 3B
below, the structural, mechanical, plumbing and electrical systems
of the Building.
(3) Cold water for drinking, lavatory and toilet purposes drawn
through fixtures installed by Landlord, or by Tenant with
Landlord's written consent, and hot water for lavatory purposes
drawn from regular Building supply at the prevailing temperatures.
Tenant shall pay Landlord at rates fixed by Landlord for water
furnished for any other purpose.
(4) Customary janitor service in and about the common areas within
the Building, Monday through Friday; Saturdays, Sundays and
holidays excepted.
(5) Washing of the windows in the common areas of the Building and
washing of the exterior windows in the Premises shall be furnished
periodically at such times as Landlord in its discretion shall
determine.
(6) Lighting of common areas of the Building during the Building's
normal hours specified in subsection (1) of this Paragraph 3A.
(7) Clearance of snow from the parking lot and sidewalks serving
the Building at such times as Landlord in its discretion shall
determine.
(8) Landscaping of the plants and foliage in the common areas of
the Building at such times as Landlord in its discretion shall
determine.
(9) Exterior paved parking area with spaces available for Tenant's
use on a first-come, first-serve basis and for use by Landlord and
its agents and other tenants, guests and invitees, including
rubbish removal and cartage in and about the premises Mondays thru
Saturday both inclusive, Sundays and holidays excluded.
B. Tenant's Utilities and Certain Services.
(1) Electricity shall not be furnished by Landlord, but shall be
furnished by the approved electric utility company serving the
Building. Landlord shall permit Tenant to receive such
2
<PAGE> 3
service directly from such utility company at Tenant's cost and
shall permit Landlord's wire and conduits, to the extent available,
suitable and safely capable, to be used for such purposes. The
Premises shall contain two (2) electrical meters installed at
Landlord's expense, one for heating and air conditioning and the
other for lighting and outlets. Tenant shall make all necessary
arrangements with the utility company for paying for electric
current furnished by the utility company to the Premises and Tenant
shall pay for all charges for all electric current consumed in the
Premises, including without limitation, performance of janitor
service, the making of any alterations or repairs in the Premises,
the operation of all heating, ventilating and air conditioning
systems and the operation of all other systems which may be
required for telephone or data processing equipment, and for other
special equipment or machinery installed by Tenant.
(2) Tenant agrees to purchase from Landlord, all lamps, bulbs,
ballast's and starters used in the Premises after the initial
installation of same.
(3) Heating and air conditioning equipment servicing the Premises
shall be installed initially by Landlord at Landlord's cost and
expense. Tenant shall maintain a temperature in the Premises at
all times during the Term of not less than 55 degree Fahrenheit.
Landlord agrees to maintain and repair all heating and air
conditioning equipment servicing the Premises (including the
replacement of filters) at Landlords sole cost and expense. In the
event any heating or air conditioning equipment servicing the
Premises requires replacement as a result of Tenant's failure to
permit Landlord to perform its obligations under this subsection
(3) of Paragraph 3B or to notify Landlord of any malfunction or
other problem of such equipment, then Tenant also shall bear the
cost of the replacement of such equipment.
(4) Tenant shall make arrangements directly with the Telephone
company servicing the Building for such telephone service in the
Premises as is, desired by Tenant and the cost of all such
telephone service (including the cost of installing all wires and
cables) shall be paid for by Tenant.
(5) If Tenant desires telegraphic, burglar alarm, computer
installations or signal service, Landlord shall upon request of
Tenant direct where and how all connections for such service shall
be introduced and run. In the absence of such directions, Tenant
shall make no borings, cutting or installation of wires or cables
in or about the Premises. The cost of all such installations and
service shall be paid for by Tenant.
C. Additional Services. Landlord shall in no event be obligated to
furnish any services or utilities, other than those stated in Paragraph 3A. If
Landlord elects to furnish services or utilities requested by Tenant in
addition to those stated in Paragraph 3A (including utility services in the
common areas of the Building at times other than those stated in Paragraph 3A),
Tenant shall pay to Landlord Landlord's then prevailing charges if or such
services and utilities within thirty (30) days after receipt of Landlord's
statements. If Tenant shall fail to make any such payment, Landlord may,
without notice to Tenant and in addition to all other remedies available to
Landlord, discontinue any or all of the additional services. No discontinuance
of any service under this Paragraph 3C shall result in any liability of
Landlord to Tenant or be considered as an eviction or a disturbance of Tenant's
use of the Premises.
D. Failures or delays in furnishing services.
(1) Tenant agrees that Landlord shall not be liable for damages for
any failure, delay or interruption in the furnishing of any of the
services described in Paragraphs 3B or 3C above, if such failure
delay or interruption shall be remedied within 96 hours and that
during such periods, the interior temperature of the Premises shall
not exceed 90 degrees F nor fall below 55 degrees F.
3
<PAGE> 4
(2) Tenant agrees that Landlord shall not be liable for damages for
any failure to furnish or delay in furnishing any service stated in
Paragraph 3A if such failure or delay is caused. in whole or in
part, by any one or more of the events stated in Paragraph (24 I.)
(3) No failure or delay in furnishing any service stated in
Paragraph 3A, 3B or 3C caused in whole or in part by any one or
more of the events stated in Paragraph (24 D, shall not be
considered to be an eviction or disturbance of Tenant's use of the
Premises, or relieve Tenant from its obligation to pay all Rent
when due or from any other obligations of Tenant under this Lease
provided such failure shall not result in a health or safety hazard
exceed 96 hours in duration or result in temperatures exceeding 90
degrees F nor falling below 55 degrees F.
4. POSSESSION. USE AND ENJOYMENT.
A. Possession and Use of Premises. Tenant shall be entitled to possession
of the Premises when the "Work" (as defined in Exhibit "C") is "substantially
completed". Tenant shall occupy and use the Premises for general office
purposes only. Tenant shall not occupy or use the Premises or permit the use
or occupancy of the Premises for any purpose or in any manner which:
(1) may be dangerous to persons or property;
(2) may invalidate or increase the amount of premiums for any
policy of insurance affecting the Building, and if any additional
amounts of insurance premiums are so incurred, Tenant shall pay to
Landlord the a amounts on demand; or
(3) may create a nuisance, disturb any other tenant of the Building
or the occupants of neighboring property or injure the reputation
of the Building.
B. Quiet Enjoyment. Provided that Tenant is not in breach or default
under this Lease, Tenant shall be entitled to peaceful and quiet enjoyment of
the Premises, subject to the terms of this Lease.
5. CONDITION OF PREMISES. Tenant shall notify Landlord in writing within
thirty (30) days after Tenant takes possession of the Premises of any defects
in the Premises claimed by Tenant. Except for defects stated in such notice
and latent defects of which Tenant becomes aware and notifies Landlord after
the Commencement Date, Tenant shall be conclusively presumed to have accepted
the Premises in the condition existing on the date Tenant first takes
possession and to have waived all claims relating to the condition of the
Premises. No agreement of Landlord to alter, remodel, decorate, clean or
improve the Premises or the Building, and no representation regarding the
condition of the Premises or the Building has been made by or on behalf Or
Landlord to Tenant, except as stated in this Lease. In addition to and without
limitation of Tenant's obligations under subsections (3) and (6) of Paragraph
3B above, Tenant, at its expense, shall keep the Premises in good repair and
operating condition and shall promptly repair all damage to the Premises caused
by Tenant, or any of its employees, agents or invitees.
6. NET BASE RENT. Tenant shall pay to Landlord Net Base Rent during the
Term at the annual rate(s) stated in Paragraph 1H. Net Base Rent shall be
payable in equal monthly installments in advance on the first day of each
calendar month during the Term, except that the installment of Net Base Rent
due for the first month of the Term in which Net Base Rent is payable shall be
paid by Tenant to Landlord when Tenant signs this Lease.
7. RENT ADJUSTMENT.
A. Definitions. As used in this Lease:
(1) "Expenses" shall mean and include all expenses, costs, fees and
disbursements paid or incurred by or on behalf of Landlord for
owning, managing, operating, maintaining and repairing the
Building, the land upon which the Building is situated (the "Land")
and the personal property
4
<PAGE> 5
and equipment used in connection with the Building or the Land.
Expenses shall include the cost of any capital improvements to the
Building, made after the date of this Lease which are intended to
reduce Expenses or which required under any governmental laws,
regulations or ordinances which were not applicable to the Building
at the time it was constructed, which cost shall be amortized over
such reasonable period as Landlord shall determine, together with
interest on the unamortized cost of any such improvement (at the
prevailing loan rate available to Landlord on the date the cost of
such improvement was incurred). Expenses shall not include "Taxes"
(as defined in Paragraph 7.A. (2), costs of alterations of the
premises of tenants of the Building, interest and principal payments
on mortgages, ground rental payments and real estate brokerage and
leasing commissions and activities for the sole purpose of marketing
or leasing.
(2) "Taxes" shall mean any and all charges that are evidenced by
the semi annual real estate tax bills issued by the Cook County
Collectors Office or any other agency empowered to render a real
estate tax bill for the Building.
(3) "Tenant's Proportionate Share" shall mean the percentage stated
in Paragraph IL. Tenant's Proportionate Share is determined by
dividing the rentable area of the Premises (which the parties
mutually agree contains the area stated in Paragraph 1J) by the
rentable area of the Building (which the parties mutually agree
contains the area stated in Paragraph 1K.
B. Rent Adjustment. In addition to Base Rent, Tenant shall pay to
Landlord for each calendar year occurring entirely or partially within the Term
(herein sometimes called "Rent Adjustment"), Tenant's Proportionate Share of
the sum of all Expenses plus all Taxes for such calendar year as listed on Page
1, Item I of the Basic Lease Provisions.
C. Payments of Rent Adjustment. Tenant shall make payments ("Progress
Payments") on account of the Combined Expense and Tax Adjustment for each
calendar year occurring entirely or partially within the Term as follows.
Landlord may furnish to Tenant prior to such calendar year and from time to
time during such calendar year a written notice (a "Projection Notice") setting
forth (i) Landlord's reasonable estimates, forecasts or projections of Taxes
and Expenses for such calendar year, (ii) the Combined Expense and Tax
Adjustment for such calendar year based upon such projections, and (iii) the
monthly Progress Payments to be made by Tenant for such year based upon such
projected Combined Expense and Tax Adjustment. Until Landlord furnishes a
Projection Notice for such calendar year, Tenant shall pay to Landlord Progress
Payments (at the time of and together with each monthly installment of Base
Rent) equal to the greater of the latest monthly installment of Progress
Payments or one-twelfth (1/12th) of the sum of the latest actual Combined
Expense and Tax Adjustment as determined by Landlord. On or before the first
day of the month immediately following service of a Projection Notice, and on
or before the first day of each following month until Tenant receives a further
Projection Notice, Tenant shall pay to Landlord the monthly installment of
Progress Payments shown in the Projection Notice. Within thirty (30) days
following service of a Projection Notice, Tenant shall also pay to Landlord a
lump sum payment equal to the Progress Payments owing by Tenant to Landlord (as
shown in the Projection Notice) for the period commencing on the first day of
such calendar year and expiring on the last day of the month during which such
Projection Notice is served, less all Progress Payments previously paid by
Tenant to Landlord for such calendar year.
D. Readjustments. After the end of each calendar year and after Landlord
shall have determined the actual amounts of Taxes and the actual amount of
Expenses to be used in determining the Combined Expense and Tax Adjustment for
such calendar year, Landlord shall furnish Tenant a statement ("Landlord's
Statement") of Taxes and Expenses and the Combined Expense and Tax Adjustment
for such calendar year. If the sum of the Combined Expense and Tax owed for
such calendar year exceeds the Progress Payments paid by Tenant to Landlord for
such calendar year, then Tenant shall pay to Landlord within thirty (30) days
after the date of Landlord's Statement, an amount equal to such excess. If the
Progress Payments paid by Tenant to Landlord for such calendar year exceed the
sum of the Combined Expense and Tax Adjustment owed for such calendar year,
then Landlord shall credit such excess to Rent payable after the date of
Landlord's Statement until such excess is exhausted. If this Lease shall
expire or terminate prior to full application of such excess, Landlord shall
pay to Tenant the unapplied balance that is not reasonably required for payment
of Rent Adjustment for the calendar year
5
<PAGE> 6
in which the Lease expires or terminates. No interest or penalties shall accrue
on any amounts which Landlord is obligated to credit or pay to Tenant by reason
of this Paragraph 7D. Unless Tenant shall take written exception to any item
shown in any Landlord's Statement within thirty (30) days after the date of such
Landlord's Statement. Landlord s Statement shall be considered as final and
conclusively binding upon Tenant.
E. Survival. The obligations of Tenant to pay Rent Adjustment provided
for in this Paragraph 7 shall survive the expiration or termination of this
Lease. Tenant shall pay any Rent Adjustment owing to Landlord within fifteen
(15) days after the date of Landlord's Statement for the calendar year in which
this Lease expires or terminates.
F. No Decrease in Base Rent. In no event shall the determination of any
Rent Adjustment owing under this Paragraph 7 result in a decrease in the Net
Base Rent stated in Paragraph 1H.
G. Books and Records. Landlord shall maintain books and records of
Expenses and Taxes in accordance with sound accounting and managing practices.
Provided that all Rent (including Rent Adjustment) has been paid in full and
Tenant is not otherwise in breach or default under this Lease, the books and
records shall be available to Tenant for inspection during Landlord's normal
business hours upon prior reasonable notice at a location designated by
Landlord.
H. Payment of Rent. All charges, costs and sums required to be paid by
Tenant under this Lease in addition to Net Base Rent and Rent Adjustment shall
be considered additional rent, and Base Rent, Rent Adjustment and additional
rent shall be collectively called "Rent". Rent shall be payable without
demand, notice, offset or deduction, except as otherwise specifically stated in
this Lease. All Rent due under this Lease shall be paid by checks payable to
the order of Arlington Associates, and delivered to Liz-Green, Inc. the
managing agent ("Manager"), which checks shall be mailed or delivered to
Manager at the Office of Manager, 2101 So. Arlington Heights Road. Arlington
Heights, Illinois 60005 or in such other manner or at such other place as
Landlord or Beneficiary may from time to time designate to Tenant. Net Base
Rent and Rent Adjustment will be prorated for partial months or years within
the Term. Tenant's covenant to pay Rent shall be independent of each and every
other covenant and provision of this Lease.
8. SECURITY DEPOSIT. As security for the performance of its obligations
under this Lease, Tenant shall pay to Landlord when Tenant signs this Lease, a
security deposit (the "Security Deposit") in the amount stated in Paragraph IM.
The Security Deposit may be applied by Landlord to cure any default to Tenant
under this Lease, and upon notice by Landlord of such application, Tenant shall
replenish the Security Deposit in full by promptly paying to Landlord the
amount so applied. Landlord shall not pay any interest on the Security
Deposit. Within forty-five (45) days after the Expiration Date, Landlord shall
return to Tenant the balance, if any, of the Security Deposit. The Security
Deposit shall not be considered an advance payment of Rent or a measure of
damages for any default by Tenant under this lease, nor shall it be a bar or
defense to any action which Landlord may at any time commence against Tenant.
9. ALTERATIONS.
A. Approvals. Without Landlord's prior written consent (which consent
shall not be unreasonably withheld), Tenant shall not make or cause to be made
any alterations, improvements, additions, changes or repairs (an "alteration",
collectively) in or to the Premises or the Building. As a condition to
granting its consent to any alteration, Landlord may impose reasonable
requirements, including, without limitation, requirements as to the manner and
time for the performance of such alteration and the type and amount of
insurance and bonds Tenant must acquire and maintain during the course of
performance of such alteration. In addition, Landlord shall have the right to:
approve the contractors or mechanics performing the alteration; approve all
plans and specification for the alteration; review the work of Tenant's
architects, engineers, contractors or mechanics; such right shall not be
unreasonably withheld. The Landlord may order reasonable changes in such
alteration in instances in which materials or workmanship is defective or not
in accordance with plans or specifications previously approved by Landlord.
Tenant shall pay the entire cost of an alteration, and if requested by
Landlord, shall deposit with Landlord prior to commencement of such alteration,
funds or other security reasonably acceptable to Landlord
6
<PAGE> 7
covering the full cost of such alteration. Each alteration shall become the
property of Landlord when made and shall be surrendered with the Premises upon
the expiration or termination of this Lease; provided, however, that Landlord
may, by written notice to Tenant, require Tenant, at its expense, to remove any
or all alterations and repair any damage to the Premises or Building caused by
such removal, prior to the expiration or termination of this Lease.
B. Compliance with Laws. Each alteration shall be performed in good and
workmanlike manner using new grades of materials; in full compliance with all
applicable laws, ordinances and governmental regulations. rules and
requirements: and in full compliance with all insurance rules, orders,
directions. regulations and requirements.
C. No Liens. Before any alteration is commenced, Tenant shall give
Landlord at least fifteen (15) days' prior written notice of same. Tenant, at
its expense, shall procure and deliver to Landlord a completion and lien
indemnity bond satisfactory to Landlord for such alteration, and during the
course of performance of such alteration Tenant shall, upon Landlord's request,
furnish Landlord with sworn contractor's statements and lien waivers covering
all work previously performed. Tenant shall not permit any lien or claim for
lien of any mechanic, laborer or supplier or any lien to be filed against the
Building or the Land, or any part thereof arising out of work performed, or
alleged to have been performed by, or at the direction of, or on behalf of
Tenant. If any such lien or claim for lien is filled, Tenant shall within ten
(10) days after written request to Tenant, either (i) have such lien or claim
for lien released of record. (ii) deliver to Landlord a bond in form, content,
amount, and issued by surety, satisfactory to Landlord indemnifying Landlord
and others designated by Landlord against all costs and liabilities resulting
from such lien or claim for lien and the foreclosure or attempted foreclosure
thereof, or (iii) at Tenant's sole expense, obtain and deliver to Landlord, a
commitment from Chicago Title Insurance Company, or other title insurance
company acceptable to Landlord, committing to insure title to the Building and
the Landlord over such lien, in favor of Landlord or any proposed purchaser or
mortgagee of said Land or the Building. If Tenant fails to have such lien, or
claim for lien so released, or to deliver such bond or title insurance
commitment to Landlord. Landlord, without investigating the validity of such
lien, may pay or discharge the same and Tenant shall reimburse Landlord upon
demand for the amount so paid by Landlord, including Landlord's expenses and
attorney's tees. Tenant agrees to indemnify, hold harmless and defend
Landlord, the Beneficiary, the Manager and their respective officers, partners
and employees from any liability, loss, cost, damage or expense (including
attorneys' fees), arising out of any such lien claim or out of any other claim
relating to work done or materials supplied to the Premises at Tenant's request
or on Tenant's behalf.
10. ASSIGNMENT AND SUBLETTING.
A. Consent. Tenant shall not without the prior written consent of
Landlord which consent shall not be unreasonably with-held in each instance.
(1) assign, mortgage, pledge, hypothecate or otherwise transfer or
permit the transfer of this Lease or the interest of Tenant in this
Lease, in whole or in part, by operation of law or otherwise:
(2) sublet all or any part of the Premises; or
(3) permit the use or occupancy of all or any part of the Premises
for any purpose not permitted under Paragraph 4, or by anyone other
than Tenant and Tenant's employees.
For purposes of this Paragraph 10A an "assignment" shall be considered to
include a change in the 'majority ownership or control of Tenant if Tenant is a
corporation whose stock is not traded publicly.
B. Recapture of Space. If Tenant desires to assign this Lease or sublet
all or any part of the Premises, Tenant shall give Landlord written notice
("Tenant's Notice") of such desire prior to entering into such assignment or
sublease, which Tenant's Notice shall be signed by an officer or partner of
Tenant. If Tenant's Notice is for a proposed assignment, it shall state the
name, address and business of the assignee (and include current credit
information and reports on such assignee); the effective date of assignment;
and the amount of all sums and other consideration to be paid or transferred to
Tenant for such assignment. If Tenant's Notice is for a proposed sublease,
7
<PAGE> 8
it shall state the name, address and business of the subtenant (and include
current credit information and reports on such subtenant); the commencement
date of the term of the sublease; the length of the term of the sublease
(including any renewal options); the rent to be payable under the sublease; and
shall include a floor plan showing the part of the Premises to be sublet
(including separate identification of any part of the Premises for which the
subtenant will be granted expansion options OF rights). Landlord shall then
have the right (the "recapture right") to (i) terminate this Lease in its
entirety effective as of the proposed effective date of assignment or the
proposed commencement date of the term of the sublease (as specified in
Tenant's Notice), if Tenant's Notice is for a proposed assignment or for a
proposed sublease of all of the Premises; or (ii) partially terminate this
Lease effective as of the proposed commencement date of the term of the
sublease (as specified in Tenant's Notice), with respect to that part of the
Premises to be sublet, if Tenant's Notice is for a proposed sublease of less
than all of the Premises. Landlord may exercise the recapture right by giving
Tenant written notice ("Landlord's Notice") of such exercise within fifteen
(15) business days after receipt by Landlord of Tenant's Notice. If Landlord
exercises the recapture right and this Lease is terminated in its entirety.
then neither Landlord nor Tenant shall have any further rights. estates or
liabilities under this Lease accruing after the effective date of termination,
except for such obligations which expressly survive the termination of this
Lease. If Landlord exercises the recapture right and this Lease is partially
terminated with respect to a part of the Premises (the 'excluded space'), then.
effective as of the date this Lease is so partially terminated (i) the Net
Base Rent stated in Paragraph 1H shall be decreased to the product obtained by
multiplying such amount by a fraction, the numerator of which is the rentable
area of the Premises immediately after such partial termination of this Lease
(as determined by Landlord) and the denominator of which is the rentable area
of the Premises immediately prior to such partial termination of this Lease,
(ii) the rentable area of the Premises stated in paragraph 1J shall be reduced
by the rentable area of the excluded space, (iii) Tenant's Proportionate Share
stated in paragraph IL shall be reduced to the percentage obtained by dividing
the new rentable area of the Premises by the rentable area of the Building,
(iv) Tenant shall pay the reasonable costs incurred in physically separating
the excluded space from the balance of the Premises and shall surrender the
excluded space to Landlord on or before the effective date of partial
termination in a good, clean and tenantable condition, ordinary wear excepted;
and (v) neither Landlord nor Tenant shall have any further rights, estates or
liabilities under this Lease with respect to the excluded space accruing after
the effective date of partial termination of this Lease, except for such
obligations which expressly survive the termination of this Lease.
C. Conditions for Consent. If Landlord does not exercise any recapture
right arising in favor of Landlord under Paragraph JOB, Tenant may then enter
into the assignment or sublease, as the case may be, specified in the Tenant's
Notice giving rise to such recapture right, in accordance, and only in
accordance, with the following provisions. If Tenant enters into such
assignment or sublease it shall submit an executed copy of the sublease or
assignment to Landlord for consent not less than thirty (30) days prior to the
proposed effective date of assignment or the proposed commencement date of the
term of the sublease, as the case may be. In the case of a sublease, the
instrument shall expressly state that it is and shall remain at all times
subject and subordinate to this Lease and all of the terms, covenants and
agreements contained in this Lease. No such assignment or sublease instrument
shall expressly or by implication impose upon Landlord any duties or
obligations or alter the provisions of this Lease. Landlord agrees to give
Tenant written notice within fifteen (15) days after receipt by Landlord of
Tenant's proposed assignment or proposed sublease of Landlord's consent to or
rejection of same. Landlord agrees that its consent to any such proposed
assignment or proposed sublease shall not be unreasonably withheld; provided,
however, that in addition to other circumstances under which Landlord's consent
may be withheld, Tenant agrees that the withholding by Landlord of its consent
to such proposed assignment or proposed sublease will not be deemed
"unreasonable" if:
(1) the assignee or subtenant is non-creditworthy or disreputable,
or is not of a character, or otherwise is not in keeping with, the
nature or class of tenants in the Building,
(2) the assignee or subtenant is a government (or subdivision or
agency thereof) or is then a tenant in the Building,
(3) the use of the Premises by the assignee or subtenant would, in
Landlord's reasonable judgment, significantly increase the
pedestrian traffic in and out of the Building or the vehicular
8
<PAGE> 9
traffic in and about, or the use of, the exterior paved parking
area, or would require Landlord to perform any alterations to the
Building to comply with applicable building code requirements,
(4) there is then in existence any sublease of all or any part of
the Premises, or
(5) (5)Tenant is then in breach or default under this Lease.
Tenant may not submit to Landlord for consent any assignment or sublease
on terms or conditions or with parties different from those stated in the
Tenant's Notice for such assignment or sublease, nor may Tenant submit to
Landlord for consent any assignment or sublease later than the date which is
sixty (60) days after the expiration of the period for exercise by Landlord of
the recapture right arising by reason of such assignment or sublease without
the right to exercise its recapture right. Notwithstanding anything to and
contrary contained in this Lease. Tenant sole right and remedy in any
dispute as to whether Landlord's consent to a proposed sublease or proposed
assignment has been unreasonably withheld shall be action for declaratory
judgment or specific performance and Tenant shall not be entitled to any
damages if Landlord is adjudged to have unreasonably withheld such consent.
D. Profit. If Tenant, having first obtained Landlord's consent in
accordance with Paragraph 10C. shall assign this Lease for money or other
property, or sublet all or any part of the Premises at a rental or for other
consideration in excess of the Net Base Rent plus Rent Adjustment (or prorate
portion thereof) due and payable by Tenant under this Lease. then Tenant shall
pay to Landlord, as additional rent (1) on the first day of each month during
the term of any such sublease, the excess of all rent and other consideration
due from the subtenant for such month over the sum of (i) the Net Base Rent
plus Rent Adjustment then payable to Landlord under this Lease for said month
(or if only a portion of the Premises is being sublet, the portion of the Net
Base Rent plus Rent Adjustment then payable to Landlord under this Lease for
said month which is allocable on a square footage basis to the space sublet),
plus (ii) an amount equal to the quotient of the reasonable leasehold
improvement costs and customary real estate brokerage commissions to licensed
Illinois real estate brokers (other than to "Tenant or any affiliate of Tenant)
incurred by Tenant in connection with such sublease (as shall be supported by
appropriate written documentation submitted by Tenant to Landlord), divided by
the number of months in the term of such sublease, and (2) immediately upon
receipt, all sums or other consideration received by Tenant from any such
assignment; it being agreed, however, that Tenant shall be responsible to
Landlord for any deficiency if Tenant shall assign this Lease or sublet all or
any part of the Premises at a rental or for consideration which is less than
that required under this Lease.
E. No Waiver. Consent by Landlord to any subletting, transfer, lien,
charge, use or occupancy, shall not operate as a waiver by Landlord of, or to
release or discharge Tenant from, any liability under this Lease, whether past,
present or future (including liability arising during any renewal term of this
Lease or with respect to any expansion space included in the Premises), or be
considered to be a consent to or relieve Tenant from obtaining Landlord's
consent to any subsequent assignment, subletting, transfer, lien, charge, use
or occupancy. Tenant shall pay Landlord's reasonable costs, charges and
expenses, including attorney's fees and fees of architects, engineers and other
professionals, incurred in connection with its review of any proposed
assignment or proposed sublease, whether or not Landlord approves such transfer
of interest, which in no event shall be more than three hundred dollars
($300.00) for each proposed sublease or assignment.
11. WAIVER AND INDEMNITY.
A. Waiver. To the extent permitted by Illinois law, Tenant waives all
claims against Landlord, the Beneficiary, the property manager and their
respective officers, partners, agents and employees, for injury or damage to
person or property sustained by Tenant resulting directly or indirectly from
the gross negligence or willful misconduct of Tenant, their respective
officers, partners. agents and employees due to fire or other casualty, cause
or any existing or future condition, defect, matter or thing in or about the
Premises or the Building, or from any equipment or appurtenance in the
Building, or from any accident in or about the Building, or from any act or
neglect of any tenant or other occupant of the Building or of any other person.
This Paragraph 1 IA shall apply especially, but not exclusively, to damage
caused by water, snow, frost, steam, excessive heat or cold, sewerage, gas,
odors or noise, or the bursting or leaking of pipes or plumbing fixtures,
broken glass, sprinkling or air
9
<PAGE> 10
conditioning devices or equipment, or flooding, and shall apply without
distinction as to the person whose act or neglect was responsible for the damage
and whether the damage was due to any of the acts specifically enumerated
above. or from any other thing or circumstance, whether of a like nature or of a
wholly different nature.
B. Indemnity. Tenant agrees to indemnify and hold harmless Landlord, and
Beneficiary, the Manager and their respective officers, partners, agents, and
employees, from and against any and all claims, demands, actions, injuries to
all persons and damage to or theft or misappropriation or loss of property
occurring in or about the Premises and arising from Tenant's occupancy of the
Premises or the conduct of its business or from any activity, work, or thing
done, permitted or suffered by Tenant in or about the Premises or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed under this Lease or due to any
other act or omission of Tenant, its agents or employees. If any such
proceeding is filed against Landlord or any such indemnified party, Tenant
agrees to defend such proceeding at its sole cost by legal counsel reasonable
satisfactory to Landlord, if requested by Landlord.
12. LANDLORD'S REMEDIES.
A. Events of Default. Each of the following shall constitute an event of
default' by Tenant under this Lease:
(1) Tenant fails to pay any installment of Rent within five (5)
days after such installment of Rent is due (which five (5) day
period shall run concurrently with and not be in addition to the
statutory Landlord's five (5) day notice required under Illinois
law in dispossession proceedings); provided, however, that if in
any consecutive twelve (12) month period Tenant shall, on three (3)
separate occasions, fail to pay any installment of Rent on the date
such installment of Rent is due, then on the fourth (4th) such
occasion and on each occasion thereafter on which Tenant shall fail
to pay an installment of Rent on the date such installment of Rent
is due, each such failure shall constitute an event of default and
Tenant shall then no longer have any five (S) day period in which
to cure any such failure.
(2) Tenant fails to observe or perform any of the other covenants
or provisions of this Lease to be observed or performed by Tenant
and, for each such failure which has not previously occurred within
the then preceding six (6) month period, Tenant fails to cure such
failure within fifteen (15) days after written notice to Tenant;
provided, that if such failure is not susceptible to being cured
within such fifteen (15) day period but Tenant promptly commences
such cure, said fifteen (15) day period shall be extended as long
as Tenant is actively, diligently and continuously attempting to
effectuate such cure (and furnishing Landlord with weekly written
status reports on such efforts) but in no event shall said fifteen
(15) day period be extended by more than thirty (30) days;
(3) Tenant fails to maintain a temperature in the Premises of not
less than fifty-five degrees (55 degrees) Fahrenheit as provided in
subsection (3) of Paragraph 3B Above.
(4) (4)Tenant abandons the Premises.
B. Landlord's Remedies. Upon the occurrence of an event of default by
Tenant under this Lease, Landlord. at its option, without further notice or
demand to Tenant, may, in addition to all other rights and remedies provided in
this Lease, or available to Landlord at law or in equity:
(1) Terminate this Lease and Tenant's right to possession of the
Premises and recover all damages to which Landlord is entitled
under law, and in such event, Landlord shall, to the extent
required by law, take reasonable measures to mitigate damages
recoverable against Tenant. Landlord's damages shall specifically
include, without limitation (a) all Landlord's expenses or
reletting including repairs, alterations, improvements, additions,
legal fees and brokerage commissions), plus (b) the amount of all
Rent owing under this Lease for the balance of the Term
10
<PAGE> 11
discounted at the rate of six percent (6%) per year, which amount
shall be automatically considered accelerated and immediately due
and payable in full by Tenant to Landlord upon Landlord's election
to terminate this Lease.
(2) Terminate Tenant's right to possession of the Premises without
terminating this Lease, in which event Landlord shall, if and to
the extent required by law, take reasonable measures to mitigate
the damages recoverable against Tenant by attempting to relet the
Premises or any part thereof for the account of Tenant, for such
rent and term and upon such terms and conditions as are acceptable
to Landlord; provided, however, that Landlord shall not be
obligated to market or relet the Premises on a priority basis over
unleased or unoccupied space in the Building or to relet the
Premises to any person or entity that falls within the categories
specified in 10C (1), (2) or (3) of this Lease. For purposes of
such reletting, Landlord is authorized to decorate, repair, alter
and improve the Premises to the extent reasonably necessary. If
Landlord does not relet the Premises, then Tenant shall pay
Landlord monthly on the first day of each month during the period
that Tenant's right of possession is terminated, a sum equal to the
amount of Rent due under this Lease for such month (less any amount
which Landlord could have realized it Landlord relet the Premises
to a reputable. credit worthy substitute tenant procured by Tenant
and presented to Landlord in writing, which substitute tenant was
ready, willing and able to lease the entire Premises from Landlord
under a lease in form identical to the form of this Lease). If the
Premises are relet and a sufficient sum is not realized from such
reletting after payment of all Landlord's expenses of reletting
(including repairs, alterations, improvements, additions,
decorations, legal fees, advertising and other marketing expenses
and brokerage commissions) to satisfy the payment of Rent due under
this Lease for any month, Tenant shall pay Landlord any such
deficiency monthly upon demand. Tenant agrees that Landlord may
file suit to recover any sums due to Landlord under this section
from time to time and that such suit or recovery of any amount due
Landlord shall not be any defense to any subsequent action brought
for any amount not previously reduced to judgment in favor of
Landlord. If Landlord elects to terminate Tenant's right to
possession only without terminating this Lease, Landlord may, at
its option, enter into the Premises, remove Tenant's signs and
other evidences of tenancy, and take and hold possession thereof;
provided, however, that such entry and possession shall not
terminate this Lease or release Tenant, in whole or in part, from
Tenant's obligation to pay the Rent reserved hereunder for the full
Term or from any other obligation of Tenant under this Lease.
C. Bankruptcy. In the event a petition is filed by or against Tenant
seeking a plan of reorganization or arrangement under the Federal Bankruptcy
Code, Landlord and Tenant agree, to the extent permitted by law, that the
trustee in bankruptcy shall determine within sixty (60) days after commencement
of the case, whether to assume or reject this Lease.
D. Attorneys' Fees. Tenant shall pay upon issuance of a final
unappealable judgment against Tenant all costs and expenses, including
attorneys' fees paid or incurred by Landlord in connection with any action or
proceeding by Landlord to terminate this Lease or to terminate Tenant's right
to possession of the Premises.
13. SURRENDER OF PREMISES. Upon the expiration or termination of this
Lease or termination of Tenant's right to possession of the Premises, Tenant
shall surrender and vacate the Premises immediately and deliver possession of
the Premises to Landlord in a clean, good and tenantable condition, ordinary
wear excepted; provided, however, that all alterations and improvements
installed in the Premises shall be promptly removed by Tenant (at Tenant's cost
and expense) at the termination or expiration of the Term if so requested by
Landlord. Upon any termination which occurs other than by reason of Tenant's
default, Tenant shall be entitled to remove from the Premises all moveable
trade fixtures and personal property of Tenant without credit or compensation
from Landlord, provided, Tenant shall immediately repair all damage to the
Premises or the Building resulting from such removal and shall restore the
Premises to a tenantable condition. In the event possession of the Premises is
not immediately delivered to Landlord or if Tenant shall fail to remove any
moveable trade fixtures or personal property which Tenant is entitled to
remove, Landlord may remove same without any liability to Tenant. Any moveable
trade fixtures and personal property which may be removed from the Premises by
Tenant but which are not so
11
<PAGE> 12
removed shall be conclusively presumed to have been abandoned by Tenant and
title to such property shall pass to Landlord without any payment or credit, and
Landlord may, at its option and at Tenant's expense, store and/or dispose of
such property.
14. HOLDING OVER.
A. Tenant shall pay Landlord double the Net Base Rent plus double the Rent
Adjustment then applicable for each month (or any part of a month) if Tenant
obtains Landlords written permission to retain possession month to month of all
or any part of the Premises after the expiration or termination of the Term of
this Lease. The provisions of this Paragraph 14 shall not constitute a waiver
by Landlord of any re-entry or eviction rights of Landlord available under this
Lease or by law.
B. Without limiting anything set forth in Paragraph 14A above, Tenant
shall indemnify, defend and forever hold harmless Landlord, the Beneficiary,
the Manager and their respective officers, partners and employees from and
against any and all claims, liabilities, actions, losses, damages and expenses
(including court costs and attorneys fees) asserted against or sustained by any
such party and arising from or by reason of such retention of possession.
C. Reserved Parking. Notwithstanding the provision of section 3.A.(9j of
this Lease, the Landlord shall make available during the term of this lease a
total of ten (10) reserved parking spaces for the exclusive use of Security
Associates International Inc.
15. OPTION TO RENEW.
A. So long as an event of default is not then existing the term of this
Lease may be extended at the option of Tenant, for one additional period of
five (5) years with six (6) months or more prior written notice to Landlord
with such period being herein sometimes referred to as the Extended Term as
follows:
B. The Extended Term shall be on the same terms, covenants and conditions
of this Lease and any reference herein to the "Terms" shall be deemed to
include any Extended Term applied thereto, except for the amount of Net Base
Rent during the Extended Term. The Net Base Rent during the first year of the
Extended Term shall be the same as the fifth year of the initial Lease Term.
The Net Base Rent for each succeeding year of the Extended Term shall be equal
to one hundred five percent (105%) of the annual Net Base Rent for the
immediately preceding year. Any termination of this Lease during the Initial
Term of this Lease or an Extended Term shall terminate all rights hereunder.
16. RULES AND REGULATIONS. Tenant shall abide by all reasonable rules and
regulations adopted by Landlord from time to time for the operation and
management of the Building. If any rules and regulations are contrary to the
provisions of this Lease, the provisions of this Lease shall govern. Attached
to this Lease as Exhibit "B" are the current rules and regulations for the
Building, all of which Tenant hereby agrees shall be deemed to be reasonable.
Landlord shall not be responsible for the violation of any rules or regulations
of the Building by other tenants of the Building.
17. FIRE AND OTHER CASUALTY. If all or a substantial part of the Premises
are rendered untenantable by reason of fire or other casualty, or if the
Building is damaged by fire or other casualty in such a manner as materially
adversely affects access to or use of the Premises, Landlord shall with
reasonable diligence take such action as is necessary to repair and restore the
Premises and the Building. In the event Landlord fails for any reason to
complete said restoration within ninety (90) days then either party shall have
the right to terminate this Lease by giving to the other party written notice
of such election within ten (10) days after receipt of the architect's
certificate. If said fire or other casualty results in the total destruction
of the Building, this Lease shall automatically terminate as of the date of
said fire or other casualty. Net Base Rent and Rent Adjustment shall abate for
that part of the Premises which are untenantable on a per diem and
proportionate area basis from the date of the fire or other casualty until
Landlord has substantially completed the repair and restoration work; provided,
that Tenant does not occupy or use such part of the Premises which are
untenantable during such period.
12
<PAGE> 13
18. TENANT'S INSURANCE. Tenant, at its expense, shall maintain in force
at all times during the Term and comprehensive general public liability
insurance, which shall include coverage for personal liability, contractual
liability, tenant's legal liability, bodily injury, death and property damage,
all on an occurrence basis with respect to the business carried on in or from
the Premises and Tenant's use and occupancy of the Premises, with coverage for
any one occurrence or claim of not less than two million dollars ($2,000,000),
which insurance shall include Landlord and Beneficiary as named insured and
shall protect Landlord and Beneficiary in respect of claims by Tenant as if
Landlord and Beneficiary were separately insured. Such insurance shall be on
terms and with insurers reasonably acceptable to Landlord. Any casualty
insurance carried by Tenant and covering the Premises or Tenant's fixtures,
property or equipment located in the Premises shall contain a waiver by the
insurer of any rights of subrogation or indemnity or any other claim to which
the insurer might otherwise be entitled against Landlord, the Beneficiary, the
Manager and their respective partners, agents or employees. Tenant shall
furnish to Landlord prior to the Commencement Date, certificates or other
evidences acceptable to Landlord as to the insurance from time to time
maintained by Tenant and, no later than thirty (30) days prior to the date such
insurance otherwise would expire, Tenant shall furnish Landlord with
certificates confirming the renewal or continuation of such insurance for
themselves and all others claiming under them, including the insurer, waive all
rights including rights of subrogation against the other for loss, damage or
liability resulting from a risk which is insured against by either party, to
the extent of any recovery collectible under such insurance; provided, however,
that this waiver shall apply only when permitted by the applicable policy of
insurance.
19. Waiver of Recovers and Subrogation. Notwithstanding any other
provision of this Lease to the contrary. Lessor ant Lessee agree that in the
event that the building of which the Premises are a part or any part or parts
thereof or the fixtures. merchandise, and contents therein are damaged or
destroyed by fire or other casualty, each of the parties hereto, for itself and
any person or entity claiming through or under such party by way of subrogation
or otherwise, hereby waives all rights of recovery from the other party hereto
for any loss or damages whether caused by such other parties negligence or
otherwise. Lessor shall cause each insurance policy carried by Lessor insuring
the building of which the Premises are a part or any part or parts thereof
against loss by fire or any other casualties covered or embraced by all risk or
special form property casualty insurance to be written in such a manner so as
to provide that the insurer waives all right of recovery by way of subrogation
against Lessee in connection with any loss or damage covered by the policy or
policies and that such waiver shall not invalidate such insurance policy or
policies. Lessee will cause each Insurance policy carried by Lessee insuring
Lessee's property in the Premises to be written in such a manner so as to
provide that the insurer waives all right of recovery by way of subrogation
against Lessor in connection with any loss or damage covered by the policy and
that such waiver shall not invalidate such insurance policy or policies.
20. LANDLORD'S RIGHTS. Landlord shall have the following rights
exercisable without notice (except as expressly provided to the contrary) and
without being deemed an eviction or disturbance of Tenant's use or possession
of the Premises or giving rise to any claim for set-off or abatement of Rent:
(1) To change the name or street address of the Building upon prior written
notice to Tenant; (2) To install, affix and maintain all signs on the exterior
and/or interior of the Building; (3) To designate and/or approve prior to
installation, all types of signs, window shades. blinds. drapes, awnings or
other similar items, and all internal lighting that may be visible from the
exterior of the Premises; (4) To display the Premises to holders of mortgages
or trust deeds encumbering the Building or potential purchasers of the Building
at any reasonable hour, and to prospective tenants at reasonable hours during
the last twelve (12) months of the Term; (5) a notice of not less than forty
eight (48) hours shall be provided prior to changing the arrangement of
entrances, doors, corridors, and stairs in or outside of the Building; (6) To
grant to any party the exclusive right to conduct any business or render any
service in or to the Building, provided such exclusive right shall not operate
to prohibit Tenant from using the Premises for the purposes permitted under
this Lease; (7) To prohibit the placing of vending or dispensing machines of
any kind in or about the Premises other than for use by Tenant's employees; (8)
To have access for Landlord and other tenants of the Building to any mail
chutes and boxes located in or on the Premises according to the rules of the
United States Post Office and to discontinue any mail chute service in the
Building; (9) To close the Building after normal business hours, except that
Tenant and its employees and invitees shall be entitled to admission at all
times under such regulations as Landlord prescribes for security purposes; (10)
To take any and all reasonable measures, including inspections and repairs to
the Premises or to the Building, as may be necessary or desirable in the
operation or protection of the Building; (11) To retain at all times master
keys or pass keys to the Premises; (12) To install,
13
<PAGE> 14
operate and maintain security systems which monitor, by closed circuit
television or otherwise, all persons entering and leaving the Building; (13) To
install and maintain pipes, ducts, conduits, wires and structural elements
located in the Premises which serve other parts or other tenants of the
Building; (14) To make alterations, improvements, repairs and replacements to
the Building or any systems, equipment, machinery or common areas located in,
on, under or outside of the Building; and (15) To install blinds and/or window
treatments in the Premises in order to maintain conformance with the standards
or aesthetics of the Building.
21. ESTOPPEL CERTIFICATE. Tenant shall within five (5) business days
after each prior written request from Landlord, execute and deliver in form and
substance satisfactory to Landlord, an estoppel letter signed by an officer or
partner of Tenant and certifying: the Commencement Date and the Expiration
Date; the date to which Net Base Rent and Rent Adjustment has been paid; the
amount of Net' Base Rent and Rent Adjustment then being paid; the amount of any
security deposit; that Tenant has accepted the Premises; that this Lease is in
full force and effect and has not been modified, amended or assigned (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect); that all improvements have
been fully completed; that there are no defaults of Landlord under this Lease
nor any existing condition upon which the giving of notice or lapse of time
would constitute a default; that Tenant has not received any concession; that
there are no offsets to the payment of Rent; that Tenant has received no notice
from any insurance company of any defects or inadequacies of the Premises;
Tenant has no options or rights other than as set forth in this Lease; or by
operation of law and such other matters which Landlord may reasonably request.
If the letter is to be delivered to a purchaser or other subsequent owner of
the Building, it shall further include the agreement of Tenant to recognize
such purchaser or other subsequent owner as Landlord under this Lease and to
pay Rent to the purchaser or other subsequent owner or its designee in
accordance with the terms of this Lease. It is expressly understood and agreed
that any such statement may be relied upon by any prospective purchaser,
mortgagee or ground lessor of all or any portion of the Real Estate. Tenant's
failure to deliver such statement within said five (5) day period shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by Landlord, that there are no
uncured defaults in Landlord's performance, that not more than two (2) months'
rental has been paid in advance and that ail other statements required to be
made in the estoppel letter are conclusively made.
22. MORTGAGE BY LANDLORD. This Lease is expressly subject and subordinate
at all times to (1) any ground, underlying or operating lease of the Building
or the Land now or hereafter existing and all amendments. renewals and
modifications to any such lease, and (2) the lien of any now existing or
hereafter created mortgage or trust deed encumbering fee title to the Building,
the Land and/or the leasehold estate under any such ground, underlying or
operating lease, and to all advances made or to be made upon the security of
such lien. Tenant agrees:
(a) if requested by any mortgagee, trustee or lessor, Tenant shall
subordinate its interest in this Lease to any such mortgage. trust
deed or lease and will execute such subordination agreement or
agreements as may be reasonably required by any said mortgagee,
trustee or lessor. and
(b) in the event of any default by Landlord under this Lease which
would give Tenant the right to terminate this Lease or to claim a
partial or total eviction, Tenant will not exercise any such right
until (i) it has notified in writing the mortgagee, holder of such
trust deed or lessor, as the case may be (if the name and address
of such mortgagee, holder or lessor shall have previously been
furnished by written notice to Tenant) of such default, and (ii)
such mortgagee, holder or lessor, as the case may be, fails within
a reasonable time (not to exceed thirty (30) days) after receipt of
such notice to cause such default to be cured, and
(c) if any such mortgage or trust deed be foreclosed (or a deed
given in lieu of foreclosure), or if any such lease be terminated,
upon request of the mortgagee, holder or lessor, as the case may
be, Tenant will attorn to the purchaser at foreclosure sale (or
grantee of deed in lieu of foreclosure) or the lessor under the
lease, as the case may be, and will execute such instruments as may
be necessary or appropriate to evidence such attornment.
14
<PAGE> 15
23. NOTICES. All notices and approvals to be given by one party to the
other party under this Lease shall be given in writing, mailed or delivered as
follows:
(a) To Landlord, American National Bank and Trust Company of
Chicago As Trustee Under Trust No. 59948
(b) Washington Square Capital, 100 Washington Square, Suite 800,
Minneapolis, MN 55441-2147. Attn: Mr. Randy Bauernfeind
(c) Liz-Green, Inc. 2101 So. Arlington Heights Road, Arlington
Heights, Illinois 60005, Attention: Property Manager or to such
other person or persons or at such other address of addresses
designated by notice to Tenant.
(d) To Tenant at the location stated in Paragraph IC until Tenant
takes possession of the Premises and then at the Premises.
Notices shall be delivered by hand or by United States certified or
registered mail. postage prepaid. return receipt requested. Notices shall be
considered to have been given upon personal delivery or upon posting in the
United States Mails.
24. MISCELLANEOUS.
A. Binding Effect. This Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
B. Default Interest. All amounts owing to Landlord under this Lease for
which the date of payment is not expressly fixed. shall be paid within thirty
(30) days after the date Landlord renders statements of account. Tenant shall
pay Landlord interest from the date payment is due until it is made on any Rent
owing under this Lease. which is not paid with in ten (thirty (30) of the date
it first becomes due and on all other amounts not paid Landlord within thirty
(30) days after they become due, at a rate equal to the sum of three percent
(3%), plus the prime rate of interest from time to time announced by American
National Bank and Trust Company of Chicago, Chicago, Illinois.
C. Eminent Domain. In the event that all or a substantial part of the
Premises or the Building are taken by eminent domain (or by a deed given in
lieu of condemnation) so that the Premises cannot be reasonably used by Tenant
for the purposes for which they are leased, then either party may terminate
this Lease by giving written notice of termination to the other party within
thirty (30) days after such taking. In the event of any taking by eminent
domain (or deed given in lieu of condemnation) the entire award shall be paid
to and retained by Landlord. Subject to the foregoing, Tenant may pursue a
separate award against the condemning authority in a separate proceeding for
Tenant's loss, if any, to leasehold improvements paid for by Tenant without
any credit or allowance from Landlord and for Tenant's moving and relocation
expenses.
D. Exhibits. All Exhibits attached to this Lease are made a part of this
Lease and incorporated by this reference into this Lease.
E. Entire Agreement. This Lease and the Exhibits and Rider (if any)
attached to this Lease set forth all the covenants, promises, assurances,
agreements, representations, conditions, warranties, statements and
understandings (the "Representations" collectively) between Landlord and Tenant
concerning the Premises and the Building, and there are no Representations,
either oral or written, between them other than those in this Lease. This
Lease supersedes and revokes all previous negotiations, estimates of the
initial and/or future amounts of Expenses, Taxes and/or Rent, arrangements,
letters of intent, offers to lease, reservations of space, lease proposals,
brochures, Representations and information conveyed, whether oral or in
writing, between the parties or their respective representatives, agents,
brokers, salespersons or any other person purporting to represent Landlord or
Tenant. Tenant acknowledges that it has not been induced to enter into this
Lease by any Representations not set forth in this
15
<PAGE> 16
Lease, it has not relied on any such Representations, no such Representation
shall be used in the interpretation or construction of this Lease and Landlord
shall have no liability for any consequences arising as a result of any such
Representations. No subsequent alteration, amendment, change or addition to this
Lease shall be binding upon Landlord or Tenant unless in writing signed by both
parties.
F. Signing. The signing of this Lease by Tenant and delivery of this
Lease to Landlord or its agent does not constitute a reservation of or option
for the Premises or an agreement to enter into a Lease and this Lease shall
become effective only if and when Landlord signs and delivers same to Tenant;
provided, however, the signing and delivery by Tenant of this Lease to Landlord
or its agent shall constitute an irrevocable offer by Tenant to lease the
Premises on the terms and conditions contained in this Lease, which offer may
not be withdrawn or revoked for thirty (30) days after such signing and
delivery. If Tenant is a corporation, it shall deliver to Land-lord
concurrently with the delivery to Landlord of a signed Lease, certified
resolutions of Tenant's directors authorizing the signing and delivery of this
Lease and the performance by Tenant of its obligations under this Lease.
G. No Accord. No payment by Tenant or receipt by Landlord of a lesser
amount than any installment or payment of Rent due shall be deemed to be other
than on account of the amount due, and no endorsement or statement on any check
or any letter accompanying any check or payment of Rent shall be considered an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
payment of Rent or pursue any other remedies available to Landlord. No receipt
of money by Landlord from Tenant after the termination of this Lease or
Tenant's right to possession of the Premises shall reinstate, continue or
extend the Term.
H. Broker. Tenant represents to Landlord and the Beneficiary that except
for the broker stated in Paragraph 1(0), Tenant has not dealt with any real
estate broker, sales person, or finder in connection with this Lease, and no
such person initiated or participated in the negotiation of this Lease, or
showed the Premises to Tenant. Tenant agrees to indemnify, defend and hold
harmless Landlord, the Beneficiary, the Manager and their respective officers,
partners and employees, from and against any and all claims, demands, for
brokerage commissions or fees arising out of a breach of such representation.
Unless otherwise agreed by the parties, Landlord shall be responsible for the
payment of all commissions to the broker stated in Paragraph 1(0), based upon
the leasing commission policy of Landlord applicable to the Building and in
effect as of the date of this Lease.
I. Force Majeure. Landlord shall not be considered m default of any of
the terms, covenants and conditions of this Lease on Landlord's part to be
performed, if Landlord fails to timely perform same and such failure is due to
in whole or in part to any strike, lockout, labor trouble (whether legal or
illegal), civil disorder inability to procure materials, failure of power of
reduction or interruption in the furnishing or level of power, water, sewer,
gas or any other service or utility to be furnished or provided under this
Lease, restrictive governmental laws and regulations, riots, insurrections,
war, fuel shortages, accidents, casualties, Acts of God, acts caused directly
or indirectly by Tenant (or Tenant's agents, employees or invitees) or any
other cause beyond the reasonable control of Landlord.
J. Paragraphs. Paragraph captions in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of such Paragraphs.
K. Applicable Law. This Lease shall be construed in accordance with the
laws of the State of Illinois.
L. Time. Time is of the essence of this Lease and the performance of all
obligations under this Lease.
M. Landlord's Performance. If Tenant fails timely to perform any of its
duties under this Lease, Landlord shall have the right (but not the obligation)
after the expiration of any applicable notice and cure period, to itself
perform such duty on behalf and at the expense of Tenant, without further
notice to Tenant, and all sums incurred by Landlord in performing such duty
shall be considered additional rent under this Lease and shall be due and
payable upon demand by Landlord.
16
<PAGE> 17
N. Recording. Tenant shall not record this Lease or a memorandum of this
Lease in the Office of the Recorder of Deeds of Cook County, Illinois.
O. Severability. If any clause, phrase, provision or portion of this
Lease or the application of same to any person or circumstance shall be invalid
or unenforceable under applicable law, such event shall not affect, impair or
render invalid or unenforceable the remainder of this Lease, nor any other
clause, phrase, provision or portion of this Lease, nor shall it affect the
application of any clause, phrase, provision or portion of this Lease to other
persons or circumstances.
P. Litigation Costs. In the event any litigation is instituted by any
party to this Agreement against the other party regarding the construction of
any term or to recover any damages resulting from a breach of any term of this
Agreement, the prevailing party in any such action shall be entitled to recover
from the losing party all of such prevailing party's attorneys' fees and costs
associated with such action.
25. EXCULPATION. This Lease is executed by American National Bank and
Trust Company of Chicago, not personally but as Trustee as aforesaid, in the
exercise of the power and authority conferred upon and vested in it as such
Trustee, and under the express direction of the beneficiaries of a certain
Trust Agreement dated December 15, 1983, and known as Trust Number 59948 at
American National Bank and Trust Company of Chicago, to all provisions of which
Trust Agreement this Lease is expressly made subject. It is expressly
understood and agreed that nothing contained in this Lease shall be construed
as creating any liability whatsoever against said Trustee personally, and in
particular without limiting the generality of the foregoing, there shall be no
personal liability to pay any indebtedness accruing under this Lease or to
perform any covenant, either express or implied, contained in this Lease, or to
keep, preserve or sequester any property of said Trust, and that all personal
liability of said Trustee of every sort, it any, is hereby expressly waived by
Tenant, and by every person now or hereafter claiming any right or security
under this Lease; and that o hr the said Trustee is concerned the owner of any
indebtedness or liability accruing under this Lease shall look solely to the
Premises for the payment of same. It is further understood and agreed that the
said Trustee has no agents or employees and merely holds naked legal title to
the Real Estate; that said Trustee has no control over and under this Lease.
assumes no responsibility for, (1) the management or control of the Real
Estate, (2) the upkeep, inspection, maintenance or repair of the Real Estate,
(3) the collection of rents, or the rental of the Real Estate, or (4) the
conduct of any business which is carried on upon the Real Estate.
IN WITNESS WHEREOF, this Lease as executed as of the day and year
aforesaid.
LANDLORD: TENANT:
- --------- -------
AMERICAN NATIONAL BANK AND TRUST By: /s/ James S. Brannen
COMPANY OF CHICAGO, not personally but ---------------------------------
solely as Trustee Security Associates International, Inc.
under its Trust No. 59948
By: /s/ Michael Wang Title: /s/ President
--------------------------- -------------------------------
Date: Date: 12/19/95
-------------------------- --------------------------------
17
<PAGE> 1
Exhibit 10.17
FIRST AMENDMENT TO LEASE
This First Amendment To Lease (hereinafter referred to as "Amendment") is
entered into by and between AMERICAN NATIONAL BANK and TRUST COMPANY OF CHICAGO,
not personally but solely as Trustee under Trust No. 59948 (hereinafter referred
to as "Landlord") and Security Associates International, Inc. (hereinafter
referred to as "Tenant").
A. Whereas, Landlord and Tenant entered into a lease dated November 21,
1995, (hereinafter referred to as the "Lease") covering certain premises known
as Suite 100 occupying approximately 4,520 rentable square feet located at 2101
South Arlington Heights Road, Arlington Heights, Illinois 60005 (the
"Building"), as more fully described in said Lease.
B. Whereas, Landlord and Tenant now desire to amend the Lease modifying the
Lease and leasing an additional 2,561 square feet known as Suite 110 at a rental
and upon all the other terms, covenants and conditions as hereinafter set forth,
but not otherwise.
Now, therefore, in consideration of the mutual covenants and conditions herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Length of Term. The new lease term for Suite 110 shall commence on
January 1, 1997 for four (4) years and shall terminate on December 31, 2000. The
new term shall remain in full force and effect without interruption for four (4)
years except if an event of default occurs.
2. Net Base Rent. The Net Base Rent is listed out on the attached Exhibit
"E" broken down by month. The annual Net Base Rent payments are as follows:
<TABLE>
<S> <C>
Year 1 $26,318.28
Year 2 $27,107.83
Year 3 $27,921.06
Year 4 $28,758.70
</TABLE>
3. Operating Expenses. The Building's Annual Operating Expenses shall be
paid in addition to and apart from the Net Base Rent. These expenses shall be
billed as additional rent in the form of monthly progress payments based upon an
occupancy percentage of 4.145%.
4. Real Estate Taxes. The Building's Real Estate Taxes shall be paid in
addition to and apart from the Net Base Rent. These expenses shall be billed as
additional rent in the form of monthly progress payments based upon an occupancy
percentage of 4.145%.
5. Tenant Improvements. All construction costs to remodel Suite 110 and
Suite 100 shall be borne by the Landlord. The Scope of work for these tenant
improvements are listed out on the attached Exhibit "F".
6. Payment of Rent. All rent due under the Lease and this Amendment, shall
be paid to: Arlington Associates, c/o Liz-Green, Inc. as the Managing Agent,
(the "Manager"). Checks or other form of payment shall be mailed or delivered to
the following address:
Liz-Green, Inc.
Suite 107
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005
<PAGE> 2
7. Brokers. Lessee and Lessor represent and warrant to each other that they
have not dealt with any broker or finder in connection with this First Amendment
To Lease other than Liz-Green, Inc. Lessor hereby agrees to be responsible for
and pay any and all brokerage commissions, fees or claims of any kind owing to
Broker in connection with this Amendment, and shall indemnify and hold Lessee
harmless from any and all reasonable attorneys' fees-incurred by Lessee in
connection therewith. Lessee agrees to indemnify and hold Lessor harmless from
and against any claims, costs, expenses (including court costs and reasonable
legal fees) and other liabilities incurred by Lessor by reason of any claim or
action for a commission or other compensation by any other broker or finder, if
any, with which Lessee has dealt with respect to this Agreement. Lessor shall
have no liability for any brokerage commission arising out of a sublease or
assignment by Lessee. The provisions of this paragraph shall survive the
expiration or sooner termination of this Lease.
8. No Other Changes. Except as and to the extent expressly provided for in
this First Amendment To Lease, the Lease shall remain in full force and effect
and shall be applicable according to all of its terms to Suite 100 and Suite
110.
9. Entire Agreement. This Amendment constitutes the entire understanding of
the parties regarding this First Amendment To Lease. There are no promises,
representations or understandings, other than as set forth in these documents.
IN WITNESS WHEREOF, this Amendment To Lease is executed as of December
9, 1996.
TENANT: Security Associates International, Inc.
By: /s/ James S. Brannen
----------------------------------
Title: President
-------------------------------
Date: 12/11/96
--------------------------------
LANDLORD: AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, not
personally but solely as Trustee under its Trust No. 59948
By: /s/ Gregory Kasprzyk
----------------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 10.18
LEASE
THIS LEASE, is made as of the 4th day of September, 1996, by and
between INTEC COMPANY, INC., a Michigan corporation, of 1208 Butterworth, S.W.,
Grand Rapids, Michigan 49504 ("Lessor") and SECURITY ASSOCIATES COMMAND CENTER
II, L.L.C., a Michigan limited liability company, of 1208 Butterworth, S.W.,
Grand Rapids, Michigan 49504 ("Lease").
1. Demise. Lessor lets and leases to Lessee, and Lessee hires and
leases from Lessor, the portion of the premises located at 1208 Butterworth,
S.W., Grand Rapids, Michigan 49504 more particularly described on the attached
Exhibit A ("Leased Premises"), for the purpose, for the term, at the rents and
under the terms and conditions set forth in this Lease.
2. Purpose of Occupancy. Lessee shall occupy and use the Leased
Premises for the purpose of operating a security system monitoring station and
for no other purpose without the prior consent of Lessor.
3. Term of Lease; Renewal Term. The term of this Lease shall commence
on the fourth day of September, 1996, and shall continue for a period of two
(2) years unless earlier terminated as provided in this Lease. Provided Lessee
is not then in default in the performance of any of its covenants and
agreements under this Lease, Lessee may renew this Lease for one (1) additional
one (1) year term, upon the same terms and conditions as provided in the Lease.
In order to exercise such renewal right, Lessee shall serve Lessor with written
notice of Lessee's election to renew no less than three (3) months prior to the
end of the initial term of this Lease.
4. Rent. Lessee covenants and agrees to pay Lessor, as gross rent for
the Leased Premises, the sum of three Thousand Five Hundred Dollars ($3,500.00)
per month on the first day of each and every month during the term, or renewal
term, of this lease.
5. Utilities. Lessor shall furnish and pay for heat, gas, electricity,
water and sewer used in connection with the Leased premises. All other
utilities shall be paid by Lessee.
6. Maintenance and Repairs. Lessee agrees to accept the Leased
Premises in their "as is" condition as of the lease commencement date, without
warranty of any kind. Subject to paragraph 27, below, Lessor shall pay for all
ordinary and necessary maintenance and repairs of the Leased Premises,
including any common areas shared by Lessee with Lessor or any the tenant.
Lessee agrees to repair any damage to the Leased Premises caused by the acts or
omissions of its agents, employees or invitees and to keep the Leased Premises
in a clean, sightly and healthy condition and in good repair at Lessee's
expense, and shall yield the same back to Lessor upon the termination of this
Lease, whether such termination shall occur by expiration of the term, or any
other manner, in good condition and repair, reasonable wear and tear and damage
by the elements excepted.
7. Taxes. During the term of this Lease, Lessor shall pay all real
property taxes and special assessments assessed on or against the Leased
Premises and Lessee shall pay all personal property taxes, alternative or
substitute taxes, charges or fees levied or assessed on or against the
machinery, equipment, appliances, fixtures, furniture and personal property and
other contents of
<PAGE> 2
the Leased Premises, billed during the term of this Lease, promptly when due
and before the same shall become delinquent and shall exhibit receipts for
payment of such taxes to the other party upon demand.
8. Insurance. Lessor shall obtain and maintain policies of fire and
extended coverage insurance covering the building and improvement on the Leased
Premises in the name of Lessor, payable to Lessor. Lessee shall not be liable
to Lessor for any damage caused by fire, provided Lessor's loss is covered by
such insurance.
Lessee shall carry, at its own expense, all insurance on its
fixtures, equipment, and inventory located on the Leased Premises. Lessor
shall not be liable for any loss or damage to fixtures, equipment, inventory or
other items belonging to Lessee caused by fire or other hazard, regardless of
the nature or cause of such fire or other hazard, and Lessee does hereby
release Lessor of and from all liability for such damage.
Lessee agrees to indemnity and save Lessor harmless from any
liability for injuries or damages to any customer, employee, invitee or any
other person or property upon or about the Leased Premises and adjoining areas
from any cause whatsoever except for Lessor's own negligence.
Lessee shall obtain and maintain policies of general liability
insurance fully protecting and insuring Lessor, payable to Lessor, from and
against any liability, loss or damage by reason of any accident in or upon the
Leased Premises, and in or upon the streets, parking areas and yards adjacent
thereto, with insurance companies to be approved by Lessor. Such general
liability insurance shall be in an amount of not less than Five Hundred
Thousand Dollars ($500,000.00) for injury to, or death of, any one person and
One Million Dollars ($1,000,000.00) for injury to, or death of, any number of
persons arising out of one accident and in the amount of Five Hundred Thousand
Dollars ($500,000.00) for damages or injury to property.
Lessee shall deliver the insurance policies specified above to Lessor
with proof of payment of the premium thereon.
9. Alterations, Trade Fixtures, etc. Lessee, without the written
consent of Lessor, shall make no alterations, additions, or structural changes
in or to the Leased Premises. Any permanent changes, alterations, additional,
repairs or improvement made by Lessee to or on the Leased Premises shall be the
property of the Lessor free from any liens or claims whatsoever, without any
compensation therefor from Lessor to Lessee.
Lessee may install and maintain in, on or about the Leased Premises,
such trade fixtures, machinery and equipment as Lessee may need in connection
with its business, and, at the end of the specified term, Lessee may remove all
such trade fixtures, machinery, equipment, and those items referred to above as
temporary improvements; provided, however, that no such installation shall
cause a material alteration in the structure of the Leased Premises, except as
provided above, and provided further that Lessee shall repair any material
damage or change to the Leased Premises caused by the removal of the items
covered by this Paragraph. Should Lessee fail to remove such trade fixtures,
machinery and equipment, movable partitions and
2
<PAGE> 3
other temporary improvements as Lessee may have installed without the consent
of Lessor, as aforesaid, within ten (10) days after termination of this Lease,
said items shall be deemed permanent fixtures and property of Lessor.
10. Signs and Advertising. Lessee agrees that no sign or other
advertising matter shall be installed, erected on or affixed to the Leased
Premises, or any part thereof, without the written consent of Lessor, which
consent shall not unreasonably be withheld by Lessor. Upon the expiration or
any sooner termination of this Lease, Lessee agrees, at its cost, to remove
from the Leased Premises, all signs and advertising matter by it installed,
erected on or affixed to the Leased Premises, such work to be performed and
completed in a good workmanlike manner.
11. Destruction of or Damage to Leased Premises. In the event the
Leased Premises are damaged by fire, the elements or acts of God, to such
extent that they are rendered wholly untenantable by Lessee, and in the event
Lessor elects not to rebuild the Leased Premises, or repair them as they
existed prior to the damage, or in some other manner satisfactory to Lessee,
then Lessor shall, within sixty (60) days of the date the damage occurred,
notify Lessee in writing of such election. This lease shall be canceled as of
the date the damage occurred and Lessor may keep the insurance proceeds.
In the event the Leased Premises are wholly untenable for a period
of sixty (60) days or more and in the event Lessor elects to rebuild or repair
the Leased Premises as they existed prior to the damage, or in some other manner
satisfactory to Lessee, then, unless Lessee notifies Lessor in writing within
said sixty-(60) day period that the Lease is cancelled, Lessor shall commence
such rebuilding or repairing within a reasonable time of such damage and shall
continue and complete such rebuilding or repairing as promptly as possible, and
upon completion of such rebuilding or repairing, this Lease shall be reinstated
in all of its terms, and the rent shall abate from the date the damage
occurred.
Should the Leased Premises be destroyed, to an amount over
twenty-five percent (25%) of the value of the buildings located on the Leased
Premises by fire, the elements, or acts of God, this Lease may within sixty
(60) days of the date of damage and upon written notice be terminated by Lessor
or Lessee without further obligation.
In the event Lessor or Lessee does not terminate this Lease, then
Lessee shall continue to occupy the portion of the Leased Premises which is
tenantable. The rent shall abate proportionately to that portion of the Leased
Premises unoccupied, and Lessor shall promptly commence and complete repairs to
the portion damaged, and upon completion of such repairing, this lease shall be
reinstated in all of its terms.
12. Assignment or Sublease. This Lease shall not be assigned or sublet
by Lessee without the prior written consent of Lessor. Any assignment or
sublease shall not relieve Lessee of its obligations under this Lease.
13. Performance by Lessor. In the event Lessee fails to perform the
covenants and agreements, on its part to be performed, under the provisions of
this Lease, Lessor shall have the option to undertake such performance for
Lessee and the costs and expenses incurred by Lessor,
3
<PAGE> 4
by reason of such undertaking, plus interest at the highest rate permitted by
law shall be due and payable forthwith by Lessee to Lessor, as additional rent
under this Lease.
14. Default by Lessee and Remedies of Lessor. In the event any rent
shall not be paid when due, or Lessee shall default in the performance of any
of the covenants and agreements on its part to be performed under the
provisions of this lease, and such nonpayment or default shall continue for ten
(10) days after mailing by lessor of a written notice by certified or first
class mail of nonpayment or default, or in the event Lessee shall make
assignment for the benefit of its creditors, or in the event a receiver or
trustee shall be appointed for all, or any part, of the property and business
of Lessee in a bankruptcy or other proceeding, or in the event Lessee shall be
adjudicated bankrupt, voluntary or involuntary, then Lessor shall have the
option, upon occurrence of any such event, to (a) cancel this Lease without
notice to Lessee, to re-enter into, and against have and enjoy the leased
Premises, with or without legal process, and to remove and evict Lessee and any
person holding under Lessee from the Leased Premises, or (b) to accelerate the
rent due for the remaining term of this Lease, without further notice to
Lessee, and commence suit to collect such rent, and (c) all without prejudice
to any other remedy available to Lessor for the obtaining of possession of the
Leased Premises or the collection of rent or damages.
15. Delivery of Possession and Hold-Over. Upon the expiration of the
term, or renewal term, of this lease, Lessee shall immediately surrender to
Lessor the possession of the Leased Premises. In the event Lessee shall remain
in the Leased Premises after expiration or sooner termination of the term, or
renewal term, of this lease, without having executed a new written Lease with
Lessor, such holding over shall not constitute renewal or extension of this
Lease. Lessor may, at its option, however, elect to treat Lessee as one who has
not removed at the end of its term, and thereupon be entitled to all of the
remedies against Lessee provided by law in that situation, or Lessor may elect
at its option, to constitute such holding over as a tenancy from month to
month, at twice the same rent, and on the same conditions, as provided in this
Lease, except as to term.
16. Abandonment by Lessee. In the event Lessee shall abandon or vacate
the Leased Premises before the end of the term, or renewal term, of this Lease,
Lessor shall have the right, but not the duty, to relet the Leased Premises for
such rents and upon such terms as Lessor is able to obtain. In the event a
sufficient sum is not realized by such reletting each month, after payment of
the expenses of such reletting, to pay to Lessor the equivalent of the rents
reserved and other benefits due Lessor from Lessee under the provisions of this
Lease, Lessee shall pay to Lessor the amount of such deficiency plus interest
at the highest rate permitted by law each month during the balance of such
term.
17. Condemnation. If the whole or any part of the Leased Premises,
except an area not to exceed forty percent (40%) of the improved Leased
Premises, shall be taken by any public authority or utility under the power of
eminent domain, including conveyances and grants made in anticipation, or in
lieu of condemnation proceedings, then the term of this Lease shall cease on
the part so taken, and the rent shall be paid up to that day, and from that day
Lessor and Lessee shall have the right either to cancel this Lease and declare
the same null and void by a notice in writing delivered to the other party on
or before thirty (30) days after the date of such taking.
4
<PAGE> 5
(d) Warranty and Covenant of Lessor. Lessor warrants that it has
no knowledge of any violation of the Relevant Environmental Laws with respect
to the Leased premises as of the date of the execution of this Lease. Lessor
shall hold Lessee
amounts of oil, gas, grease and related products necessary for
Lessee's business operations), or produced, emitted or disposed of
upon, about or beneath the Leased Premises by Lessee, its agents,
employees, contractors or invitees, or any
Lessor shall be entitled to claim an award for damages as compensation
for the diminution in value to the leasehold and to the fee of the Leased
Premises. Lessor shall be entitled to claim an award for damages as
compensation for the diminution in value to the leasehold and to the fee of the
Leased Premises. Lessee shall be entitled to claim an award for damages as
compensation for loss of business, depreciation of merchandise and fixtures,
fixture and equipment damages, removal and reinstallation costs, and Lessor
shall not be entitled to any portion of such award, or to make a claim
therefor.
18. Subordination. This Lease, and the leasehold interest and rights
of Lessee shall be and are subordinate to any and all rights, procedures and
other provisions of any present encumbrances on the Leased premises and any
future encumbrances that may be placed upon the Leased Premises by Lessor for
the purpose of securing the payment of any loan or loans that may be made to
Lessor. Lessee agrees to execute any documents required by Lessor's mortgagees
to effectuate this provision, provided Lessee receives from said mortgagee a
standard non-disturbance agreement.
19. Access. Lessee shall allow Lessor, or any person duly authorized
by Lessor, free access to the Leased Premises for the purpose of examining the
same to ascertain whether they are in good repair and condition and for the
purpose of exhibiting the Leased Premises for sale or lease.
20. Environmental Matters.
(a) Definition. As used in this Lease, the following terms shall
have the following respective meaning:
(i) "Relevant Environmental Laws" shall include, but not be
limited to, all federal, state or local laws, rules, regulations,
orders, or determinations, whether currently in effect or
established in the future, by any judicial, legislative or
executive body of any governmental or quasi-governmental entity,
which govern or regulate the existence, use, storage, disposal,
removal or release of any solid, liquid or gas from the Leased
Premises, or which govern or regulate the environmental effect of
any activity conducted on the Leased Premises.
(ii) "Hazardous Substances" shall mean all solids, liquids, or
gasses, including, but not limited to, solid wastes, asbestos,
toxic chemicals, polychlorinated biphenyls, paint containing lead,
solvents, aromatic organic compounds, chlorinated organic
compounds, and urea formaldehyde foam insulation, which are, or
which may become governed or regulated by the Relevant
Environmental Laws.
(b) Environmental Representations, Warranties and Covenants
Lessee represents, covenants, and warrants as follows:
(i) Lessee shall not cause or permit any Hazardous substance
to be released, brought upon, stored or used (other than
commercially reasonable
5
<PAGE> 6
amounts of oil, gas, grease and related products necessary for
Lessee's business operations), or produced, emitted or disposed of
upon, about or beneath the Leased Premises by Lessee, its agents,
employees, contractors or invitees, or any person or entity acting
under an agreement with Lessee.
(ii) Lessee shall notify Lessor promptly and in reasonable
detail in the event that Lessee becomes aware of the presence of
any Hazardous Substance or the existence of conditions that might
constitute a violation of the Relevant Environmental Laws at the
Leased Premises.
(iii) If Lessee, or any person possessing or operating the
Leased Premises by agreement with Lessee, shall use or permit the
Leased Premises to be used or maintained so as to subject Lessor
to a claim of violation of the Relevant Environmental Laws, Lessee
shall immediately cease or cause the cessation of such use or
operations and shall remedy and fully cure any conditions arising
therefrom, at its own cost and expense.
(iv) Lessee shall comply and continue to comply in all
material respects with the relevant Environmental Laws as they
relate to Lessee's activities on the Leased Premises.
(v) At its sole cost and expense, Lessee shall pay
immediately when due the cost of compliance with all Relevant
Environmental Laws applicable to it, and keep the Leased Premises
free of any lien imposed pursuant to the Relevant Environmental
Laws which results from the acts or omissions of Lessee, its
officers, agents, employees or invitees, or from any person or
entity acting under an agreement with Lessee.
(vi) Upon expiration or termination of this Lease, Lessee
shall deliver the Leased Premises to Lessor free of any and all
Hazardous Substances resulting from the acts or omissions of
Lessee, its officers, agents, employees or invitees, and in a
condition that complies with all Relevant Environmental Laws
as they relate to lessee's activities on the Leased Premises.
(c) Indemnity. Lessee shall immediately pay to Lessor, when
incurred, and shall indemnify, defend and hold Lessor harmless from and
against, all loss, cost, liability, damage and expense (including, without
limitation, costs of environmental investigations or studies of the Leased
Premises reasonably requested by Lessor, and reasonable attorneys' fees and
costs incurred in the investigation, defense and settlement of claims) that
Lessor may suffer or incur as a result of or in connection with any violation
of the Relevant Environmental Laws caused by acts or omissions of Lessee, its
officers, agents, employees or invitees, or by any person or entity acting
under an agreement with Lessee, or breach of any representation, warranty, or
covenant contained in this Lease.
6
<PAGE> 7
(d) Warranty and Covenant of Lessor. Lessor warrants that it has no
knowledge of any violation of the Relevant Environmental Laws
with respect to the Leased premises as of the date of the execution of
this Lease. Lessor shall hold Lessee harmless and indemnify Lesser for
any claims made against Lessee under the Relevant Environmental Laws by
any person or governmental authority and arising out of acts or
omissions of Lessor or any former owner or lessee of the Leased
Premises.
21. Quiet Enjoyment. On paying the rent and on performing all of the
covenants and agreements to be performed under the provisions of this Lease,
Lessee shall peacefully and quietly have, hold and enjoy the Leased Premises
for the specified term.
22. Notices. All notices shall be in writing and shall be deemed given
when personally delivered or when deposited in the United States mail or other
comparable mail service, postage prepaid, addressed to the party at its address
set forth above.
23. Binding Effect. the Lease shall be binding on, and inure to the
benefit of, Lessor and Lessee and their respective successors and assigns.
24. Entire Agreement and Amendment. This Lease contains all the terms
of the agreement between the parties with respect to the Leased Premises and
may be amended only by a writing signed by both parties.
25. Governing Law. The Lease shall be governed in all respects by
Michigan law.
26. Severability. The unenforceability of any term of this Lease shall
not affect the enforceability of any of the remaining terms of this Lease.
27. Miscellaneous Provisions. Notwithstanding any other provisions of
this Lease, during the term of this Lease, Lessor and Lessee agree as follows:
(a) Lessee shall be allowed the use of Lessor's existing voice mail
system.
(b) Lessee shall be allowed the use of Lessor's existing telephone
system, with Lessor responsible for maintenance of the switch and
Lessee responsible for the repair, replacement or addition of any
telephone accessories or equipment.
(c) There are currently two (2) "T" spans in use servicing both
Lessor and the Leased Premises. Lessee shall continue to own and
maintain the "T" spans and bill Lessor on a monthly basis for Lessor's
access charges and actual monthly usage charges as documented by
Lessee. Lessee shall be responsible for any penalties or fees
associated with the cancellation of any "T" spans or long-distance
telephone contracts.
(d) The air conditioning system servicing the Leased Premises is the
property of Lessor; however, Lessee shall be responsible for all
maintenance, repair and replacement of the system.
7
<PAGE> 8
(e) The so-called Generator #1 and the associated transfer switch
are the property of Lessor; however, Lessee shall be responsible for
all maintenance, repair and replacement of such items. The so-called
Generator #2 and the BEST UPS system are the property of Lessee and
Lessee shall be responsible for all maintenance, repair and
replacement of such items.
(f) Lessee's employees shall provide "after hours" operation of the
building and grounds housing the Leased Premised as reasonably
requested by Lessor, including locking and unlocking doors and opening
and closing gates.
(g) Lessor's employees will provide "back up" operator services to
Lessee for incoming calls between the hours of 8:00 a.m. E.S.T.
and 5:00 p.m. E.S.T. Overflow calls during such time periods be routed
to Lessor's receptionist.
(h) Lessee may utilize Lessor's existing VAX computer system for
accounting purposes. Lessor shall provide maintenance for the main
computer and Lessee shall provide its own computers/terminals/wiring
to connect with the main computer and related maintenance. Upon
ninety (90) days prior written notice, Lessor may require Lessee to
terminate its use of the VAX computer system unless Lessee agrees to
assume all financial responsibility for operating and maintaining the
system on an ongoing basis.
(i) Lessee's employee, Chuck Houch, shall continue to handle his
current Grail and ASU responsibilities on behalf of Lessor through
May 31, 1997.
(j) In the event Lessor enters into a binding agreement to sell
the Leased premises to a third party, Lessor may terminate this
Lease by providing Lessee with not less than one hundred eighty (180)
days prior written notice of termination.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to
be executed the day and year first above written.
WITNESSES:
INTEC COMPANY, INC., a Michigan corporation
/s/ Lynette Swan By /s/ Jerry A. Spitler
- ----------------------- -----------------------------------------
Jerry A. Spitler, President
/s/ Stephanie L. Hedron
- -----------------------
SECURITY ASSOCIATES COMMAND CENTER
II. L.L.C., a Michigan Limited
liability company
By /s/ James S. Brannen
- ----------------------- ------------------------------------------
Its Authorized Member
- ----------------------- -----------------------------------------
LESSEE
8
<PAGE> 1
EXHIBIT 10.19
SUBLEASE
ARTICLE ONE: BASIC TERMS
This Article one contains the Basic Terms of this Sublease between the
Lessor and Lessee named below.
Section 1.01 Date Lease Executed:
Section 1.02 Lessor: William Jackson and Elizabeth Jackson, his
wife
Address of Lessor: 1471 S.W. 12th Avenue
Pompano Beach, Fl 33069
Section 1.03 Lessee: Security Associates International, Inc.,
a Delaware corporation
Address of Lessee: 2101 So. Arlington Heights Road
Arlington Heights, IL 60005-4141
Section 1.04 "Leased Premises" (include street address, approximate
square footage and description): Entire second floor of two-story building
located at 1471 S.W. 12th Avenue, Pompano Beach, Florida 33069 being
approximately 6,500 square feet. The "Property" is the entire two-story
building ("Building") and adjacent parking lot locate at 1471 S.W. 12th Avenue,
Pompano Beach, Florida 33069.
Section 1.05 Lease Term: Period beginning December 01, 1996 and
expiring July 31, 2000; provided, however, that term will be extended until
December 31, 2001 if and when Lessor acquires fee title to the Property.
Section 1.06 Permitted Uses (UL Listed Central): UL Listed Central
Monitoring Station and other general office purposes.
Section 1.07 Lessee's Guarantor (If none, so state): None
Section 1.08 Lessor's Broker (If none, so state): None
Section 1.09 Lessee's Broker (If none, so state): None
Section 1.10 Sublease: This is a Sublease. The Lessor's interest in
the premises is as Lessee under an underlying lease made by Joe A. Stapleton
dated May 9, 1995, a copy of which is attached hereto. Except as provided in
Section 1.13 herein, this Sublease is expressly made subject to all the terms
and conditions of said underlying lease and the Lessee agrees to use the Leased
Premises in accordance with the terms of said underlying lease and not do or
omit to do anything which will breach any of the terms hereof. Expressly
excluded from this Sublease is the Lessor's option to purchase the Property.
The Lessee agrees to assume the obligations for
1
<PAGE> 2
performance of all Lessor's obligations as to the Leased Premises under the
underlying lease dated May 9, 1995.
If the underlying lease is terminated, this Sublease shall terminate
simultaneously and any unearned rent paid in advance shall be refunded to the
Lessee, provided that such termination is not the result of a breach of Lessee
of the within Sublease. If the underlying lease is terminated as a result of
the Lessor's acquisition of the title to the Property, then this Sublease shall
become a direct lease and operated on the same terms and conditions as set
forth herein.
The Lessor represents and warrants that: (a) the underlying lease is
in full force and effect and Lessor has no notice of any defaults under the
underlying lease; (b) the term of the underlying lease is the same as the term
of the Sublease; (c) Lessor will use all reasonable efforts to obtain all
services required to be performed by the landlord under the underlying lease
and to obtain all consents that are required by the landlord under the
underlying lease in conjunction with actions requiring the approval of the
Lessor under the Sublease; and (d) Lessor shall deliver any notices of default
to sublessee who will have an opportunity to cure.
Section 1.11 Initial Deposit: (See Paragraphs 3.03 and
13.03(c)): None
Section 1.12 Vehicle Parking Spaces Allocated to Lessee: One-half
of the Parking Spaces at the Property.
Section 1.13 Rent and other Charges Payable by Lessee: Rent:
Ten Thousand and No/100 ($10,000.00) Dollars per month, plus applicable
Florida sales tax payable in advance, beginning January 1, 1997.
Section 1.14 Riders: The following Riders are attached to and
made a part of this Lease. (If none, so state): No riders.
Section 1.15 Option: Upon expiration of the initial term of this
Sublease, provided that the same is then in full force and effect and
Lessee is not in default hereunder, Lessee may extend such term for a
further term of five (5) years from July 31, 2000 or December 31, 2001 if the
Term is extended pursuant to Section 1.05 by giving Lessor written notice that
it desires such extension. Such notice must be given not less than one (1)
year before the initial term expires. The renewal term shall be upon the same
terms, provisions, covenants, and conditions as are contained in this Sublease,
except as to the duration of the term, the rental rate and any other provisions
herein which by its terms, is applicable only to the initial term.
The Rent during the renewal term shall be equal to the fair rental
value of the Leased Premises at the time of commencement of the renewal term,
as determined by agreement between the Lessor and Lessee or by arbitration in
accordance with the provisions of this Sublease and this subsection. If the
Lessee exercises its option to renew the term of the Sublease, it shall specify
in each such notice its evaluation of fair rental value of the Leased Premises.
Within three (3) months thereafter, Lessor shall send to Lessee, a notice
stating either (i) Lessor's agreement with Lessee's rent, in which event such
amount shall be fixed as the rent payable by Lessee for the renewal period in
issue, or (ii) Lessor's evaluation of such fair rental
2
<PAGE> 3
value. If Lessor and Lessee are unable to agree upon a fair rental value
within three (3) months from the date of sending the notice described in (ii)
above, the matter shall be determined by binding arbitration administered by
the American Arbitrators Association in accordance with Commercial Arbitration
Rules. The arbitrator's determination of the fair rental value of the Leased
Premises for the renewal term in issue may not, in any event, be less than the
Lessee's proposed rent nor more than the Lessor's proposed rent, determined in
accordance with the procedures in Section 1.15.
ARTICLE TWO: LEASE TERM
Section 2.01 Lease of Property for Lease Term: Lessor leases the
Leased Premises to Lessee and Lessee leases the Leased Premises from Lessor for
the Lease Term. The Lease Term is for the period stated in Section 1.05 above,
and shall begin and end on the dates specified in Section 1.5 above, unless the
beginning or end of the Lease Term is changed under any provision of this
Sublease. The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Sublease term, unless advanced or delayed under
any provisions of this Lease.
Section 2.02 Termination: Advance payments. Upon termination of
this Sublease under Article Seven (Damage or Destruction), Article Eight
(Condemnation) or any other termination not resulting from Lessee's default,
and after Lessee has vacated the Leased Premises, an equitable adjustment shall
be made concerning advance rent, or any other advance payments made by the
Lessee to the Lessor, and Lessor shall refund the unused portion thereof to
Lessee or Lessee's successor.
Section 2.03 Non-Smoking Facility: Smoking is prohibited on
Property.
ARTICLE THREE: OTHER CHARGES PAYABLE BY LESSEE
Section 3.01 Additional Rent. All charges payable by Lessee other
than Rent are called "Additional Rent" shall be paid with the next monthly
installment of Rent. The term "rent" shall mean Rent and Additional Rent.
The Lessee shall pay annually that portion of any increase in real
estate taxes, property and casualty insurance and maintenance fees for the
Property and building on which the Leased Premises is a part over the amount of
such amounts assessed against the land and the building for the calendar year
1966 which the total number of square feet of floor space in the Leased
Premises compared to the total number of square feet of the floor space in the
entire building. The Lessor shall furnish the Lessee with a property
authenticated statement of the real estate taxes, property and casualty
insurance and maintenance fees for the calendar year 1996 and with a receipted
bill for the aforesaid expenses for any subsequent year in which an increased
amount has been paid. Any annual increase in the maintenance fees shall be
limited to the annual percentage increase in the cost of living index for
January of each year.
3
<PAGE> 4
The Lessor shall notify the Lessee of the total increase in real
estate taxes on or before November 15 of each year and the Lessor shall notify
the Lessee of any other increases within fifteen (15) days of the effective
date of the required increase. Any annual increase in the real estate taxes,
property and casualty insurance and maintenance fees shall be paid in four
equal quarterly payments commencing within fifteen (15) days after written
notice thereof by Lessor.
Lessor agrees that Lessee shall have the right at Lessee's sole cost
and expense to contest the legality or validity of any taxes or assessments or
other public charges which are to be paid by Lessee by Lessee pursuant to this
Lease; and in the event of any such contest the failure on the part of the
Lessee to pay any such tax, assessment or other charge prior to the aforesaid
date thereof shall not constitute a default hereunder.
Lessor further agrees at the request of Lessee to execute or to join
in the execution of any instrument or document necessary in connection with any
such contest, but at no expense to Lessor. However, by virtue of any such
contest made by Lessee, Lessee agrees in no way to permit any lien to be filed
against the property for any delinquency and agrees to properly bond the same
if any lien is filed.
Section 3.02 Utilities. Lessee shall pay, directly to the
appropriate supplier, the cost of all gas heat, air conditioning, light, power,
telephone and other utilities and services not supplied by Lessor. However, if
any services or utilities are jointly metered with other Property, Lessor shall
make a reasonable determination of Lessee's proportionate share of the cost of
such utilities and services and Lessee shall pay such share to Lessor within
fifteen (15) days after receipt of Lessor's written statement. Lessor shall
supply sewer service and such refuse disposal and water as reasonably incident
to Lessee's occupancy.
Section 3.03 Insurance. (a) Lessor to Maintain Fire Insurance:
The Lessor will provide fire and extended insurance coverage in amounts not to
exceed the estimated replacement cost of the building premises. This coverage
is for the benefit of the Lessor's interest only. (b) Lessee to Maintain
Liability Insurance. The Lessee will procure and maintain during the term of
this Lease general liability insurance protecting the Lessor and Lessee jointly
and severally, whereby injury and death is covered to the extent of at least
$1,000,000, in the case of death or injury of one person, and to the extent of
$1,000,000, in case of death, or injury of more than one person. The original
policies thereof shall be delivered to the Lessor by the Lessee in each
instance not less than 15 days before each effective date, and shall be held by
Lessor not less than 15 days before each effective date, and shall be held by
Lessor (and copies thereof may be held by Lessee), and the Lessee shall deliver
to the Lessor recited bills from the insurance companies insuring the same and
showing payment of the premium therefor within 30 days after each of said
policies takes effect, and if the Lessee shall fail or neglect to procure and
maintain such insurance or to deliver any such original policy or any such
received bills, the Lessor may, at the Lessor's option, procure and maintain
such insurance and pay the premium or premiums therefor, and the sum or sums so
paid by the Lessor, at the Lessor's option, shall be deemed Additional Rent and
added to the next or any subsequent installment of rent becoming due hereunder
and the Lessor shall, at the Lessor's option, has the same remedies for the
nonpayment therefor as for the nonpayment of the rent reserved herein.
4
<PAGE> 5
Section 3.04 Multiple Lessee Billings. Rules and Regulations.
Lessee shall comply with Lessor's reasonable rules and regulations respecting
the management, care and safety of the common areas of such buildings and
grounds, including parking areas, landscaped areas, walkways and other
facilities provided for the common use and convenience of other occupants.
Notice of such rules and regulations will be posted or given to Lessee, and may
be amended from time to time at Lessor's discretion. Except as set forth
herein, there are no rules and regulations promulgated by the Lessor prior to
the commencement of the Lease Term.
Section 3.05 Late Charges. Lessee's failure to pay rent promptly
may cause Lessor to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include,
but are not limited to, processing and accounting charges and late charges
which may be imposed on Lessor by any ground lease, mortgage or trust deed
encumbering the Property. Therefore, if Lessor does not receive any rent
payment within ten (10) days after it becomes due, Lessee shall pay Lessor a
late charge equal to five percent (5%) of the overdue amount. The parties
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of such late payment.
Section 3.06 Returned Checks. All check returned by the bank and
not paid as shown on its face will be subject to a 5% penalty as provided for
by Florida law. Such charge shall be billed as Additional Rent and shall be
due with the next rent payment.
ARTICLE FOUR: USE OF PROPERTY
Section 4.01 Permitted Uses. Lessee may use the Leased Premises
only for the Permitted Uses se forth in Section 1.06 above.
Section 4.02 Manner of Use: Lessee shall not cause or permit
the Leased Premises to be used in any way which constitutes a violation of any
law, ordinance, or governmental regulation or order, which annoys or
interferes with the rights of Lessees or the development of which the Property
is part, of which constitutes a nuisance or waste.
Section 4.03 Signs and Sheriff's Sales. Lessee shall not place
any signs on the Property without Lessor's prior written consent. Lessee is
entitled to signage based on percentage of space occupied. Lessee will occupy
50% of Property, therefore entitled to 50% of allowable signage space in
accordance with city/county regulations. Lessee shall not conduct or permit
any Sheriff's Sales at the Property.
Section 4.04 Indemnity. Lessee shall indemnify Lessor against and
hold Lessor harmless from any and all costs, claims, or liability arising from:
(a) Lessee's use of the Property; (b) the conduct of Lessee's business at the
Leased Premises; (c) any breach or default in the performance of Lessee's
obligations under this Sublease; (d) any material misrepresentation or breach
of warranty by Lessee under this Sublease; or (e) other acts or omissions of
Lessee. Lessee shall defend Lessor against any such cost, claim or liability
at Lessee's expense with counsel reasonably acceptable to Lessor or, Lessor's
election Lessee shall reimburse Lessor for any legal fees or costs incurred by
Lessor in connection with any such claim. As a material part of the
consideration to Lessor, Lessee hereby assumes all risk of damage to the Leased
Premises
5
<PAGE> 6
or injury to persons in or about the Leased Premises arising from any cause,
and Lessee hereby waives all claims in respect thereof against Lessor, except
for any claim arising out of Lessor's gross negligence or willful misconduct.
Section 4.05 Lessor's Access. Lessor or its agents may enter the
Property at all reasonable time to show the Leased Premises to potential
buyers, investors of Lessees or other parties, or for maintenance of any other
purpose Lessor deems necessary. Lessor shall give Lessee prior notice of such
entry, except in the case of any emergency. Lessor may place customary "For
Sale" or "For Lease" signs on the Property.
Section 4.06 Quiet Possession. If Lessee pay the rent and
complies with all other terms of this Lease, Lessee may occupy and enjoy the
Property for the full Lease Term, subject to and provisions of this Lease.
ARTICLE FIVE: CONDITION OF PROPERTY;
MAINTENANCE, REPAIRS AND ALTERATIONS
Section 5.01 Existing Conditions. Except as set forth in any
rider requiring Lessor to perform work on the Leased Premises prior to the
Commencement Date, Lessee accepts the Leased Premises in its condition as of
the execution of the Sublease, subject to all recorded matters, laws,
ordinances, and governmental regulations and orders. Lessee acknowledges that
neither Lessor nor any agent of Lessor has made any representation as to the
condition of the Leased Premises and the suitability of the Leased Premises for
Lessee's intended use except as expressly set forth herein. Lessor has no
knowledge of any fact or circumstance that would preclude Lessee from operating
its business for the intended use in the Leased Premises.
The Lessor covenants not to conduct any activity, or permit any
activity or circumstance to occur on the Property that would prevent Lessee
from operating its business in the Leased Premises. In the event of any breach
of this covenant, Lessee may elect to terminate this Sublease upon written
notice to Lessor. The termination shall be effective the date of Lessor's
receipt of the notice and Rent shall be prorated to the termination date.
Section 5.02 Repairs by Lessee. Lessee covenants and agrees that
it will keep, at its expense, the interior of said Leased Premises and all
fixtures herein and the interior walls, ceilings, plumbing pipes, plate glass,
floors and heating equipment in good substantial order and repair damages by
depreciation, fire or the elements excepted.
Section 5.03 Repairs by Lessor. The Lessor, at the expense of
Lessor, will keep the air conditioner, roof, exterior and foundation of the
building in good and serviceable condition and repair; provided, however, that
if the roof of said Building premises shall become in need of repair, it shall
be the duty of the Lessee to notify the Lessor in writing of such needed
repair. The Lessor shall not be liable to the Lessee for any damage that may
be sustained on account of the roof not being in good repair, unless notice has
been received by the Lessor from the Lessee of the necessity for repairing the
roof and the Lessor shall have had a reasonable time after such notice is
received in which to make such repairs.
6
<PAGE> 7
Section 5.04 Exemption of Lessor from Liability. Except as set
forth in Section 5.03, Lessor shall not be liable for any damage or injury to
the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Lessee, Lessee's employees, invitees,
customers or any other person in or about the Property, whether such damage or
injury is caused or results from: (a) fire, steam, electricity, water, gas or
rain; (b) the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
or any other cause; (c) conditions arising in or about the Property or upon
other portions of any building of which the Property is a part, or from other
sources or places; or (d) any act or omission of any other Lessee of any
building of which the Property is a part. Lessor shall not be liable for any
such damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to the Lessee. The provisions of this
Section 5.04 shall not, however, exempt Lessor from liability for Lessor's
gross negligence or willful misconduct.
Section 5.05 Toxic Substances. Lessee shall not engage in any
activities which cause damage to the Leased Premises or otherwise utilize toxic
substances or dangerous chemicals which might be harmful either to the Leased
Premises or to licensees or invitees upon said premises.
Section 5.06 Hazardous Materials. Lessee shall not use any
portion or all of the Leased Premises for the use, generation, treatment,
storage or disposal of "oil", "hazardous materials", "hazardous water", or
"hazardous substances" (collectively, "The Materials") as such terms are
defined under the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S. Section 9601 et seq., as amended, and the regulations
promulgated thereunder and all applicable federal, state and local laws, rules,
and regulations, without the express prior written consent of Lessor, and then
only to the extent that the presence of the Materials is (i) properly licensed
and approved by all appropriate governmental officials and in accordance with
all applicable laws and regulations and (ii) in compliance with any terms and
conditions stated in said prior written approval by the Lessor. Lessee shall
indemnify and hold harmless Lessor from settlements, damages, costs or expenses
of any kind or nature, known or unknown, contingent or otherwise (including,
without limitation, accountants' and attorneys' fees, consultant fees,
investigation and laboratory fees, court costs, and litigation expenses, at
trial and all applicable levels), arising out of, or in any way related to a
violation of the foregoing. This Section 5.06 shall survive the cancellation,
expiration or termination of this Sublease.
Section 5.07 Radon Gas. Radon is a naturally occurring
radioactive gas that, when it has accumulated in a building in sufficient
quantities, any present health risks to persons who are exposed to it over
time. Levels of radon that exceed federal and state guidelines have been found
in buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your county public health unit.
Section 5.08 Appearance. Lessee shall not permit trash, debris,
rubbish or merchandise related to Lessee's business to accumulate on the
exterior of the Property, including the parking areas. In the event it is
necessary to receive deliveries of merchandise, the Lessee shall make
7
<PAGE> 8
provisions for the storage of such merchandise within a reasonable period of
time. There shall not be outside storage except as provided herein.
Section 5.09 Alterations, Additions and Improvements.
(a) Lessee shall not make any alterations, additions, or
improvements to the Leased Premises without Lessor's prior written consent.
Lessor's consent to alterations shall not be unreasonably withheld or delayed.
If possible, at the time the alterations are approved, the Lessor shall inform
the Lessee of those alterations that will be required to be removed at the end
of the Lease Term. Lessee shall promptly remove any alterations, additions or
improvements constructed in violation of this Section 5.09(a) upon Lessor's
written request. All alterations, additions and improvements will be
accomplished in a good workmanlike manner, in conformity with all applicable
laws and regulations, and by a contractor approved by Lessor. Upon completion
of any such work, Lessee shall provide Lessor with "as built" plans, copies of
all construction contracts, and proof of payment for all labor and materials.
(b) Lessee shall pay when due all claims for labor and
materials furnished to the Leased Premises. Lessee shall give Lessor at least
ten (10) days prior written notice of the commencement of any work on the
Leased Premises. Lessor may elect to record and post notices of
non-responsibility on the Leased Premises.
In connection with any alterations, additions or improvements
to the Leased Premises, Lessee shall notify any and all contractors involved in
any construction upon the Leased Premises that this lease expressly provides
that the interest of Lessor shall not be subject to liens or improvements made
by Lessee. Lessee agrees to execute a memorandum of this Lease which shall
refer to the provisions of Section 713.10, Fla. Stat. (1995) which, when
recorded, will notify Lessee's contractors that Lessor's interest in the Leased
Premises shall not be subject to liens for any improvements made by Lessee.
Nevertheless, should any lien be filed against the Leased Premises by any
contractor, subcontractor, materialman or other person involved in any
construction upon the Leased Premises, Lessee may contest said lien, however,
Lessee shall promptly remove such lien, by bonding or otherwise, within fifteen
(15) days after receipt of written demand therefor from Lessor or when Lessee
first learns of the filing of such lien, whichever occurs first. Failure of
Lessee to comply with the provisions of this paragraph shall be an event of
default under this Lease entitling Lessor to avail itself of the remedies
provided for in Article Nine below.
Section 5.10 Condition Upon Termination. Upon the termination of
the Lease, Lessee shall surrender the Leased Premises to Lessor, broom clean
and in the same condition as received except for ordinary wear and tear which
Lessee was not otherwise obligated to remedy under any provision of this Lease.
However, Lessee shall not be obligated to repair any damage which Lessor is
required to repair under Article Six (Damage or Destruction) or Section 5.03.
In addition, Lessor may require Lessee to remove any alterations, additions or
improvements (whether or not made with Lessor's consent) prior to the
termination of the Lease and to restore the Property to it's prior condition,
all at Lessee's Expense. All alterations additions and improvements which
Lessor has not required Lessee to remove shall become Lessor's property
8
<PAGE> 9
and shall be surrendered to Lessor upon the termination of the Lease, except
that Lessee may remove any of the Lessee's machinery or equipment which can be
removed without material damage to the Property. Lessee shall repair, at
Lessee's expense, any damage to the Property caused by the removal of any such
machinery or equipment. In no event, however, shall Lessee remove any of the
following materials or equipment without Lessor's prior written consent: any
power wiring or power panels; lighting or lighting fixtures; wall coverings; or
other similar building operating equipment and decorations.
ARTICLE SIX: DAMAGE OR DESTRUCTION
In case of damage by fire or other casualty to the building in which
the Leased Premises is located, if the damage is so extensive as to amount
practically to the total destruction of the Leased Premises or of the Building
or render the Leased Premises unusable for Lessee's business, the Lease shall
cease and the rent shall be apportioned to the time of the damage. In all
other cases where the Leased Premises is damaged by fire or other casualty, the
Lessor shall repair the damage with reasonable dispatch, and if the damage has
rendered the Leased Premises unleaseable, in whole or in part, there shall be
an apportionment of the rent until the damage has been repaired.
In determining what constitutes reasonable dispatch, consideration
shall be given to delays caused by strikes, adjustment of insurance, and other
causes beyond Lessor's control
ARTICLE SEVEN: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession whichever occurs first.
If more than fifty percent (50%) of the floor area of the building in which the
Property is located or which is located on the Property, is taken, either
Lessor or Lessee may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after the receipt of written notice of such taking (or in
the absence of such notice, within ten (10) days after the condemning authority
takes possession). If neither the Lessor nor Lessee terminates this Lease,
this Lease shall remain in effect as to the portion of the Property not taken,
except that the Base Rent shall be reduced in proportion to the reduction in
the floor area of the Property. Any Condemnation award or payment shall be
distributed in the following order: (a) first, to any ground lessor, mortgagee
or beneficiary under a deed of trust encumbering the Property, the amount of
its interest in the Property; (b) second, to Lessee, only the amount of any
award specifically designated for loss of or damage to Lessee's trade fixtures
or removable personal property; and (c) third, to the Lessor, the remainder of
such award, whether as compensation for reduction in the value of leasehold,
the taking of the fee or otherwise. If this Lease is not terminated, Lessor
shall repair any damage for which Lessee has been reimbursed by the condemning
authority. If the severance damages
9
<PAGE> 10
received by Lessor are not sufficient to pay for such repair, Lessor shall have
the right to either terminate this Lease or make such repair at Lessor's
expense.
ARTICLE EIGHT: ASSIGNMENT AND SUBLETTING
Section 8.01 Lessor's Consent Require: No portion of the Leased
Premises or of Lessee's interest in this Lease may be acquired by any other
person or entity, whether by assignment, mortgage, sublease, transfer,
operation of law, or act of Lessee, without Lessor's prior written consent,
except as provided in Section 8.02 below. Lessor shall grant or withhold its
consent as provided in Section 8.04 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of the Lease.
Section 8.02 Lessee Affiliate: Lessee may assign this Lease or
Sublease the Property, without Lessor's consent, to any corporation which
controls, is controlled by or is under common control with Lessee, or to any
corporation resulting from the merger or consolidation with Lessee ("Lessee's
Affiliate"). In such case, any Lessee's Affiliate shall assume in writing all
of Lessee's obligations under this Lease.
Section 8.03 No Release of Lessee: No transfer permitted by this
Article Eight whether with or without Lessor's consent, shall release Lessee or
change Lessee's primary liability to pay the rent and to perform all other
obligations of Lessee under this Lease. Lessor's acceptance of the rent from
any other person is not a waiver of any provision of this Article Eight.
Consent to one transfer is not a consent to any subsequent transfer. If
Lessee's transferee defaults under this Lease, Lessor may proceed directly
against Lessee without pursuing remedies against the Transferee. Lessor may
consent to subsequent assignments or modifications of this Lease by Lessee's
transferee, without notifying Lessee or obtaining its consent. Such action
shall not relieve Lessee's liability under this Lease.
Section 8.04 Lessor's Election: Lessee's request for consent to
any transfer described in Section 8.01 above shall be accompanied by a written
statement setting forth the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g. the term of and rent and security
deposit payable under an assignment or sublease), and any other information
Lessor deems relevant. Lessor shall have the right (a) to withhold consent, if
reasonable; (b) to grant consent; or (c) if the transfer is a sublease of the
Property or an assignment of this Lease, to terminate this Lease as to the
effective date of such sublease or assignment, in which case Lessor may elect
to enter into a direct lease with the proposed assignee of sub-Lessee.
Section 8.05 Sale of Property by Lessor: Nothing herein shall
prohibit the Lessor from selling or conveying fee title to the property
following the acquisition of the property by the Lessor pursuant to the
underlying lease with Joe A. Stapleton dated May 9, 1995.
10
<PAGE> 11
Section 8.06 No Merger: No merger shall result from Lessee's
sublease of the Property under this Article Eight, Lessee's surrender of this
Lease or the termination of this Lease in any other manner. In any such event,
Lessor may terminate any or all sub-tenancies or succeed to the interest of
Lessee as sub-Lessor thereunder.
ARTICLE NINE: DEFAULTS; REMEDIES
Section 9.01 Covenants and Conditions: Lessee's performance of
each of Lessee's obligations under this Lease is a condition as well as a
covenant. Lessee's right to continue in possession of the Property is
conditioned upon such performance. Time is of the essence in the performance
of all covenants and conditions.
Section 9.02 Defaults: Lessee shall be in material default under
this Lease:
(a) If Lessee abandons the Leased Premises and
discontinues paying rent or any other charge required to be paid, as and when
due;
(b) If Lessee fails to pay rent or any other
charge required to be paid by Lessee, as and when due; or
(c) If Lessee fails to perform any of Lessee's
non-monetary oblations under this Lease for a period of thirty (30) days
after written notice from Lessor; provided, however, that if more than
thirty (30) days are required to complete such performance, Lessee shall
not be in default if Lessee commences such performance within the thirty (30)
day period and thereafter diligently pursues it to completion. However, Lessor
shall not be required to give such notice if Lessee's failure to perform
constitutes a non-curable breach of this Lease. The notice required by this
Paragraph is intended to satisfy any and all notice requirements imposed by law
on Lessor and is not in addition to any such requirement.
(d) (i) If Lessee makes a general assignment
or general arrangement for the benefit of creditors; (ii) if a petition for
adjudication of bankruptcy or for reorganization rearrangement is filed by or
against Lessee and is not dismissed within sixty (60) days; (iii) if a trustee
or receiver is appointed to take possession of substantially all of Lessee's
assets located at the Property or of Lessee's interest in this Lease and
possession is not restored to Lessee within sixty (60) days; or (iv) if
substantially all of Lessee's assets located at the Property or of Lessee's
interest in this Lease is subjected to attachment, execution of other judicial
seizure which is not discharged within sixty (60) days.
Section 9.03 Remedies: On the occurrence of any material default
by Lessee, Lessor may, at any time thereafter, after applicable notice and cure
period, if any, with or without notice or demand and without limiting the
Lessor in the exercise of any right or remedy which Lessor may have:
(a) Terminate Lessee's right to possession of the
Leased Premises by any lawful means, in which case this Lease shall terminate
the Lessee shall immediately
11
<PAGE> 12
surrender possession of the Property to Lessor. In such event, Lessor shall be
entitled to recover from Lessee all damages incurred by Lessor by reason of
Lessee's default, including (i) the worth at the time of award of the unpaid
Base Rent. Additional Rent and other charges which had been earned at the time
of the termination; (ii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which would have
been earned after termination until the time of the award exceeds the amount of
such rental loss that Lessee proves could have been reasonably avoided; (iii)
worth at the time of the award of the amount by which unpaid Base Rent,
Additional Rent and other charges which would have been paid for the balance of
the term after the time of award exceeds the amount of such rental loss that
Lessee proves could have been reasonable avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
Lessee's failure to perform its obligations under the Lease or which in the
ordinary course of things would be likely to result therefrom, including, but
not limited to, any costs or expenses incurred by Lessor in maintaining or
preserving the Property after such default, the costs of recovering possession
of the Property, expenses of reletting, including necessary renovation or
alteration of the Property, Lessor's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable. As used
in sub-parts (i) and (ii) above, the "worth at the time of the award" is
computed by allowing interest on unpaid amounts at the rate of fifteen percent
(15%) per annum or such lesser amount as may then be the maximum lawful rate.
As used in sub-part (iii) above, the "worth at the time of the award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of Atlanta at the time of the award, plus one percent (1%). If Lessee
shall have abandoned the Property, Lessor shall have the option of (i) retaking
possession of the Property and recovering from Lessee the amount specified in
this Section 9.03(a), or (ii) proceeding under Section 9.03(b);
(b) Maintain Lessee's right to possession, in
which case this Lease shall continue in effect whether or not Lessee shall have
abandoned the Property. In such event, Lessor shall be entitled to enforce all
of Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter
available to Lessor under the laws or judicial decisions of the state in which
Property is located.
Section 9.04 Cumulative Remedies: Lessor's exercise of any right
or remedy shall not prevent it from exercising any other right or remedy.
12
<PAGE> 13
ARTICLE TEN: PROTECTION OF LENDERS
Section 10.1 Subordination: Lessee agrees that its interest in
the Property is subordinate to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on security thereof and any
renewals, modifications, solicitations, replacements or extensions thereof,
whenever made or recorded, even if made after the effective date of this lease.
However, Lessee's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Lessee pays the rent and performs all of
Lessee's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to the
lien of the ground lease, deed of trust or mortgage whether this Lease is dated
prior or subsequent to the date of said ground lease, deed of trust or mortgage
or the date of recording thereof.
Section 10.2 Attornment/Non-Disturbance: If Lessor's interest in
the Property is acquired by any ground lessor, beneficiary under a deed of
trust, mortgagee, or purchaser at a foreclosure sale, Lessee shall attorn to
the transferee of or successor to Lessor's interest in the Property and
recognize such transferee or successor as Lessor under this Lease, provided
such ground lessor, mortgagee, beneficiary or purchaser delivers to lessee an
agreement in form and substance customarily used by said ground lessor,
mortgagee, or beneficiary and reasonably acceptable to lessee, stating that in
the event of a foreclosure of the mortgage or termination of the ground lease,
lessee may remain in possession of the Leased Premises pursuant to the terms of
this Sublease, so long as Lessee performs its obligations hereunder.
Section 10.3 Signing of Documents: Lessee shall sign and deliver
any instrument or documents reasonably necessary or appropriate to memorialize
any such attornment, subordination, or non-disturbance rights granted herein.
Such subordination, attornment or non-disturbance documents may contain such
provisions as are customarily required by any ground lessor, beneficiary under
a deed of trust or mortgage.
Section 10.4 Estoppel Certificates:
(a) Upon Lessor's written request, Lessee shall
execute, acknowledge and deliver to Lessor a written statement certifying: (i)
that none of the terms or provisions of this Lease have been changed, (or if
they have been changed, stating how there have been changes); (ii) that this
Lease has not been canceled or terminated; (iii) the last date of payment of
the Base Rent and other charges and the time period covered by such payment;
(iv) that Lessor is not in default under the Lease (or, if Lessor is claimed to
be in default, stating why); and (v) such other matters as may be reasonably
required by Lessor of the holder of a mortgage, deed of trust or lien to which
the Property is or becomes subject. Lessee shall deliver such statement to
Lessor within ten (10) business days after Lessor's request. Any such
statement by Lessee may be given to Lessor to any prospective purchaser or
encumbrances of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement at true and correct.
(b) If Lessee does not deliver such statement to
Lessor within such ten (10) business day period, any prospective purchaser or
encumbrancer may conclusively presume
13
<PAGE> 14
and rely upon a written statement issued by Lessor certifying the information
described in Section 10.04(a) above. In such event, Lessee shall be estopped
from denying the truth of such facts.
Section 10.5 Lessee's Financial Condition: Within ten (10)
business days after written request from Lessor, Lessee shall deliver to Lessor
such financial statements as are reasonably required by Lessor to verify the
net worth of any assignee, sub-lessee, or guarantor of Lessee. In addition,
Lessee shall deliver to any lender designated by Lessor any financial
statements, within ten (10) business days, required by such lender to
facilitate the financing or refinancing of the Property. Lessee represents and
warrants to Lessor that each such financial statement is a true and accurate
statement as of the date of such Statement. Any assignee, sublessee, or
guarantee must be a permitted assignee or sublessee. All financial statements
shall be confidential and shall be used only for the purpose set forth herein.
ARTICLE ELEVEN: LEGAL COSTS
Section 11.1 Legal Proceedings: Non-prevailing party shall
reimburse prevailing party in connection with any breach or default under this
Sublease whether or not suit is commenced or judgment entered. Such costs
shall include legal fees and costs incurred for the negotiation of a
settlement, enforcement of rights or otherwise. Furthermore, if any action for
breach of or to enforce the provisions of this Sublease is commenced, the court
in such action shall be paid by non-prevailing party in such action. Lessee
shall also indemnify Lessor against and also hold Lessor harmless from all
costs, expenses, demands and liability incurred by Lessor if Lessor becomes or
is made a third party to any claim or action (a) instituted by Lessee, or by
any third party against Lessee, or against any person holding interest under or
using the Property by license of or agreement with Lessee; (b) for foreclosure
of any lien for labor or material furnished to or for Lessee or such other
person; (c) otherwise arising out of or resulting from any act or transaction
of Lessee or such other person; or (d) necessary to protect Lessor's interest
under this Lease in a bankruptcy proceeding, or other proceeding under Title 11
of the United States Code, as amended. Lessee shall defend Lessor against any
such claim or action at Lessee's expense with counsel reasonably acceptable to
Lessor or, at Lessor's election, Lessee shall reimburse Lessor for any legal
fees or costs incurred by Lessor in any such claim or action.
Section 11.2 Lessor's Consent: Lessee shall pay Lessor's
reasonable attorney fees incurred in connection with Lessee's request for
Lessor's consent under Section Eight (Assignment or Subletting), or in
connection with any other act which Lessee proposes to do and which requires
Lessor's consent.
ARTICLE TWELVE: MISCELLANEOUS PROVISIONS
Section 12.1 Non-Discrimination: Lessee promises, and it is a
condition to the continuation of this Lease, that there will be no
discrimination against, or segregation of, any
14
<PAGE> 15
person or group of persons on the basis of race, color, sex, creed, national
origin or ancestry in the leasing, subleasing, transferring, occupancy, tenure
or use of the Leased Premises or any portion thereof.
Section 12.2 Waiver of Subrogation: Lessor and Lessee each hereby
waive any and all rights of recovery against the other, or against the
officers, employees, agents or representatives of the other, for loss of or
damage to its property or the property of others under its control, if such
loss or damage is covered by any insurance policy in force (whether or not
described in this Lease) at the time of such loss or damage. Upon obtaining
the policies of insurance carrier or carriers of the foregoing mutual waiver or
subrogation.
Section 12.3 Lessor's Liability, Certain Duties:
(a) As used in this Lease, the Term "Lessor"
means only the current owner or owners of the fee title to the Property or the
leasehold estate under a ground lease of the Property at the time in question.
Each Lessor is obligated to perform the obligations of Lessor under this Lease
only during the time such Lessor owns such interest or title. Any Lessor who
transfers its interest is relieved of all liability with respect to the
obligations of Lessor under this Lease to be performed on or after the date of
transfer. However, each Lessor shall deliver to its transferee all funds
previously paid by Lessee if such funds have not yet been applied under the
terms of this Lease.
(b) Lessee shall give written notice of any
failure by Lessor to perform any of its obligations under this Lease to Lessor
and to any ground lessor, mortgagee or beneficiary under any deed of trust
encumbering the Property whose name and address have been furnished to Lessee
in writing. Lessor shall not be in default under this Lease unless Lessor (or
such ground lessor, mortgagee or beneficiary) fails to cure such
non-performance within thirty (30) days after receipt of Lessee's notice.
However, if such non-performance reasonably requites more than thirty (30) days
to cure, Lessor shall not be in default if such cure is commenced within such
thirty (30) day period and thereafter diligently pursued to completion.
(c) Upon the execution of this Lease, Lessee
shall deposit with Lessor a cash Security Deposit in the amount set forth in
Section 1.11 above. Lessor may apply all or part of the Security Deposit to
any unpaid rent or other charges due from Lessee or to cure any other defaults
of Lessee. If Lessor uses any part of the Security Deposit, Lessee shall
restore the Security Deposit to its full amount within ten (10) days after the
Lessor's written request. Lessee's failure to do so shall be a material
default under this Lease. No interest shall be paid on the Security Deposit.
Lessor shall not be required to keep the Security Deposit separate from its
other accounts and no trust relationship is created with respect to the
Security Deposit.
Section 12.4 Severability: A determination from a court of
competent jurisdiction that any provision of this Lease or any part thereof is
illegal or unenforceable shall not cancel or invalidate the remainder of such
provision of this Lease, which shall remain in full force and effect.
15
<PAGE> 16
Section 12.5 Interpretation: The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease are not
a part of the terms or provisions of this lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include each other. In any provision relating to the conduct, acts or
omissions of Lessee, the term "Lessee" shall include Lessee's agents,
employees, contractors, invitees, successors or others using the Property with
Lessee's express or implied permission.
Section 12.6 Incorporation of Prior Agreements; Modifications:
This Lease is the only agreement between the parties pertaining to the Lease of
the Property and no other agreements are effective. All amendments to this
Lease shall be in writing and signed by all parties. Any other attempted
amendments shall be void.
Section 12.7 Notices: All notices required or permitted under
this Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Lessee
shall be delivered to the address specified in Section 1.03 above, except that
upon taking possession of the Property, the Property shall be Lessee's address
for notice purposes. Notices to Lessor shall be delivered to the address
specified in Section 1.02 above. All notices shall be effective upon delivery
or attempted delivery in accordance with this Section 12.07. Either party may
change its notice address upon written notice to the other party.
Section 12.8 Waivers: All waivers must be in writing and signed
by the waiving party. Lessor's failure to enforce any provision of this Lease
or acceptance of rent shall not be a waiver and shall not prevent Lessor from
enforcing that provision or any other provision of this Lease in the future.
No statement on a payment check from Lessee or in a letter accompanying a
payment check shall be binding on Lessor. Lessor may without notice to Lessee,
negotiate such check without being bound to the conditions of such statement.
Section 12.9 No Recordation: Lessee shall not record this Lease
without prior written consent from Lessor. However, either Lessor or Lessee
may Require that a "Short Form" memorandum of this Lease executed by both
parties be recorded.
Section 12.10 Binding Effect; Choice of Law: This Lease binds any
party who legally acquires any rights or interest in this Lease from Lessor or
Lessee. However, Lessor shall have no obligation to Lessee's successor unless
the rights or interest of Lessee's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is
located shall govern this Lease.
Section 12.11 Corporate Authority; Partnership Authority: If
Lessee is a corporation, each person signing this Lease on behalf of Lessee
represents and warrants that he has full authority to do so and that this Lease
binds the Corporation. Within thirty (30) days after this Lease is signed,
Lessee shall deliver to Lessor a certified copy of a resolution of this Lease
or other
16
<PAGE> 17
evidence of Directors authorizing the execution of this Lease or other evidence
of such authority reasonably acceptable to Lessor. If Lessee is a partnership,
each person signing this Lease for Lessee represents and warrants that he is a
general partner of the partnership, and that this Lease binds the partnership
and all general partners of the partnership. Lessee shall give written notice
to Lessor of any general partners withdrawal or addition. Within thirty (30)
days after this Lease is signed, Lessee shall deliver to Lessor a copy of
Lessee's recorded statement of partnership or certificate of limited
partnership.
Section 12.12 Joint and Several Liability: All parties signing
this Lease as Lessee shall be jointly and severally liable for all obligations
of Lessee.
Section 12.13 Force Majeure: If Lessor or Lessee cannot perform
any of its obligations due to events beyond the parties' control, the time
provided for performing such obligations shall be extended by a period of time
equal to the duration of such events. Events beyond the parties' control
include, but are not limited to, acts of God, war, civil commotion, labor
disputes, strikes, fire, flood, or other casualty, shortages of labor or
material, government regulations or restriction and weather conditions.
Section 12.14 Execution of Lessee: This lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. The delivery of this Lease by
Lessor to Lessee shall not be deemed to be an offer and shall not be binding
upon either party until executed and delivered by both parties.
Section 12.15 Payments: All payments required under this Lease
must be paid by check drawn on a Florida bank.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
Lessor and Lessee have signed this Lease at the place and on the date specified
adjacent to their signatures below and have initialed all Riders which are
attached to of incorporated by reference in this Lease.
LESSOR:
/s/ William Jackson (SEAL)
------------------------------
William Jackson
/s/ Elizabeth Jackson (SEAL)
------------------------------
Elizabeth Jackson
LESSEE:
SECURITY ASSOCIATES INTERNATIONAL,
INC., a Delaware corporation
By: /s/ James S. Brannen
---------------------------------
17
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is executed this 7th day
of February, 1997, by and between 1471 Building Corporation, a Florida
corporation, successor in interest to William Jackson and Elizabeth Jackson,
and Security Associates International, Inc. ("Lessee").
WITNESSETH
WHEREAS, William Jackson and Elizabeth Jackson, as lessor, entered into a
Sublease Agreement with Security Associates International, Inc., as lessee,
dated December 29, 1996 ("Sublease") for the Leased Premises located on the
second floor of a two-story building located at 1471 S.W. 12th Avenue, Pompano
Beach, Florida (capitalized terms used and not otherwise defined herein shall
have the same meaning as in the Sublease). A true and correct copy of the
Sublease is attached hereto as Exhibit A and incorporated herein; and
WHEREAS, William Jackson and Elizabeth Jackson have assigned their
interest in the Sublease to 1471 Building Corporation, a Florida corporation
("Lessor"); and
WHEREAS, Lessor has acquired fee title to the Property; and
WHEREAS, pursuant to Sections 1.10 and 1.05 of the Sublease, Lessor and
Lessee agreed that upon Lessor's acquisition of the Property, the Sublease
would be converted into a Lease subject to the terms and conditions of the
Sublease, and the Lease Term would be extended until December 31, 2001; and
WHEREAS, Lessor and Lessee desire to ratify the conversion of the Sublease
to a Lease and to amend certain terms thereof.
NOW, THEREFORE, in consideration of the rents herein reserved and of the
covenants and agreements herein contained and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Substitution and Deletions. Certain terms and Sections of the Sublease
are hereby amended as follows:
a. All references to the "Sublease" are deleted and replaced with the
term "Lease".
b. Section 1.10 is deleted.
c. The last two sentences of Section 9.02(c) are deleted.
d. The last sentence of Section 10.03 is deleted.
<PAGE> 2
2. Utilities/Services. During the Lease Term, Lessor shall provide the
following utilities and services:
a. air conditioning and heating when necessary to provide a temperature
condition required, in Lessor's reasonable judgment and in keeping with the
standards of similar class buildings in Pompano Beach, Florida, for comfortable
occupancy of the Leased Premises under normal business operations, twenty-four
hours per day, seven days per week, including holidays.
b. water in common with other leases for drinking, lavatory and toilet
purposes drawn through fixtures in the Leased Premises.
c. passenger elevator service on a 24-hour basis.
d. separately-metered electricity by means of standard receptacles and
lighting fixtures on the Leased Premises, for equipment and accessories normal
to Lessee's intended use of the Leased Premises.
e. refuse disposal, janitorial service and customary cleaning for the
Building, exterior lighting for the Building and parking lot, and landscape
maintenance of the Real Property, consistent with past practice.
Lessor shall exercise its best efforts to diligently pursue any work
necessary to restore any service or utility which has been stopped or
interrupted and shall schedule any repairs or improvements so as to minimize
inconvenience to Lessee's use and occupancy of the Leased Premises. If
services are interrupted for a period of two (2) consecutive business days,
Rent (including Base Rent and Additional Rent) shall abate thereafter until
such services resume.
3. Terms. Except as expressly modified herein, the terms of the Sublease
shall remain in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this First Amendment
on the date and year first above written.
LESSOR:
1471 Building Corporation,
a Florida corporation
By: /s/ William Jackson
--------------------
Its President
--------------------
2
<PAGE> 3
LESSEE:
Security Associates International, Inc.
By: /s/ James S. Brannen
---------------------
Its President
---------------------
3
<PAGE> 1
EXHIBIT 10.21
SUBORDINATED LOAN AGREEMENT
This SUBORDINATED LOAN AGREEMENT, dated as of December 31, 1996, is between
SECURITY ASSOCIATES INTERNATIONAL, INC., a Delaware corporation ("SAI") and TJS
PARTNERS, L.P., a New York limited partnership ("TJS" or "Lender") (all other
capitalized terms used herein are defined in Section 1.1 below).
R E C I T A L S:
A. Borrower desires to borrow up to a maximum of $5,000,000 in principal from
TJS for the purpose of consummating Funded Acquisitions.
B. TJS has agreed to make the Loan upon the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS AND DETERMINATIONS
1.1 Definitions. As used in this Loan Agreement, unless otherwise expressly
indicated herein or therein, the following terms shall have the following
meanings (such meanings to be applicable equally to both the singular and
plural forms of the terms defined):
Accountants: Arthur Andersen, L.L.P. or any other independent certified public
accounting firm selected by Borrower and reasonably satisfactory to Lender.
Acquisition: the acquisition by Borrower or any Permitted Subsidiary of (i)
Security Monitoring Contracts or (ii) a Central Station Business by Borrower
or any Permitted Subsidiary, or a loan by Borrower to a Dealer secured by
Security Monitoring Contracts.
Acquisition Closing: the consummation of a Funded Acquisition.
Acquisition Instruments: the purchase agreement or loan agreement, as
appropriate, and all other documents executed in connection with a Funded
Acquisition.
ADA: the Americans with Disabilities Act of 1990, as amended, any successor
statute thereto, and the rules and regulations issued thereunder, as in effect
from time to time.
Advance: a disbursement of the Future Portion.
<PAGE> 2
Affiliate: any Person that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
another Person. The term "control" means possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or equity interests,
by contract or otherwise. For the purposes hereof, any Person which owns or
controls, directly or indirectly, 10% or more of the securities or equity
interests, as applicable, whether voting or non-voting, of any other Person
shall be deemed to "control" such Person.
Alarm Licenses: a license or licenses issued by a state licensing
authority that authorize a Person to provide remote security monitoring
services to consumers and/or businesses within such state.
ASMS: All-Security Monitoring Services, L.L.C., an Illinois limited
liability company.
AMJ: AMJ Central Station Corporation, Inc., a Delaware corporation.
Bankruptcy Code: the United States Bankruptcy Code and any successor
statute thereto, and the rules and regulations issued thereunder, as in effect
from time to time.
Borrower: SAI.
Borrower's Obligations: any and all Indebtedness due or to become the,
now existing or hereafter arising under this Loan Agreement and the Note, of
Borrower to TJS.
Borrower's Security Monitoring Business: Collectively, the Security
Monitoring Business of the Obligors.
Brannen: James S. Brannen.
Business Day: any day other than a Saturday, Sunday or other day on which banks
in Chicago, Illinois or New York, New York are required to close.
Business Insurance: such property, casualty, business interruption and other
insurance, other than Key Man Life Insurance as is required pursuant to the
Senior Indebtedness due to FINOVA.
Capital Stock: collectively, all of the issued and outstanding capital
stock, warrants, options and other equity interests of the Obligors..
Capitalized Lease: any lease of Property, the obligations for the rental
of which are required to be capitalized in accordance with GAAP.
Central Station Business: the business of owning and operating a central
monitoring station, including but not limited to, contracts between Dealers and
SACC, ASMS, AMJ or a Permitted Subsidiary.
<PAGE> 3
Central Station Contracts: contracts with Dealers to provide monitoring
services to the customers of the Dealers.
Chief Financial Officer: the chief financial officer of Borrower, who shall be
a duly elected officer of Borrower.
Code: the Internal Revenue Code of 1986, as amended, and any successor
statute thereto, and the rules and regulations issued thereunder, as in
effect from time to time.
Davis: Ronald Davis.
Dealer: any Person whose primary business is the installation or servicing of
alarm equipment and the sale of monitoring services.
Dealer Holdback Debt: any Indebtedness for Borrowed Money owed by any Obligor
to Dealers in connection with the purchase of Security Monitoring Contracts.
Debt Service: during any period, all payments of principal, interest,
premium, fees and other charges with respect to Indebtedness for Borrowed
Money, which payments are required or permitted to be made pursuant to this
Loan Agreement and are due and payable during such period.
Default Rate: a per annum rate equal to 18% per annum.
Default Rate Period: a period of time commencing on the date that an Event of
Default has occurred and ending on the date that such Event of Default is cured
or waived.
Effective Date: December 31, 1996.
Employee Benefit Plan: any employee benefit plan within the meaning of
Section 3(3) of ERISA which (i) is maintained for employees of Borrower or
any ERISA Affiliate or (ii) has at any time within the preceding six years been
maintained for the employees of Borrower or any current or former ERISA
Affiliate.
Environmental Laws: any and all federal, state and local laws that relate to
or impose liability or standards of conduct concerning public or occupational
health and safety or protection of the environment, as now or hereafter in
effect and as have been or hereafter may be amended or reauthorized, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C Section 9601 et seq.), the Hazardous Materials
Transportation Act (42 U.S.C. Section 1802 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Toxic Substances Control Act
(15 U.S.C. Section 2601 et seq.), the Clean Air Act (42 U.S.C. Section 7901 et
seq.), the National Environmental Policy Act (42 U.S.C. Section 4231, et seq.),
the Refuse Act (33 U.S.C. Section 407, et seq.), the Safe Drinking Water Act
(42 U.S.C. Section 300(f) et seq.), the Occupational Safety and Health Act
(29 U.S.C. Section 651 et seq.), and all rules, regulations, codes, ordinances
and
<PAGE> 4
guidance documents promulgated or published thereunder, and the
provisions of any licenses, permits, orders and decrees issued pursuant to any
of the foregoing.
ERISA: the Employee Retirement Income Security Act of 1974, as amended, any
successor statute thereto, and the rules and regulations issued thereunder, as
in effect from time to time.
ERISA Affiliate: any Person who is a member of a group which is under common
control with any Borrower, who together with any Borrower is treated as a
single employer within the meaning of Section 414(b), (c) and (m) of the Code.
Event of Default: any of the Events of Default set forth in Section 8.1.
FINOVA: FINOVA Capital Corporation, a Delaware corporation, in its individual
capacity and as agent for all lenders.
FINOVA LOAN AGREEMENT: The loan agreement dated as of December 31, 1996 among
SAI, SACC, MSG, ASMS, AMJ and FINOVA , as the same may be amended, restated,
supplemented or otherwise modified from time to time.
Funded Acquisition: an Acquisition that is funded, in whole or in part, with
an Advance.
Funding Date: the date of the disbursement of an Advance.
Future Portion: a portion of the Loan in a principal amount not to exceed
$5,000,000 less the then Principal Balance.
Future Portion Closing: the disbursement of any portion of the Future Portion.
Future Portion Closing Date: the date of any Future Portion Closing.
GAAP: generally accepted accounting principles as in effect from time to time,
which shall include but shall not be limited to the official interpretations
thereof by the Financial Accounting Standards Board or any successor thereto.
Good Funds: United States Dollars available in Federal funds to TJS at or
before 2:00 p.m., New York time, on a Business Day.
Governmental Body: any foreign, federal, state, municipal or other
government or any department, commission, board, bureau, agency, public
authority or instrumentality thereof or any court or arbitrator.
Hazardous Materials: any hazardous, toxic, dangerous or other waste, substance
or material defined as such in, regulated by or for purposes of any
Environmental Law.
<PAGE> 5
Holding Companies: collectively, RMR Management Corp., Winnetka Investors, Inc.
and MCAP Investors, Inc., each a Delaware corporation.
Incipient Default: any event or condition which, with the giving of notice or
the lapse of time, or both, would become an Event of Default.
Indebtedness: all liabilities, obligations and reserves, contingent or
otherwise, which, in accordance with GAAP, would be reflected as a liability on
a balance sheet or would be required to be disclosed in a financial statement,
including, without duplication: (i) Indebtedness for Borrowed Money, (ii)
obligations secured by any Lien upon Property, (iii) guaranties, letters of
credit and other contingent obligations and (iv) liabilities in respect of
unfunded vested benefits under any Pension Plan or in respect of withdrawal
liabilities incurred under ERISA by Borrower or any ERISA Affiliate to any
Multiemployer Plan.
Indebtedness for Borrowed Money: without duplication, all Indebtedness (i) in
respect of money borrowed, (ii) evidenced by a note, debenture or other
like written obligation to pay money (including, without limitation, all of
Borrowers' Obligations and Permitted Senior Indebtedness), (iii) in respect of
rent or hire of Property under Capitalized Leases or for the deferred purchase
price of Property, (iv) in respect of obligations under conditional sales or
other title retention agreements and (v) all guaranties of any or all of the
foregoing.
Initial Portion: a portion of the Loan in the amounts of $500,000.00 and
$4,200,000 previously disbursed on November 1, 1996 and to be disbursed on
January 2, 1997, respectively.
Key Man Life Insurance: the life insurance on the lives of Brannen and Davis
required pursuant to subsection 5.11.1.
Leases: the leases of real property described in Exhibit 4.4.2.
Leasehold Property: any real estate which is the subject of a Lease under
which any Obligor is the lessee.
Lender: TJS.
Lien: any mortgage, pledge, assignment, lien, charge, encumbrance or security
interest of any kind, or the interest of a vendor or lessor under any
conditional sale agreement, Capitalized Lease or other title retention
agreement.
Loan: the loan to be made by Lender to Borrowers in the maximum principal
amount of $5,000,000, subject to the terms and conditions of this Loan
Agreement.
Loan Agreement: this Subordinated Loan Agreement.
Loan Assignment: the assignment by a Lender of (i) any portion of Lender's
interest in Borrowers Obligations and (ii) any of Lender's other rights under
any of the Loan Instruments.
<PAGE> 6
Loan Instruments:
(i) Loan Agreement;
(ii) Note; and
(iii) other instruments and documents as Lender reasonably may require in
connection with the transactions contemplated by this Loan Agreement.
Loan Year: a period of time ending on December 31 of each year commencing with
December 31, 1997.
Material Adverse Effect: (i) a material adverse effect upon the business,
operations, Property or financial condition of Borrower or (ii) a material
impairment of the ability of any Obligor to perform its obligations under any
Loan Instrument.
MSG: means Monitor Service Group, L.L.C. a Delaware limited liability company.
Multiemployer Plan: any multiemployer plan as defined pursuant to Section
3(37) of ERISA to which Borrower or any ERISA Affiliate makes, or accrues an
obligation to make contributions, or has made, or been obligated to make,
contributions within the preceding six years.
Non-Funded Acquisition: an Acquisition which is not funded with an Advance.
Note: a promissory note in form and substance satisfactory to TJS in the
principal amount of $5,000,000 executed and delivered by Borrower to TJS to
evidence the Loan, subordinated to the Permitted Senior Indebtedness pursuant
to the Subordination Agreement.
Obligor: any of the Obligors.
Obligors: collectively, Borrower, the Permitted Subsidiaries and the Holding
Companies.
Operating Lease: any lease which, under GAAP, is not required to be
capitalized.
Parties: collectively, TJS and the Borrower.
PBGC: the Pension Benefit Guaranty Corporation or any Governmental Body
succeeding to the functions thereof.
Pension Plan: any Employee Benefit Plan, other than a Multiemployer Plan,
which is subject to the provisions of Part 3 of Title I of ERISA, Title IV of
ERISA, or Section 412 of the Code and which (i) is maintained for employees of
Borrower or any ERISA Affiliate, or (ii) has at any time
<PAGE> 7
within the preceding six years been maintained for the employees of Borrower or
any of its current or former ERISA Affiliates.
Permitted Liens: any of the following Liens:
(i) the Permitted Senior Indebtedness Liens;
(ii) Liens for taxes or assessments and similar charges, which either are (A)
not delinquent or (B) being contested diligently and in good faith by
appropriate proceedings, and as to which the applicable Obligor has set aside
reserves on its books which are satisfactory to Lender;
(iii) statutory Liens, such as mechanic's, materialman's,
warehouseman's, carrier's or other like Liens, incurred in good faith in the
ordinary course of business, provided that the underlying obligations relating
to such Liens are paid in the ordinary course of business, or are being
contested diligently and in good faith by appropriate proceedings and as to
which the applicable Obligor has set aside reserves on its books satisfactory
to Lender, or the payment of which obligations are otherwise secured in a
manner reasonably satisfactory to Lender;
(iv) zoning ordinances, easements, licenses, reservations, provisions,
covenants, conditions, waivers or restrictions on the use of Property and
other title exceptions, in each case, that are reasonably acceptable to
Lender;
(v) Liens in respect of judgments or awards with respect to which no Event of
Default would exist pursuant to subsection 8.1.6; and
(vi) Liens to secure payment of insurance premiums (A) to be paid in accordance
with applicable laws in the ordinary course of business relating to
payment of worker's compensation, or (B) that are required for the
participation in any fund in connection with worker's compensation,
unemployment insurance, old-age pensions or other social security programs.
Permitted Prior Liens: any of the following Liens:
(i) the Permitted Senior Indebtedness Liens;
(ii) the Permitted Liens described in clauses (ii) and (iii) of the definition
of Permitted Liens; and
(iii) the Permitted Liens described in clauses (iv) and (vi) of the
definition of Permitted Liens, subject to the limitations set forth therein.
Permitted Senior Indebtedness: Indebtedness, other than Borrower's
Obligations, incurred by any Obligor (A) from FINOVA pursuant to the FINOVA
Loan Agreement, and any amendments, extensions or substitutions therefor, or
(B) to purchase tangible personal property
<PAGE> 8
or Indebtedness incurred to lease tangible personal property pursuant to
Capitalized Leases, the purchase price of which shall not exceed the fair
market value of such property.
Permitted Senior Indebtedness Liens: Liens that secure Permitted Senior
Indebtedness.
Permitted Subsidiaries: any wholly owned subsidiary of any of SAI, ASMS,
AMJ or SACC.
Person: any individual, firm, corporation, limited liability company,
business enterprise, trust, association, joint venture, partnership,
Governmental Body or other entity, whether acting in an individual, fiduciary
or other capacity.
Principal Balance: the unpaid principal balance of the Loan or any specified
portion thereof outstanding from time to time.
Property: all types of real, personal or mixed property and all types of
tangible or intangible property.
Qualified Depository: a member bank of the Federal Reserve System having a
combined capital and surplus of at least $100,000,000.
RMR: the amount payable on Security Monitoring Contracts or Central Station
Contracts per month by an account debtor.
Rubin: Steven Rubin.
SAI: has the meaning assigned to that term in the Preamble to this Loan
Agreement.
Securities Act: the Securities Act of 1933, as amended, and the rules and
regulations of the Securities and Exchange Commission promulgated
thereunder, as in effect from time to time.
Security Monitoring Business: the business of providing remote security
monitoring services and operating Central Station Businesses
Security Monitoring Contracts: any contract between a Borrower and a retail
customer involving the provision of remote security monitoring services to such
customer.
Senior Indebtedness Due FINOVA: all of Borrowers' Obligations as defined in
the FINOVA Loan Agreement.
Subordination Agreement: that certain TJS Subordination Agreement No. 1 among
Borrower, Lender and FINOVA dated as of December 31, 1996, attached hereto as
Exhibit 7.1, as the same may be amended, restated, supplemented or otherwise
modified pursuant to the terms thereof.
<PAGE> 9
Termination Event: (i) a "Reportable Event" described in Section 4043 of
ERISA and the regulations issued thereunder; or (ii) the withdrawal of Borrower
or any ERISA Affiliate from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001 (a) (2); or (iii) the
termination of a Pension Plan, the filing of a notice of intent to terminate a
Pension Plan or the treatment of a Pension Plan amendment as a termination
under Section 4041 of ERISA; or (iv) the institution of proceedings to
terminate, or the appointment of a trustee with respect to, any Pension Plan by
the PBGC; or (v) any other event or condition which would constitute grounds
under Section 4042 (a) of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan; or (vi) the partial or complete
withdrawal of Borrower or any ERISA Affiliate from a Multiemployer Plan; or
(vii) the imposition of a lien pursuant to Section 412 of the Code or Section
302 of ERISA; or (viii) any event or condition which results in the
reorganization or insolvency of a Multiemployer Plan under Sections 4241 or
4245 of ERISA; or (ix) any event or condition which results in the termination
of a Multiemployer Plan under Section 4041A of ERISA or the institution by the
PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of
ERISA.
TJS Partners: TJS Partners, L.P., a New York limited partnership.
Total Debt: as of any applicable date, the sum of Borrowers Obligations and
Dealer Holdback Debt as of such date.
UL Certification: underwriters laboratories approval of a Central Station
Business.
1.2 Time Periods. In this Loan Agreement and the other Loan Instruments, in
the computation of periods of time from a specified date to a later specified
date, (i) the word "from" means "from and including," (ii) the words "to" and
"until" each mean "to, but excluding" and (iii) the words "through," "end of"
and "expiration" each mean "through and including." Unless otherwise specified,
all references in this Loan Agreement and the other Loan Instruments to (i) a
"month" shall be deemed to refer to a calendar month, (ii) a "quarter" shall be
deemed to refer to a calendar quarter and (iii) a "year" shall be deemed to
refer to a calendar year.
1.3 Accounting Terms and Determinations. All accounting terms not
specifically defined herein shall be construed, all accounting determinations
hereunder shall be made and all financial statements required to be delivered
pursuant hereto shall be prepared in accordance with GAAP as in effect at the
time of such interpretation, determination or preparation, as applicable. In
the event that any "Accounting Changes" (as hereinafter defined) occur and such
changes result in a change in the method of calculation of financial covenants,
standards or terms contained in this Loan Agreement then Borrower and Lender
agree to enter into negotiations to amend such provisions of this Loan
Agreement so as to reflect such Accounting Changes with the desired result that
the criteria for evaluating the financial condition of Borrowers shall be the
same after such Accounting Changes as if such Accounting Changes had not been
made. For purposes hereof, "Accounting Changes" shall mean (i) changes in
generally accepted accounting principles required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants
<PAGE> 10
(or any successor thereto) or other appropriate authoritative body and (ii)
changes in accounting principles as approved by the Accountants.
1.4 References. All references contained in (i) this Loan Agreement to
"Article," "Section," "subsection," "subparagraph," "clause" or "Exhibit,"
unless otherwise indicated, shall be deemed to refer to an Article, Section,
subsection, subparagraph, clause or Exhibit, as applicable, of this Loan
Agreement, and (ii) to any Loan Instrument at any given time shall be to such
Loan Instrument as the same shall have been amended, supplemented, restated or
otherwise modified as of such time.
1.5 Lender's or Lender's Discretion. Whenever the terms "satisfactory to
Lender," "determined by Lender," "acceptable to Lender," "Lender shall elect,"
"Lender shall request," "at the option or election of Lender," or similar
terms are used in the Loan Instruments, except as otherwise specifically
provided therein, such terms shall mean satisfactory to, at the election or
option of, determined by, acceptable to or requested by Lender, as
applicable, in its sole and unlimited discretion.
1.6 Borrowers' Knowledge. Any statements, representations or warranties that
are based upon the best knowledge of Borrower or an officer or manager thereof
shall be deemed to have been made after due inquiry by Borrower or an officer
or manager, as applicable, with respect to the matter in question.
ARTICLE II
LOAN AND TERMS OF PAYMENT
2.1 Initial Portion.
2.1.1 Amount and Disbursement. The Parties acknowledge that the Initial
Portion was disbursed in the amounts of $500,000.00 on November 1, 1996 and
$4,200,000 to be disbursed on January 2, 1997, respectively. The initial
portion shall henceforth be subject to this Loan Agreement. Any notes
previously issued in connection with the initial portion shall be returned to
Borrower for cancellation and the Initial Portion shall upon such cancellation
be reflected in and subject to the Note.
2.2 Future Portion.
2.2.1 Amount and Disbursement. The Future Portion shall consist of Advances to
be made by Lender to Borrower up to the maximum principal amount of
$5,000,000.00 minus the Principal Balance outstanding from time to time during
the term of this Loan Agreement, provided that all of the terms and conditions
set forth in subsection 2.2.3 have been satisfied.
<PAGE> 11
2.2.2 Use of Proceeds. The proceeds of the Future Portion shall be used to
(i) consummate Funded Acquisitions, in whole or in part, and (ii) pay related
transaction costs.
2.2.3 Conditions Precedent to Advances. The obligation of Lender to make any
Advance shall be subject to the satisfaction of the following conditions:
(a) no Incipient Default or Event of Default exists or would be created by the
disbursement of such Advance;
(b) Lender shall have received a written request for an advance from Borrower
with respect to each such Advance no later than 12:00 p.m., Chicago time, at
least three (3) Business Days prior to the proposed Funding Date with respect
to such Advance, which Funding Date shall be on a Business Day;
(c) the Property being acquired and the terms and conditions of the
Acquisition to be consummated with such Advance must be approved by Lender; and
(d) on the applicable Funding Date the representations and warranties
set forth in the Loan Instruments shall be true and correct in all material
respects when made and at and as of the time of the Funding Date, except to the
extent that such representations and warranties expressly relate to an earlier
date.
2.3 Note and Reborrowing.
2.3.1 Note. The Loan shall be evidenced by the Note.
2.3.2 Reborrowing. Borrowers shall be entitled to reborrow any portion of the
Loan which is repaid or prepaid.
2.4 Interest.
2.4.1 Interest Rate. Except during a Default Rate Period as provided in
Section 2.7, the Principal Balance outstanding from time to time shall bear
interest at the rate of twelve percent (12%) per annum, simple interest.
Interest on the Initial Portion shall accrue from the date of each advance on
the principal balance thereof.
2.4.2 Interest Computation. Interest shall be computed on the basis of a year
consisting of 360 days and charged for the actual number of days during the
period for which interest is being charged. In computing interest, the
Principal Balance on the date of funding of an Advance shall include the amount
of the Advance and the Principal Balance on the date of payment of any amount
due hereunder shall exclude the amount paid.
2.5 Principal and Interest Payments.
<PAGE> 12
2.5.1 Interest. Interest on the Principal Balance shall be payable
semiannually in arrears on the first Business Day of each six month period
beginning with July 1, 1997, subject to the provisions of the Subordination
Agreement.
2.5.2 Principal. The Principal Balance shall be payable on December 31, 2002,
subject to the provisions of the Subordination Agreement.
2.6 Prepayments.
2.6.1 Voluntary Prepayment of Loan. Borrowers may at any time voluntarily
prepay in whole or in part the Principal Balance, without premium or penalty,
subject to the provisions of the Subordination Agreement Concurrently with any
prepayment of the Principal Balance pursuant to this subsection 2.6.1,
Borrowers shall pay to Lenders accrued and unpaid interest on the portion of
the Principal Balance which is being prepaid to the date on which Lender is in
receipt of Good Funds.
2.6.2 Mandatory Prepayment. In the event that Borrowers (and their
subsidiaries) collectively raise new equity through the sale of shares and/or
membership interests following the Effective Date, other than investments of
any of the Borrowers in any subsidiary of any Borrower, in a cumulative amount
in excess of Fifteen Million Dollars ($15,000,000.00), then, subject to the
provisions of the Subordination Agreement, all of Borrower's Obligations shall
become immediately due and payable.
2.7 Default Rate Period. During a Default Rate Period, (i) Borrowers'
Obligations shall bear interest at the Default Rate and (ii) all payments
received by Lender shall be applied in accordance with Section 8.4.
2.8 Method of Payment. Borrower shall remit all amounts due hereunder to
Lender in Good Funds, on the due date of such payment, for application to
Borrowers Obligations in the following order of priority: (i) first, to the
payment of all Borrowers Obligations then due and payable other than the
Principal Balance and accrued and unpaid interest thereon, and (ii) second, to
the payment of accrued and unpaid interest then due and payable on the
Principal Balance and (iii) if applicable, towards payment of the Principal
Balance. All payments to be made pursuant to the Loan Instruments by Borrower
to Lender shall be made by wire transfer of Good Funds to the account of TJS at
Chase Manhattan Bank, ABA # 021-000-021, credit the account of Ernst & Company,
Account No. 140-080-524, further credit the account of TJS Partners, L.P.,
Account No. 560-02626 or to such other account as Lender shall have given five
Business Days prior written notice to.
ARTICLE III
CONDITIONS OF FUNDING
<PAGE> 13
3.1 Acquisitions. The right of any Borrower to receive an Advance for the
purpose of making a Funded Acquisition shall be subject to the satisfaction of
all of the following conditions in a manner reasonably satisfactory to Lender:
3.1.1 Consummation of Acquisitions. Prior to or concurrently with each
Acquisition Closing, Lender shall have received evidence that (i) such
Acquisition is in accordance with the terms of such Funded Acquisition as set
forth in the applicable request for advance with such modifications as are
reasonably satisfactory to Lender, (ii) the Obligor consummating such
Acquisition shall have acquired, or will acquire concurrently with the
Acquisition Closing, good and marketable title or a first priority Lien, as
appropriate to all of the Property which is being purchased pursuant to such
Acquisition Instruments, free and clear of all Liens and Indebtedness, except
for the Dealer Holdback Debt and Permitted Senior Liens. In connection with
any such Funded Acquisition, Borrower shall deliver to Lender such instruments,
documents, certificates, consents, waivers and opinions as Lender may
reasonably require.
3.1.2 Financial Statements, Reports and Projections. Lender shall have
received such financial statements, reports and projections with respect to the
operation of the business which is the subject of the Acquisition as Lender
may reasonably require.
3.1.3 Acquisition of a Central Station Business. If the subject of the
Acquisition is a Central Station Business, SACC, ASMS, AMJ or a Permitted
Subsidiary are the only Persons permitted to consummate such Acquisition.
3.1.4 Acquisition of Security Monitoring Contracts. If the subject of the
Acquisition is Security Monitoring Contracts, SAI or MSG shall be the Borrower
making such Acquisition.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
4.1 Existence and Power. SAI, AMJ and each of the Holding Companies is a
corporation duly formed and validly existing under the laws of the State of
Delaware. SACC is a limited liability company duly formed and validly existing
under the laws of the State of Michigan. MSG is a limited liability company
duly formed and validly existing under the laws of the State of Delaware. ASMS
is a limited liability company duly formed and validly existing under the laws
of the State of Illinois. Each Obligor is in good standing and qualified to
transact business in each jurisdiction in which the failure so to qualify could
have a Material Adverse Effect. Each Obligor has all requisite power and
authority to own its Property and to carry on its business as now conducted and
as proposed to be conducted following the Effective Date.
4.2 Authority. Each Obligor has full power and authority to enter into,
execute, deliver and carry out the terms of the Instruments to which it is a
party and to incur the obligations provided
<PAGE> 14
for therein, all of which have been duly authorized by all proper and necessary
action and are not prohibited by the organizational instruments of any such
Obligor.
4.3 Binding Agreements. This Loan Agreement and the other Instruments, when
executed and delivered, will constitute the valid and legally binding
obligations of each Obligor to the extent such Obligor is a party thereto,
enforceable against such Obligor in accordance with their respective terms,
except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect affecting the enforcement of creditors' rights generally,
and (ii) equitable principles (whether or not any action to enforce such
document is brought at law or in equity).
4.4 Business and Property of Borrowers.
4.4.1 Business and Property. Each Obligor is the owner of all Property
and the holder of all UL Certifications, Alarm Licenses, Central Station
Contracts and Security Monitoring Contracts necessary to conduct Borrower's
Security Monitoring Business in the places where it is now conducted. All of
such UL Certifications, Alarm Licenses, Central Station Contracts and Security
Monitoring Contracts are in full force and effect and no invalidity, default
or breach exists thereunder.
4.4.2 Leases. There is set forth in Exhibit 4.4.2 a list of all leases of
real property under which any Obligor is the lessee, together with a complete
and accurate address and legal description of each such parcel of Leasehold
Property and the current landlord under each Lease. Each Lease is in full
force and effect, there has been no material default in the performance of any
of its terms or conditions by any party thereto, and no claim of default have
been asserted with respect thereto. To the best knowledge of Borrower, the
present and contemplated use of the Leasehold Property is in material
compliance with all applicable zoning ordinances and regulations and other laws
and regulations.
4.4.3 Real Estate. There is set forth in Exhibit 4.4.3 a complete and
accurate address and legal description of each parcel of real property owned by
any Obligor, together with the tax identification numbers applicable thereto.
To the best knowledge of Borrower, the present and contemplated use of the
real estate is in material compliance with all applicable zoning ordinances
and regulations and other laws and regulations.
4.4.4 Operation and Maintenance of Equipment. To the best knowledge of
Borrower, no Person owning or operating any equipment necessary for the
operation of Borrower's Security Monitoring Business has used, operated or
maintained the same in a manner which now or hereafter could result in the
cancellation or termination of the right of any Obligor to use or make use of
the same or which could result in any material liability of any Obligor for
damages in connection therewith. All of the equipment and other tangible
personal property owned by each Obligor on the Effective Date is, in all
material respects, good operating condition and repair (subject to normal wear
and tear) and has to the best knowledge of Borrower, been used, operated and
maintained in substantial compliance with all applicable laws, rules and
regulations.
<PAGE> 15
4.4.5 Title to Property; Liens. On the Effective date each Obligor shall
have (i) good and marketable title to all of its Property, except (A) any UL
Certification which cannot be transferred without the consent of a Governmental
Body and (B) the portion thereof consisting of a leasehold estate and (ii) a
valid leasehold estate in each portion of its Property which consists of a
leasehold estate. Upon the Effective Date, all of such Property was free and
clear of all Liens, except Permitted Liens.
4.5 Litigation. There is set forth in Exhibit 4.5 a description of all
actions and suits, arbitration proceedings and claims pending or, to the best
knowledge of Borrower, threatened against any Obligor or maintained by any
Obligor at law or in equity or before any Governmental Body. None of the
matters set forth in such Exhibit 4.5, if adversely determined, could have a
Material Adverse Effect.
4.6 Defaults in Other Agreements; Consents; Conflicting Agreements. No
Obligor is in default under any agreement to which such Obligor is a party or
by which such Borrower or any of the Property of such Obligor is bound, the
effect of which default could have a Material Adverse Effect. No
authorization, consent, approval or other action by, and no notice to or filing
with, any Governmental Body or any other Person which has not already been
obtained, taken or filed, as applicable, is required (i) for the due execution,
delivery or performance by Borrower of the Loan Instruments or (ii) as a
condition to the validity or enforceability of any of the Loan Instruments or
any of the transactions contemplated thereby. No provision of any material
mortgage, indenture, contract, agreement, statute, rule, regulation,
judgment, decree or order binding on any Obligor or affecting the Property of
any Obligor conflicts with, or requires any consent which has not already been
obtained under, or would in any way prevent the execution, delivery or
performance of the terms of any of the Loan Instruments. The execution,
delivery or performance of the terms of the Loan Instruments will not
constitute a default under, or result in the creation or imposition of, or
obligation to create, any Lien upon the Property of the Obligors pursuant to
the terms of any such material mortgage, indenture, contract or agreement.
4.7 Taxes. Each Obligor has filed all tax returns required to be filed, and
has paid, or made adequate provision for the payment of, all taxes shown to be
due and payable on such returns or in any assessments made against any such
Person, and no tax Liens have been filed and no claims are being asserted in
respect of such taxes which are required by GAAP to be reflected in the
financial statements of Borrower and are not so reflected therein. The
charges, accruals and reserves on the books of Borrower with respect to all
federal, state, local and other taxes are considered by the management of
Obligor to be adequate, and there is no unpaid assessment which is or might be
due and payable by any Obligor or create a Lien against any Obligor's Property,
except such assessments as are being contested in good faith and by appropriate
proceedings diligently conducted, and for which adequate reserves have been set
aside in accordance with GAAP. None of the tax returns of any Obligor are
under audit.
4.8 Compliance with Applicable Laws. No Obligor is in default in respect of
any judgment, order, writ, injunction, decree or decision of any Governmental
Body, which default would have a Material Adverse Effect. Except as otherwise
provided herein, each Obligor is in compliance in all material respects with
all applicable statutes and regulations, including, without limitation, all
<PAGE> 16
laws, statutes and regulations relating to UL Certification, all Environmental
Laws, ERISA, ADA and all laws and regulations relating to unfair labor
practices, equal employment opportunity and employee safety, of all
Governmental Bodies, a violation of which could have a Material Adverse
Effect. No material condemnation, eminent domain or expropriation has been
commenced or, to the best knowledge of Borrower, threatened against the
Property which the Obligors own on the Effective Date.
4.9 Patents, Trademarks, Franchises, Agreements. Upon the Effective Date, the
Obligors will own, possess or have the right to use all patents, trademarks,
service marks, tradenames, copyrights, franchises and rights with respect
thereto, necessary for the conduct of Borrower's Security Monitoring Business
as proposed to be conducted after the Effective Date, without any known
conflict with the rights of others and, in each case, free of any Liens.
4.10 Environmental Matters. Each Obligor is in compliance with all applicable
Environmental Laws and no portion of the Leasehold Property has been used as a
land fill. There currently are not any known Hazardous Materials generated,
manufactured, released, stored, buried or deposited over, beneath, in or on (or
used in the construction and/or renovation of) the Leasehold Property in
violation of applicable Environmental Laws which could have a Material Adverse
Effect.
4.11 Other Indebtedness. On the Effective Date, no Obligor had any
Indebtedness for Borrowed Money, except (i) Borrower's Obligations, (ii)
Permitted Senior Indebtedness permitted to exist as of the Effective Date
pursuant to this Loan Agreement and (iii) the Dealer Holdback Debt.
4.12 No Misrepresentation. Neither this Loan Agreement nor any other Loan
Instrument, certificate, information or report furnished or to be furnished
by or on behalf of Borrower to Lender in connection with any of the
transactions contemplated hereby or thereby, contains or will contain a
misstatement of material fact, or omits or will omit to state a material fact
required to be stated in order to make the statements contained herein or
therein, taken as a whole, not misleading in the light of the circumstances
under which such statements were made. There is no fact, other than
information known to the public generally, known to or reasonably foreseen by
Borrower after diligent inquiry, that would be expected to have a Material
Adverse Effect that has not expressly been disclosed to Lender in writing.
4.13 Employee Benefit Plans.
4.13.1 No Other Plans. Neither any Borrower nor any ERISA Affiliate maintains
or contributes to, or has any obligation under, any Employee Benefit Plan
other than those identified on Exhibit 4.13.6.
4.13.2 ERISA and Code Compliance and Liability. Borrower and each ERISA
Affiliate is in compliance with all applicable provisions of ERISA with respect
to all Employee Benefit Plans except where failure to comply would not result
in a material liability to Borrower and except for any required amendments for
which the remedial amendment period as defined in Section 401(b)
<PAGE> 17
of the Code has not yet expired. Each Employee Benefit Plan that is intended to
be qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified, and each trust related to such
plan has been determined to be exempt under Section 501(a) of the Code, except
for any amendments for which the remedial amendment period as defined in
Section 401(b) of the Code has not yet expired. No material liability has been
incurred by Borrower or any ERISA Affiliate which remains unsatisfied for any
taxes or penalties with respect to any Employee Benefit Plan or any
Multiemployer Plan.
4.13.3 Funding. No Pension Plan has been terminated, nor has any accumulated
funding deficiency (as defined in Section 412 of the Code) been insured
(without regard to any waiver granted under Section 412 of the Code), nor has
any funding waiver from the Internal Revenue Service been received or requested
with respect to any Pension Plan, nor has Borrower or any ERISA Affiliate
failed to make any contributions or to pay any amounts due and owing as
required by Section 412 of the Code, Section 302 of ERISA or the terms of any
Pension Plan prior to the due dates of such contributions under Section
412 of the Code or Section 302 of ERISA, nor has there been any event requiring
any disclosure under Section 4041 (c) (3) (C), 4063 (a) or 4068 of ERISA with
respect to any Pension Plan.
4.13.4 Prohibited Transactions and Payments. Neither any Borrower nor any
ERISA Affiliate has: (i) engaged in a nonexempt "prohibited transaction" as
such term is defined in Section 406 of ERISA or Section 4975 of the Code; (ii)
incurred any liability to the PBGC which remains outstanding other than the
payment of premiums and there are no premium payments which are due and
unpaid; (iii) failed to make a required contribution or payment to a
Multiemployer Plan; or (iv) failed to make a required installment or other
required payment under Section 412 of the Code.
4.13.5 No Termination Event. No Termination Event has occurred or is
reasonably expected to occur.
4.13.6 ERISA Litigation. No material proceeding, claim, lawsuit and/or
investigation is existing or, to the best knowledge of Borrower, threatened
concerning or involving any (i) employee welfare benefit plan (as defined in
Section 3(1) of ERISA) currently maintained or contributed to by Borrower, or
any ERISA Affiliate, (ii) Pension Plan or (iii) Multiemployer Plan.
4.14 Employee Matters.
4.14.1 Collective Bargaining Agreements; Grievances. (i) None of the
employees of any Obligor is subject to any collective bargaining agreement,
(ii) no petition for certification or union election is pending with respect
to the employees of any Obligor and no union or collective bargaining
unit has sought such certification or recognition with respect to the employees
of any Obligor and (iii) there are no strikes, slowdowns, work stoppages,
unfair labor practice complaints, grievances, arbitration proceedings or
controversies pending or, to the best knowledge of Borrower, threatened against
any Obligor by any Obligor's employees, other
<PAGE> 18
than employee grievances or controversies arising in the ordinary course of
business that could not in the aggregate be expected to have a Material Adverse
Effect.
4.14.2 Claims Relating to Employment. Neither any Obligor nor, to Borrower's
best knowledge, any partner, shareholder or employee of any Obligor, is
subject to any employment agreement or non-competition agreement with any
former employer or any other Person which agreement would have a Material
Adverse Effect due to (i) any information which such Obligor would be
prohibited from using under the terms of such agreement or (ii) any legal
considerations relating to unfair competition, trade secrets or proprietary
information.
4.15 Burdensome Obligations. After giving effect to the transactions
contemplated by the Loan Instruments, (i) no Obligor (A) will be a party to or
be bound by any franchise, agreement, deed, lease or other instrument, or be
subject to any restriction, which is so unusual or burdensome so as to cause,
in the foreseeable future, a Material Adverse Effect and (B) intends to incur,
or believes that it will incur, debts beyond its ability to pay such debts as
they become due, and (ii) each Obligor (A) owns and will own Property, the fair
salable value of which is (I) greater than the total amount of its liabilities
(including contingent liabilities) and (II) greater than the amount that will
be required to pay the probable liabilities of its then existing debts as they
become absolute and matured, and (B) has and will have capital that is not
unreasonably small in relation to its business as presently conducted and as
proposed to be conducted. No Obligor presently anticipates that future
expenditures needed to meet the provisions of federal or state statutes,
orders, rules or regulations will be so burdensome so as to have a Material
Adverse Effect.
4.16 Security Monitoring Contracts as of Effective Date. As of the Effective
Date, Obligors in the aggregate own not less than 13,500 Security Monitoring
Contracts.
4.17 Central Station Contracts as of Effective Date. As of the Effective
Date, Obligors in the aggregate monitor not less than 54,500 Central Station
Contracts.
4.18 Holding Companies. The Holding Companies do not engage in any business
other than the ownership of the MSG Membership Interests.
ARTICLE V
AFFIRMATIVE COVENANTS
Until all of Borrower's Obligations are paid and performed in full, Borrower
agrees that it and each Obligor will:
5.1 Legal Existence; Good Standing. Maintain its existence and its good
standing in the jurisdiction of its formation and its qualification in each
jurisdiction in which the failure so to qualify would have a Material Adverse
Effect, and in any event in each jurisdiction in which any portion of the
business owned or operated by such Obligor is located.
<PAGE> 19
5.2 Inspection. Permit representatives of Lender at Lender's expense, upon
two Business Days prior notice if no Event of Default exists, or at any time if
any Event of Default exists, to (i) visit its offices, (ii) examine its books
and records and Accountants' reports relating thereto, (iii) make copies or
extracts therefrom, (iv) discuss its affairs with its employees, (v) examine
and inspect its Property and (vi) meet and discuss its affairs with the
Accountants, and such Accountants, as a condition to their retention by
such Borrower, are hereby irrevocably authorized by Borrower to fully discuss
and disclose all such affairs with Lender (the foregoing items (i) through (vi)
hereinafter are referred to collectively as an "Inspection") . Notwithstanding
the foregoing, if no Event of Default exists, Lender shall not conduct an
Inspection more than once a quarter.
5.3 Financial Statements and Other Information. Maintain a standard system of
accounting in accordance with GAAP and furnish to Lender, but only upon
Lender's request, those of the following items requested:
5.3.1 Monthly Statements. After the close of any month:
(a) the consolidated balance sheet of Borrower of such month,
(b) the consolidated statements of operations and Operating Cash Flow of
Borrower for such month and for the period from the beginning of the then
current year to the end of such month, setting forth in each case in
comparative form the corresponding figures for the corresponding period in the
preceding year, and
(c) a report providing the following information as of the end of such month:
(i) the number of Security Monitoring Contracts owned by each Obligor;
(ii) the number of Central Station Contracts monitored by each Obligor; and
(iii) the RMR for the Security Monitoring Contracts and Central Station
Contracts.
all in reasonable detail, containing such information as Lender reasonably may
require, and certified by the Chief Financial Officer of Borrower as complete
and correct, subject to normal year-end adjustments.
5.3.2 Quarterly Agings. As soon as available and in any event within 45 days
after the close of each quarter of each year, an aging of each Obligor's
outstanding accounts payable and accounts receivable as of the end of such
quarter, all in reasonable detail, containing such information as Lender
reasonably may require, and certified by the Chief Financial Officer of
Borrower as complete and correct, subject to normal year-end adjustments.
5.3.3 Annual Statements. As soon as available after the close of each year: the
consolidated balance sheet of Borrower as of the end of such year and the
consolidated statements of operations, cash flows and shareholders' equity of
Borrower for such year (collectively, the "Basic Financial Statements"), and
the consolidated statements of Operating Cash Flow of
<PAGE> 20
Borrower for such year, setting forth in each case in comparative form the
corresponding figures for the preceding year;
5.3.4 Audit Reports. A copy of each report, other than the reports referred
to in subsection 5.3.3, including any so-called "Management Letter" or similar
report, submitted to Borrower by the Accountants in connection with any annual,
interim or special audit made by the Accountants of the books of Borrowers.
5.4 Notice of Defaults: Loss. Provide Lender with prompt notice if: (i) any
Indebtedness of any Obligor is declared or shall become due and payable prior
to its declared or stated maturity, or called and not paid when due, (ii) an
event has occurred that enables the holder of any note, or other evidence of
such Indebtedness, certificate or security evidencing any such Indebtedness of
any Obligor to declare such Indebtedness due and payable prior to its stated
maturity, (iii) there shall occur and be continuing an Incipient Default or
Event of Default, accompanied by a statement setting forth what action Borrower
proposes to take in respect thereof, or (iv) any event shall occur which has a
Material Adverse Effect, including the amount or the estimated amount of any
loss or depreciation or adverse effect.
5.5 Notice of Suits, Adverse Events. Provide Lender with prompt notice of:
(i) any citation, summons, subpoena, order to show cause or other order naming
any Obligor a party to any proceeding before any Governmental Body which might
reasonably be expected to have a Material Adverse Effect and include with such
notice a copy of such citation, summons, subpoena, order to show cause or other
order, (ii) any lapse or other termination of any UL Certification, Alarm
License, license, permit, franchise, agreement or other authorization issued to
any Obligor by any Governmental Body or any other Person that is material to
the operation of Borrower's Security Monitoring Business, (iii) any refusal by
any Governmental Body or any other Person to renew or extend any such UL
Certification, Alarm License, license, permit, franchise, agreement or other
authorization and (iv) any dispute between any Obligor and any Governmental
Body or any other Person, which lapse, termination, refusal or dispute
could reasonably be expected to have a Material Adverse Effect.
5.6 Reports to Shareholders, Members, Creditors and Governmental Bodies.
Upon request of the Lender, promptly provide Lender:
(a) copies of all financial statements, reports, notices and other
statements sent or made available generally by Borrower to Borrower's
shareholders to the extent the same contain any information not included in any
financial statements previously furnished to Lender pursuant to Section 5.3,
and copies of all regular and periodic reports and all registration statements
and prospectuses filed by Borrower with any securities exchange or with the
Securities and Exchange Commission or any Governmental Body succeeding to any
of its functions, and of all statements generally made available by Borrower
or others concerning material developments in the business of any Obligor.
<PAGE> 21
(b) copies of any periodic or special reports filed by any Obligor with any
Governmental Body or Person and copies of any material notices and other
communications from any Governmental Body or Person which specifically relate
to any Obligor.
5.7 ERISA Notices and Requests.
(a) With reasonable promptness, and in any event within 25 Business Days after
occurrence of any of the following, Borrower will give notice of and/or deliver
to Lender copies of: (i) the establishment of any new Pension Plan or
Multiemployer Plan by any Obligor; (ii) the commencement of contributions to
any Pension Plan or Multiemployer Plan to which any Obligor or any of its ERISA
Affiliates was not previously contributing or any increase in the benefits of
any existing Pension Plan or Multiemployer Plan; (iii) each funding waiver
request filed with respect to any Pension Plan and all communications received
or sent by any Obligor or any ERISA Affiliate with respect to such request; and
(iv) the failure of any Obligor or ERISA Affiliate to make a required
installment or payment to a Pension Plan under Section 302 of ERISA or Section
412 of the Code by the due date.
(b) Promptly and in any event within 10 Business Days of becoming aware of
the occurrence of or forthcoming occurrence of any (i) Termination Event or
(ii) non-exempt "prohibited transaction", as such term is defined in Section
406 of ERISA or Section 4975 of the Code, in connection with any Pension Plan
or any trust created thereunder, Borrower will deliver to Lender a notice
specifying the nature thereof, what action the applicable Obligor has taken, is
taking or proposes to take with respect thereto and, when known, any action
taken or threatened by the Internal Revenue Service, the Department of Labor or
the PBGC with respect thereto.
(c) With reasonable promptness but in any event within 10 Business Days after
the occurrence of, or receipt of, any of the following, Borrower will deliver
to Lender copies of: (i) any favorable or unfavorable determination letter
from the Internal Revenue Service regarding the qualification of an Employee
Benefit Plan under Section 401(a) of the Code; (ii) all notices received by
any Obligor or any ERISA Affiliate of the PBGC's intent to terminate any
Pension Plan or to have a trustee appointed to administer any Pension Plan;
(iii) each Schedule B (Actuarial Information) to the annual report (Form 5500
Series) filed by any Obligor or any ERISA Affiliate with the Internal Revenue
Service with respect to each Pension Plan; and (iv) all notices received by
any Obligor or any ERISA Affiliate from a Multiemployer Plan sponsor concerning
the imposition or amount of withdrawal liability pursuant to Section 42D2 of
ERISA. Borrower will notify Lender in writing within two Business Days of any
Obligor or any ERISA Affiliate that has filed a notice of intent to terminate
any Pension Plan under a distress termination within the meaning of Section
4041(c) of ERISA.
5.8 Other Information.
<PAGE> 22
(a) Provide Lender with prompt notice of any change in the location of any
Property of any Obligor which is material to or necessary for the continued
operation of Borrower's Security Monitoring Business, any change in the name of
any Obligor, any sale or purchase of Property outside the regular course of
business of any Obligor, and any change in the business or financial affairs of
any Obligor, which change would have a Material Adverse Effect.
(b) Promptly upon request therefor, such other information and reports
relating to the past, present or future financial condition, operations,
plans and projections of Borrower as Lender reasonably may request from
time to time.
5.9 Reports to Governmental Bodies and Other Persons. Timely file all material
reports, applications, documents, instruments and information required to be
filed pursuant to all rules, regulations or requests of any Governmental Body
or other Person having jurisdiction over the operation of Borrower's Security
Monitoring Business, including, but not limited to, such of the Loan
Instruments as are required to be filed with any such Governmental Body or
other Person pursuant to applicable rules and regulations promulgated by such
Governmental Body or other Person.
5.10 Maintenance of UL Certifications, Alarm Licenses, Licenses, Franchises and
Other Agreements.
5.10.1 Maintenance of UL Certifications and Alarm Licenses.
Maintain in full force and effect at all times, and apply in a timely manner
for renewal of, all UL Certifications and Alarm Licenses necessary for the
operation of Borrower's Security Monitoring Business, the loss of any of which
would have a Material Adverse Effect.
5.10.2 Maintenance of Licenses, Franchises and Agreements.
Maintain in full force and effect at all times, and apply in a timely manner
for renewal of licenses, franchises, trademarks, tradenames and agreements
necessary for the operation of Borrower's Security Monitoring Business, the
loss of any of which would have a Material Adverse Effect.
5.11 Insurance.
5.11.1 Key Man Life Insurance. Maintain in full force and effect at all times
policies of insurance in such form and issued by such insurers as shall be
reasonably acceptable to Lender, insuring the life of (i) Brannen in the amount
of $250,000 and (ii) Davis in the amount of $500,000, and deliver to Lender,
from time to time as Lender reasonably may request, evidence of compliance with
this subsection 5.11.1.
5.11.2 Business Insurance. Maintain in full force and effect at all times
Business Insurance as required by the insurance letter agreement between
Borrower and FINOVA.
<PAGE> 23
5.12 Future Leases. Deliver to Lender an executed copy of any lease
pertaining to real property entered into by any Obligor and such other
documents as Lender may reasonably request.
5.13 Future Acquisitions of Real Property. Deliver to Lender executed copies
of any contract relating to the purchase by any Obligor of real property, an
executed copy of such contract and such other documents as Lender may
reasonably request.
5.14 Environmental Matters.
5.14.1 Compliance. At all times comply with, and be responsible for, its
obligations under all Environmental Laws applicable to the Leasehold Property,
any parcel of real estate acquired in connection with an Acquisition and any
other Property owned by any Obligor or used by each Obligor in the operation of
its business. At its sole cost and expense, each Obligor shall (i) comply in
all respects with (A) any notice of any violation or administrative or judicial
complaint or order having been filed against such Obligor, any portion of the
Leasehold Property, any parcel of real estate acquired in connection with an
Acquisition or any Property owned by such Obligor or used by such Obligor in
the operation of its business alleging violations of any law, ordinance and/or
regulation requiring such Obligor to take any action in connection with the
release, transportation and/or clean-up of any Hazardous Materials, and (B) any
notice from any Governmental Body or any other Person alleging that such
Obligor is or may be liable for costs associated with a response or clean-up of
any Hazardous Materials or any damages resulting from such release or
transportation, or (ii) diligently contest in good faith by appropriate
proceedings any demands set forth in such notices.
5.15 Compliance with Laws. Comply with all laws, statutes and regulations
relating to UL Certification and all other federal, state and local laws,
ordinances, requirements and regulations and all judgments, orders, injunctions
and decrees applicable to such Obligor and its operations, the failure to
comply with which would have a Material Adverse Effect.
5.16 Taxes and Claims. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits,
or upon any Property belonging to it, prior to the date on which penalties
attach thereto, and all lawful claims which, if unpaid, might become a Lien
(other than a Permitted Lien) upon the property of such Obligor, provided that
so long as no Lien has attached to the Property of any Obligor as a result of
any of the foregoing, no Obligor shall be required by this Section 5.16 to pay
any such amount if the same is being contested diligently and in good faith by
appropriate proceedings and as to which the applicable Obligor has set aside
reserves on its books satisfactory to Lender.
5.17 Maintenance of Properties. Maintain all of its Property necessary in the
operation of Borrower's Security Monitoring Business in good working order and
condition.
5.18 Non-Funded Acquisition. Promptly after the consummation of each
Non-Funded Acquisition, Borrower shall notify Lender of the terms and conditions
of such acquisition and
<PAGE> 24
provide Lender with any other information with respect thereto as Lender may
reasonably request.
ARTICLE VI
NEGATIVE COVENANTS
Until all of Borrower's Obligations are paid and performed in full, no Obligor
shall:
6.1 Borrowing. Create, incur, assume or suffer to exist any liability for
Indebtedness for Borrowed Money except (i) Borrower's Obligations, (ii)
Permitted Senior Indebtedness and (iii) the Dealer Holdback Debt.
6.2 Liens. Create, incur, assume or suffer to exist any Lien upon any of its
Property, whether now owned or hereafter acquired, except Permitted Liens.
6.3 Merger and Acquisition. Consolidate with or merge with or into any
Person, or acquire directly or indirectly all or substantially all of the
capital stock, equity interests membership interests or Property of any Person,
except Funded Acquisitions and Non-Funded Acquisitions.
6.4 Contingent Liabilities. Assume, guarantee, endorse, contingently agree
to purchase, become liable in respect of any letter of credit, or otherwise
become liable upon the obligation of any Person, except (i) Dealer Holdback
Debt, (ii) liabilities arising from the endorsement of negotiable instruments
for deposit or collection or (iii) the posting of bonds to secure performance
to the extent necessary in connection with Borrower's Security Monitoring
Business and similar transactions in the ordinary course of business.
6.5 Distributions. Pay any dividends or make any distributions with
respect to, or purchase or redeem all or any portion of, the Capital Stock or
the membership interests of any Obligor other than distributions to TJS or its
successor's in interest with respect to Capital Stock of SAI.
6.6 Payments of Indebtedness for Borrowed Money. Make any voluntary or
optional prepayment of any Indebtedness for Borrowed Money other than Permitted
Senior Indebtedness and Borrower's Obligations and payments made in the
ordinary course of business with respect to the Dealer Holdback Debt.
6.7 Investments. Loans. At any time purchase or otherwise acquire, hold or
invest in the capital stock of, or any other interest in, any Person, or make
any loan or advance to, or enter into any arrangement for the purpose of
providing funds or credit to, or make any other investment, whether by way of
capital contribution or otherwise, in or with any Person (other than in an
Affiliate or in connection with a Funded Acquisition), except (i) investments
in direct obligations of, or instruments unconditionally guaranteed by, the
United States of America or in certificates of deposit issued by a Qualified
Depository, (ii) investments in commercial or finance paper which, at the time
of investment, is rated either "A" or "P" by Moody's Investors Service, Inc.,
or
<PAGE> 25
Standard & Poor's Corporation, respectively, or at the equivalent rate by any
of their respective successors, (iii) any interests in any money market
account maintained, at the time of investment, with a Qualified Depository, the
investments of which, at the time of investment, are restricted to the types
specified in clause (i) above, and (iv) the formation and capitalization of
Permitted Subsidiaries. All investments permitted pursuant to clauses (i),
(ii) and (iii) of this Section 6.7 shall have a maturity not exceeding one
year.
6.8 Fundamental Business Changes. Materially change the nature of its
business or engage in any business other than the Security Monitoring
Business.
6.9 Facility Sites. Change the locations of its chief executive office,
Central Station Businesses, studios, offices or other Property used in the
operation of Borrower's Security Monitoring Business unless such Obligor shall
have complied with all applicable laws, rules and regulations and shall have
received all required consents and approvals from any Governmental Body.
6.10 Sale or Transfer of Assets. Sell, lease, assign, transfer or
otherwise dispose of any Property (other than in the ordinary course of
business) except for the sale or disposition of (i) Property which is not
material to or necessary for the continued operation of its business and (ii)
obsolete or unusable items of equipment which promptly are replaced with new
items of equipment of like function and comparable value to the unusable items
of equipment when the same were new or not obsolete.
6.11 Amendment of Certain Documents. Amend, modify or waive any term or
provision of the (i) the articles of organization or operating agreements of
SACC, MSG, ASMS or AMJ or (ii) the articles of incorporation or by-laws of SAI
or the Holding Companies.
6.12 Acquisition of Additional Properties. Acquire any additional Property
except (i) such Property as is necessary to or useful in the operation of such
Borrower's Security Monitoring Business, provided such acquisitions shall be
subject to the conditions and limitations set forth in this Loan Agreement,
(ii) Funded Acquisitions and (iii) Non-Funded Acquisitions.
6.13 Issuance of Membership Interests. Issue or sell, permit to be issued or
sold, or otherwise consent to the transfer of, any additional membership
interests or any interests convertible into or exercisable for any such
additional membership interests, other than membership interests issued by a
Permitted Subsidiary upon its formation.
6.14 Compliance with ERISA.
(a) Permit the occurrence of any Termination Event which would result in a
liability to any Obligor or ERISA Affiliate in excess of $50,000;
(b) Permit the present value of all benefit liabilities under all Pension
Plans to exceed the current value of the assets of such Pension Plans allocable
to such benefit liabilities by more than $50,000;
<PAGE> 26
(c) Permit any accumulated funding deficiency in excess of $50,000 (as defined
in Section 302 of ERISA and Section 412 of the Code) with respect to any
Pension Plan, whether or not waived;
(d) Fail to make any contribution or payment to any Multiemployer Plan which
any Obligor or ERISA Affiliate may be required to make under any agreement
relating to such Multiemployer Plan, or any law pertaining thereto which
results in or is likely to result in a liability in excess of $50,000;
(e) Engage, or permit any Obligor or ERISA Affiliate to engage, in any
"prohibited transaction" as such term is defined in Section 406 of ERISA or
Section 4975 of the Code for which a civil penalty pursuant to Section 502(i)
of ERISA or a tax pursuant to Section 4975 of the Code in excess of $50,000 is
imposed;
(f) Permit the establishment of any Employee Benefit Plan providing
post-retirement welfare benefits or establish or amend any Employee Benefit
Plan which establishment or amendment could result in liability to any Obligor
or ERISA Affiliate or increase the obligation of any Obligor or ERISA Affiliate
to a Multiemployer Plan which liability or increase, individually or together
with all similar liabilities and increases, is material to any Obligor or ERISA
Affiliate; or
(g) Fail, or permit any Obligor or ERISA Affiliate to fail, to establish,
maintain and operate each Employee Benefit Plan in compliance in all material
respects with ERISA, the Code and all other applicable laws and regulations
and interpretations thereof.
6.15 Minimum RMR.
6.15.1 Minimum RMR for Security Monitoring Contracts. Permit the RMR with
respect to Security Monitoring Contracts to be less than $ 275,000.00.
6.15.2 Minimum RMR for Central Station Contracts. Permit the RMR with
respect to Central Station Contracts to be less than $ 300,000.00.
6.16 Compensation. Pay any salary, bonuses, fees or other forms of
compensation to Brannen, Davis or Rubin if the aggregate amount thereof paid by
all Obligors to (i) Brannen would exceed $250,000 per year, (ii) Davis would
exceed $250,000 per year and (iii) Rubin would exceed $200,000 per year.
6.17 Holding Companies. Permit any Holding Company to engage in any business
other than the ownership of the MSG Membership Interests.
ARTICLE VII
SUBORDINATION
<PAGE> 27
7.1 Subordination. The payment of any and all of Borrower's Obligations and
the exercise of any right or remedy pursuant to any Loan Instrument are
expressly subject to the provisions of the Subordination Agreement.
ARTICLE VIII
DEFAULT AND REMEDIES
8.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Loan Instruments:
8.1.1 Default in Payment. If any Borrower shall fail to pay all or any
portion of Borrower's Obligations when the same become due and payable.
8.1.2 Breach of Covenants.
(a) If any Obligor shall fail to observe or perform any covenant or agreement
governing such Obligor contained in Section 5.1, 5.2, 5.10.1, 5.11 or 5.14 or
Article VI;
(b) If any Obligor shall fail to observe or perform any covenant or agreement
(other than those referred to in subparagraph (a) above or specifically
addressed elsewhere in this Section 8.1) made by such Person in any of the Loan
Instruments to which such Person is a party, and such failure shall continue
for a period of 30 days after notice of such failure is given by Lenders,
provided that, if such failure is in connection with subsection 5.10.2, such
Obligor shall have an additional 30 days to cure such failure, if such Obligor
(i) is diligently pursuing a cure for such failure and (ii) provides Lender
with evidence to that effect in form and substance reasonably satisfactory to
Lender.
8.1.3 Breach of Warranty. If any representation or warranty made by or on
behalf of any Obligor in or pursuant to any of the Loan Instruments or in any
instrument or document furnished in compliance with the Loan Instruments shall
prove to be false or misleading in any material respect on the date as of which
made.
8.1.4 Default Under Other Indebtedness for Borrowed Money. If (i) any Obligor
at any time shall be in default (as principal or guarantor or other surety) in
the payment of any principal of or premium or interest on any Indebtedness for
Borrowed Money (other than Borrower's Obligations) beyond the grace period, if
any, applicable thereto and the aggregate amount of such payments then in
default beyond such grace period shall exceed $25,000 or (ii) any default shall
occur in respect of any issue of Indebtedness for Borrowed Money of any Obligor
(other than Borrower's Obligations) outstanding in a principal amount of at
least $50,000, or in respect of any agreement or instrument relating to any
such issue of Indebtedness for Borrowed Money, and such default shall continue
beyond the grace period, if any, applicable thereto.
8.1.5 Bankruptcy.
<PAGE> 28
(a) If any Obligor shall (i) generally not be paying its debts as they
become due, (ii) file, or consent, by answer or otherwise, to the filing
against it of a petition for relief or reorganization or arrangement or any
other petition in bankruptcy or insolvency under the laws of any
jurisdiction, (iii) make an assignment for the benefit of creditors, (iv)
consent to the appointment of a custodian, receiver, trustee or other
officer with similar powers for such Obligor, or for any substantial part of
the property of such Obligor or (v) be adjudicated insolvent.
(b) If any Governmental Body of competent jurisdiction shall enter an
order appointing, without consent of such Obligor, a custodian, receiver,
trustee or other officer with similar powers with respect to such Obligor, or
with respect to any substantial part of the Property belonging to any such
Person, or if an order for relief shall be entered in any case or proceeding
for liquidation or reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of any Obligor or if any petition for any such relief
shall be filed against any Obligor and such petition shall not be dismissed or
stayed within 60 days.
8.1.6 Judgments. If there shall exist a final judgment or award against
any Borrower which shall have been outstanding for a period of 30 days or
more from the date of the entry thereof and shall not have been discharged or
paid in full or stayed pending appeal, if the aggregate amount of all such
judgments and awards exceeds $50,000.
8.1.7 Impairment of Licenses; Other Agreements. If (i) any Governmental
Body shall revoke, terminate, suspend or adversely modify any UL Certification
or Alarm License of any Obligor, the non-continuation of which could reasonably
be expected to have a Material Adverse Effect, or (ii) there shall exist any
violation or default in the performance of, or a material failure to comply
with any agreement, or condition or term of any UL Certification or Alarm
License, which violation, default or failure has a Material Adverse Effect, or
any such UL Certification or Alarm Licenses shall cease to be in full force and
effect, or (iii) any agreement which is necessary to the operation of any
Borrower's Security Monitoring Business shall be revoked or terminated and not
replaced by a substitute acceptable to Lender within 30 days after the date of
such revocation or termination, and such revocation or termination and
non-replacement could reasonably be expected to have a Material Adverse Effect.
8.1.8 Interruption of Operations. If the operations of any material portion
of Borrower's Security Monitoring Business is interrupted at any time for more
than 48 hours during any period of 10 consecutive days, unless Borrower or the
appropriate Obligor shall be entitled to receive during such period of
interruption proceeds of business interruption insurance sufficient to assure
that the per diem Operating Cash Flow of such portion of Borrower's Security
Monitoring Business during such period is at least equal to its per diem
Operating Cash Flow for the month preceding the initial date of interruption.
8.1.9 Plans. If an event or condition specified in subsection 5.7 hereof shall
occur or exist with respect to any Pension Plan or Multiemployer Plan and, as a
result of such event or condition,
<PAGE> 29
together with all other such events or conditions, Borrower or any member of a
Controlled Group shall incur, or in the opinion of Lender be reasonably likely
to incur, a liability to a Pension Plan or Multiemployer Plan or the PBGC (or
any of them) which, in the reasonable judgment of Lender, would have a Material
Adverse Effect.
8.1.10 Change in Control. If at any time (i) SAI ceases to be the sole
shareholder of each of the Holding Companies and AMJ, (ii) SAI and SACC cease
to be the only members in ASMS, (iii) SAI and MSG cease to be the only members
in SACC or (v) the Holding Companies cease to be the only members in MSG.
8.1.11 Change in Management. If at any time (i) Brannen, or any
successor to Brannen
reasonably acceptable to Lender, ceases to (A) be the President and Chief
Executive Officer of SAI and AMJ, (B) be the Manager of each of SACC, MSG and
ASMS, or (C) manage the day to day operation of Borrower's Security Monitoring
Business or (ii) Davis, or any successor to Davis reasonably acceptable to
Lender, ceases to be the Chairman of SAI.
8.2 Acceleration of Borrowers Obligations. Upon the occurrence of:
(a) any Event of Default described in clauses (ii), (iii), (iv) and (v) of
subsection 8.1.5(a) or in 8.1.5(b), all of Borrower's Obligations at that
time outstanding automatically shall mature and become due subject to the
provisions of the Subordination Agreement, and
any other Event of Default, Lender, at any time (unless such Event of Default
shall have been waived in writing or remedied), at its option, without further
notice or demand, may declare all of Borrowers Obligations due and payable
subject to the provisions of the Subordination Agreement,
whereupon Borrowers Obligations immediately shall mature and become due and
payable, all without presentment, demand, protest or notice other than the
declaration referred to in clause (b) above, all of which hereby are waived
subject to the provisions of the Subordination Agreement.
8.3 Remedies on Default. If Borrowers Obligations have been accelerated
pursuant to Section 8.2, Lender, at its option, may, subject in all events to
the subordination provisions contained in the Subordination Agreement:
8.3.1 Enforcement of Rights and Remedies. Enforce its rights and remedies
under the Loan Instruments in accordance with their respective terms.
8.3.2 Other Remedies. Enforce any of the rights or remedies accorded to
Lender at equity or law, by virtue of statute or otherwise.
8.4 Application of Funds. Any funds received by Lender pursuant to the
exercise of any rights accorded to Lender pursuant to, or by the operation of
any of the terms of, any of the Loan Instruments shall be applied, subject to
the subordination provisions contained in the Subordination Agreement, to
Borrower's Obligations in the following order of priority:
<PAGE> 30
8.4.1 Expenses. First, to the payment of all reasonable fees and expenses
actually incurred, including, without limitation court costs and all other
costs incurred by Lender in exercising any rights accorded to Lender pursuant
to the Loan Instruments or by applicable law, including, without limitation,
reasonable attorneys' fees.
8.4.2 Borrower's Obligations. Next, to the payment of the remaining portion of
Borrower's Obligations in such order as Lenders may determine.
8.4.3 Surplus. Any surplus, to the Person or Persons entitled thereto.
8.5 Performance of Borrower's Obligations. If any Obligor fails to (i)
maintain in force and pay for any insurance policy or bond which such Obligor
is required to provide pursuant to any of the Loan Instruments, (ii) keep fully
and perform promptly any other of the obligations of such Obligor hereunder or
under any of the other Loan Instruments, and (iii) keep fully and perform
promptly the obligations of such Obligor with respect to any issue of
Indebtedness for Borrowed Money secured by a Permitted Prior Lien, then Lender
may (but shall not be required to) make good any aforesaid failure of such
Obligor. Borrower shall reimburse Lender immediately upon demand for all
reasonable sums paid or advanced on behalf of any Obligor for any such purpose,
together with reasonable and/or necessary costs and expenses (including
reasonable attorneys' fees) paid or incurred by Lender in connection therewith
and interest on all sums advanced from the date of advancement until repaid to
Lender at the Default Rate subject to the provisions of the Subordination
Agreement. All such sums advanced by Lender, with interest thereon,
immediately upon advancement thereof, shall be deemed to be part of Borrower's
Obligations.
ARTICLE IX
EXPENSES AND INDEMNITY
9.1 Attorneys' Fees and Other Fees and Expenses. Each of the parties shall bear
its own expenses in connection with the preparation of this Loan Agreement and
the Note and transactions contemplated hereby and in connection with any
amendments, modifications or waivers under or in respect of any of the Loan
Instruments.
9.2 Indemnity. Borrower agrees to indemnify and save Lender harmless of and
from, subject to the provisions of the Subordination Agreement, the following:
9.2.1 Fees and Expenses in Enforcement of Rights or Defense of Loan
Instruments. Any reasonable expenses or other costs, including reasonable
attorneys' fees and expert witness fees, actually incurred by Lender in
connection with the enforcement or collection against any Obligor of any
provision of any of the Loan Instruments, and in connection with or arising out
of any litigation, investigation or proceeding instituted by any Governmental
Body or any other Person with respect to any of the Loan Instruments, whether
or not suit is instituted, including, but not limited to, such costs or
expenses arising from the enforcement or collection against any Obligor
<PAGE> 31
of any provision of any of the Loan Instruments in any state or federal
bankruptcy or reorganization proceeding.
9.2.2 General. Any loss, cost, liability, damage or expense (including
reasonable attorneys' fees and expenses) incurred by Lender in investigating,
preparing for, defending against, providing evidence, producing documents or
taking other action in respect of any commenced or threatened litigation,
administrative proceeding, suit instituted by any Person or investigation under
any law, including any federal securities law, the Bankruptcy Code, any
relevant state corporate statute or any other securities law, bankruptcy law or
law affecting creditors generally of any jurisdiction, or any regulation
pertaining to any of the foregoing, or at common law or otherwise, relating
to the transactions contemplated by or referred to in, or any other matter
related to, the Loan Instruments, whether or not Lender is a party to such
litigation, proceeding or suit, or is subject to such investigation.
9.2.3 Environmental Indemnity. Any and all claims, losses, damages, out
of pocket response costs, clean-up costs and expenses suffered and/or incurred
at any time by Lender arising out of or in any way relating to the existence at
any time of any Hazardous Materials in, on, under, at, transported to or from,
or used in the construction and/or renovation of, any of the Leasehold
Property, any parcel of real estate acquired in connection with an
Acquisition, or otherwise with respect to any Environmental Law, and/or the
failure of any obligor to perform its obligations and covenants
hereunder with respect to environmental matters, including, but not limited
to: (i) claims of any Persons for damages, penalties, response costs,
clean-up costs, injunctive or other relief, (ii) costs of removal and
restoration, including fees of attorneys and experts, and costs of reporting
the existence of Hazardous Materials to any Governmental Body, and (iii) any
expenses or obligations, including reasonable attorneys' fees and expert
witness fees, incurred at, before and after any trial or other proceeding
before any Governmental Body or appeal therefrom whether or not taxable as
costs, including, without limitation, witness fees, deposition costs,
copying and telephone charges and other expenses, all of which shall be paid by
Borrower to Lender when incurred by Lender, except where such costs were
directly caused by the gross negligence or willful misconduct of Lender, or by
or third party acting on behalf of and at the direction of Lender.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices and communications under this Loan Agreement shall
be in writing and shall be (i) delivered in person, (ii) sent by facsimile, or
(iii) mailed, postage prepaid, either by registered or certified mail, return
receipt requested, or by overnight express carrier, addressed in each case as
follows:
To Borrowers: Security Associates International, Inc.
2101 Arlington Heights Road
Arlington Heights, Illinois 60005-4142
Attention: James S. Brannen, President
Facsimile No.: 847/956-9360
<PAGE> 32
To Lender: TJS Partners, L.P.
52 Vanderbilt Avenue
5th Floor
New York, NY 10017
Attention: Thomas J. Salvatore
or to any other address or facsimile number, as to any of the parties hereto,
as such party shall designate in a notice to the other parties hereto. All
notices sent pursuant to the terms of this Section 10.1 shall be deemed
received (i) if personally delivered, then on the Business Day of delivery,
(ii) if sent by facsimile before 2:00 p.m. New York time, on the day sent if a
Business Day or if such day is not a Business Day or if sent after 2:00 p.m.
New York time, then on the next Business Day, (iii) if sent by overnight,
express carrier, on the next Business Day immediately following the day sent,
or (iv) if sent by registered or certified mail, on the earlier of the fifth
Business Day following the day sent or when actually received. Any notice by
facsimile shall be followed by delivery on the next Business Day by overnight,
express carrier or by hand.
10.2 Survival of Loan Agreement: Indemnities. All covenants, agreements,
representations and warranties made in this Loan Agreement shall survive the
making by Lender of the Loan and the execution and delivery to Lender of the
Note and of all other Loan Instruments, and shall continue in full force and
effect so long as any of Borrower's Obligations remain outstanding, unperformed
or unpaid. Notwithstanding the repayment of all amounts due under the Loan
Instruments, the cancellation of the Note and the release and/or cancellation
of any and all of the Loan Instruments, the obligations of Borrower to
indemnify Lender with respect to the expenses, damages, losses, costs and
liabilities described in Section 9.2 shall survive until all applicable
statute of limitations periods with respect to actions which may be brought
against Lender have run.
10.3 Further Assurance. From time to time, Borrower shall execute and deliver
to Lender such additional documents as Lender reasonably may require to carry
out the purposes of the Loan Instruments and to protect Lender's rights
thereunder, and not take any action inconsistent with the purposes of the
Loan Instruments.
10.4 Taxes and Fees. Should any tax (other than taxes based upon the net
income of any Lender), recording or filing fees become payable in respect of
any of the Loan Instruments, or any amendment, modification or supplement
thereof, Borrower agrees to pay the same on demand, together with any interest
or penalties thereon attributable to any delay by Borrower in meeting any
Lender's demand, and agree to hold Lender harmless with respect thereto.
10.5 Severability. In the event that any provision of this Loan Agreement is
deemed to be invalid by reason of the operation of any law, this Loan
Agreement shall be construed as not containing such provision and the
invalidity of such provision shall not affect the validity of any
<PAGE> 33
other provisions hereof, and any and all other provisions hereof which
otherwise are lawful and valid shall remain in full force and effect.
10.6 Waiver. No delay on the part of Lender in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, and no single or partial
exercise of any right, power or privilege hereunder shall preclude other or
further exercise thereof, or be deemed to establish a custom or course of
dealing or performance between the parties hereto, or preclude the exercise of
any other right, power or privilege.
10.7 Modification of Loan Instruments. No modification or waiver of any
provision of any of the Loan Instruments shall be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on Borrower in any case shall entitle Borrower to any other or further
notice or demand in the same, similar or other circumstances.
10.8 Captions. The headings in this Loan Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
10.9 Successors and Assigns. This Loan Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
10.10 Remedies Cumulative. All rights and remedies of Lender pursuant to this
Loan Agreement, any other Loan Instruments or otherwise, shall be cumulative
and non-exclusive, and may be exercised singularly or concurrently.
10.11 Entire Agreement; Conflict. This Loan Agreement and the other Loan
Instruments executed pursuant hereto constitute the entire agreement among the
parties hereto with respect to the transactions contemplated hereby or thereby
and supersede any prior agreements, whether written or oral, relating to the
subject matter hereof. In the event of a conflict between the terms and
conditions set forth herein and the terms and conditions set forth in any other
Loan Instrument, the terms and conditions set forth herein shall govern.
10.12 APPLICABLE LAW. THE LOAN INSTRUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS. FOR
PURPOSES OF THIS SECTION 10.12, THE LOAN INSTRUMENTS SHALL BE DEEMED TO BE
PERFORMED AND MADE IN THE STATE OF ILLINOIS.
10.13 JURISDICTION AND VENUE. EACH BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY SUCH BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT
OF THE LOAN INSTRUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY,
OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS.
EACH BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN
<PAGE> 34
ANY OF SUCH COURTS, AND HEREBY AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN MAY BE SERVED IN THE
MANNER PROVIDED FOR NOTICES HEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT
PURSUANT TO SECTION 10.1. EACH BORROWER WAIVES ANY CLAIM THAT COOK COUNTY,
ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. TO THE EXTENT PROVIDED BY LAW, SHOULD
ANY BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY
LAW AFTER THE MAILING THEREOF, SUCH BORROWER SHALL BE DEEMED IN DEFAULT AND AN
ORDER AND/OR JUDGMENT MAY BE ENTERED BY THE COURT AGAINST SUCH BORROWER AS
DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE
EXCLUSIVE CHOICE OF FORUM FOR BORROWERS SET FORTH IN THIS SECTION 10.13 SHALL
NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OBTAINED IN
ANY OTHER FORUM OR THE TAKING BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE JURISDICTION, AND EACH BORROWER HEREBY WAIVES THE RIGHT
TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
10.14 WAIVER OF RIGHT TO JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE AND
AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE LOAN INSTRUMENTS OR
WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT
ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
11.15 Estoppel Certificate. Within 15 days after Lender reasonably requests
any Borrower to do so, such Borrower will execute and deliver to Lender a
statement certifying (i) that this Loan Agreement is in full force and effect
and has not been modified except as described in such statement, (ii) the date
to which interest on the Note has been paid, (iii) the Principal Balance, (iv)
whether or not to its knowledge an Incipient Default or Event of Default has
occurred and is continuing, and, if so, specifying in reasonable detail each
such Incipient Default or Event of Default of which it has knowledge, (v)
whether to its knowledge it has any defense, setoff or counterclaim to the
payment of the Note in accordance with its terms, and, if so, specifying each
defense, setoff or counterclaim of which it has knowledge in reasonable detail
(including where applicable the amount thereof), and (vi) as to any other
matter reasonably requested by Lender.
11.16 Counterparts. This Loan Agreement may be executed by the parties
hereto in several counterparts and each such counterpart shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same agreement.
<PAGE> 35
11.17 No Fiduciary Relationship. No provision in this Loan Agreement or in
any other Loan Instrument, and no course of dealing among the parties hereto,
shall be deemed to create any fiduciary duty by Lender to Borrower.
11.18 No Strict Construction. The language used in this Loan Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party hereto.
11.19 Conflict with Subordination Agreement. In the event of any conflict
between any term, covenant or condition of this Loan Agreement or any other
Loan Instrument and any term, covenant or condition of the Subordination
Agreement, the provisions of the Subordination Agreement shall govern.
11.20 Application of Subordination Agreement. This entire Loan Agreement is
subject to the provisions of the Subordination Agreement and the selective use
herein of the phrase "subject to the provisions of the Subordination Agreement"
or phrases similar thereto shall not limit the application of the Subordination
Agreement to any particular provision of this Loan Agreement or any other Loan
Instrument.
(remainder of this page intentionally left blank)
<PAGE> 36
IN WITNESS WHEREOF, this Loan Agreement has been executed and delivered by
each of the parties hereto by a duly authorized officer of each such party on
this 27th day of February, 1997 effective as of the date first written above.
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
--------------------
James S. Brannen
President
TJS PARTNERS, L.P.
By: TJS Management, L.P.
Its: General Partner
By: /s/ Thomas J. Salvatore
-----------------------
Thomas J. Salvatore
Managing General Partner
<PAGE> 1
EXHIBIT 10.22
STANDBY OPTION AND WARRANT AGREEMENT
THIS STANDBY OPTION AND WARRANT AGREEMENT (this "Agreement") is made as of
this 5th day of September, 1996, by and between Security Associates
International, Inc., a Delaware corporation ("SAI") and TJS Partners, Ltd., a
New York limited partnership ("TJS") (collectively, the "Parties").
R E C I T A L S
WHEREAS, SAI and TJS intend to enter into a Common Stock Subscription and
Purchase Agreement, of even date herewith (the "Purchase Agreement") pursuant
to which TJS will purchase common stock of SAI (the "Investment"); and
WHEREAS, SAI has previously issued options and warrants entitling the
holders thereof to acquire SAI common stock which will continue to remain
outstanding and subject to exercise following the consummation of the
Investment (the "Old Options and Warrants"); and
WHEREAS, the Parties have agreed that TJS shall have the opportunity to
maintain its proportionate ownership of SAI following consummation of the
Investment, in the event that any of the Outstanding Options or Warrants are
exercised; and
WHEREAS, in order to induce TJS to consummate the Investment and to
provide a mechanism for TJS to maintain its proportionate interest in SAI, the
Parties have agreed that SAI shall grant options and warrants to TJS in the
same amount and with the same terms and conditions as the Outstanding Options
and Warrants, all as is more specifically set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. OPTION/WARRANT GRANTS, TERMS, AND EXERCISE PRICES. SAI grants to TJS the
following options and warrants (the "New Options and Warrants"), provided,
however, that the New Options and Warrants shall be exercisable only if, and
to the extent that, the Old Options or Warrants are exercised and provided,
further, that the Expiration Date of any New Option or Warrant shall occur on
the 30th day after the Expiration Date of the corresponding Old Option or
Warrant.
<PAGE> 2
<TABLE>
<CAPTION>
EXPIRATION DATE OF
NUMBER OF EXERCISE OLD OPTIONS AND NEW OPTIONS
SHARES PRICE WARRANTS AND WARRANTS OLD OPTIONS AND WARRANTS
CLASS 1
- -------
OPTIONS
- -------
<S> <C> <C> <C> <C>
22,088 $0.57 12/31/96 the "Jones Equivalent Option" Lee Jones, issued
01/01/91
12,500 $0.57 10/26/00 the "Jacobson Equivalent Irwin Jacobson, issued
Option" 08/21/92
12,500 $0.57 10/26/00 the "Scharmann Equivalent Mark Scharmann, issued
Option" 08/21/92
20,000 $1.00 06/21/99 the "Gallas Equivalent Option" Daniel Gallas, issued
06/21/94
10,000 $1.00 06/21/99 the "Hagedal Equivalent Option" Tom Hagedal, issued
06/21/94
10,000 $1.00 06/21/99 the "Burgwald Equivalent Harold Burgwald, issued
Option" 06/21/94
5,000 $1.00 06/21/99 the "Davis Equivalent Option" Bev Davis, issued
06/21/94
50,000 $0.53 04/01/00 the "Figge 1 Equivalent Option" Fred Figge, issued
10/01/95
19,000 $0.53 04/01/00 the "Figge 2 Equivalent Option" Fred Figge, issued
01/21/96
17,000 $0.53 04/01/00 the "Figge 3 Equivalent Option: Fred Figge issued 08/1/96
CLASS 2
- -------
OPTIONS
- -------
12,500 $2.00 12/31/98 the "Sered Equivalent Option" Bernard & Samuel Sered,
issued 08/09/94
12,500 $2.00 12/31/98 the "Metro Suburban Pediatrics Metro Suburban
Equivalent Option" Pediatrics, issued
08/09/94
12,500 $2.00 12/31/98 the "Figge 4 Equivalent Option" Fred Figge, issued
09/02/94
10,000 $2.00 12/31/98 the "Infinity Partnership II Infinity
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C>
Equivalent Option" Partnership II,
issued 05/22/95
12,500 $2.00 12/31/98 the "Turner Equivalent Option" Brady Turner, issued
06/07/95
25,000 $2.00 12/31/98 the "Dechter Equivalent Option" Sidney Dechter, issued
10/19/95
NEW
- ---
WARRANTS
- --------
120,000 $1.00 12/31/99 the "Davis Equivalent Warrant" Ronald Davis, issued
12/01/93
40,000 $1.00 12/31/99 the "Rubin Equivalent Warrant" Stephen Rubin, issued
12/01/93
40,000 $1.00 12/31/99 the "Hoven Equivalent Warrant" Raymond Hoven, issued
12/01/93
</TABLE>
2. TERMS AND CONDITIONS OF NEW OPTIONS AND WARRANTS
(a) NOTICE OF EXERCISE OF OLD OPTIONS AND WARRANTS. SAI shall notify TJS
within five (5) days of the exercise of any of the Old Options or Warrants.
The notice shall identify the party exercising such Old Option or Warrant, the
Old Option or Warrant exercised, the number of shares of Common Stock purchased
pursuant thereto and the price per share paid.
(b) METHOD OF EXERCISING NEW OPTIONS OR WARRANTS.
(1) Class 1 Options. For the Jones Equivalent Option, the Jacobson
Equivalent Option, the Scharmann Equivalent Option, the Gallas Equivalent
Option, the Hagedal Equivalent Option, the Burgwald Equivalent Option, the
Davis Equivalent Option, the Figge 1 Equivalent Option, and the Figge 2
Equivalent Option (collectively, the "Class 1 Options"), TJS may exercise such
Class 1 Options at any time not more than sixty (60) days after the relevant
Old Option has been exercised prior to the expiration date set forth in the
table in Paragraph 1, in the same manner that such Old Option has been
exercised, by delivering to SAI a written notice stating the number of shares
that TJS has elected to purchase together with payment in full for the exercise
price. Within fifteen (15) days of receipt of the exercise price by SAI, it
shall issue the corresponding shares to TJS. TJS shall have none of the rights
of a shareholder with respect to a share until payment therefor has been made
in accordance with the terms of the relevant New Option or Warrant.
(2) Class 2 Options. For the Sered Equivalent Option, the Metro
Suburban Pediatrics Equivalent Option, the Figge 3 Equivalent Option, the
Infinity Partnership Equivalent Option, the Turner Equivalent Option, and the
Dechter Equivalent
3
<PAGE> 4
Option (collectively, the "Class 2 Options"), TJS may exercise such Class 2
Options at any time after the relevant Old Option has been exercised prior to
the expiration date set forth in the table in Paragraph 1, in the same manner
that such Old Option has been exercised by delivering to SAI a written notice
stating the number of shares that TJS has elected to purchase together with
payment in full for the exercise price. Within fifteen (15) days of receipt of
the exercise price by SAI, it shall issue the corresponding shares to TJS. TJS
shall have none of the rights of a shareholder with respect to a share until
payment therefor has been made in accordance with the terms of the relevant New
Option or Warrant.
(3) New Warrants. For the Davis Equivalent Warrant, the Rubin Equivalent
Warrant and the Hoven Equivalent Warrant (collectively, the "New Warrants"),
TJS may exercise such New Warrants at any time after the relevant Old Warrant
has been exercised and prior to the expiration date set forth in the table in
Paragraph 1, to the same extent that such Old Warrant has been exercised by
delivering to SAI a written notice stating the number of shares that TJS has
elected to purchase together with payment in full for the exercise price.
Within fifteen (15) days of receipt of the exercise price by SAI, it shall
issue the corresponding shares to TJS. TJS shall have none of the rights of a
shareholder with respect to a share until such share has been issued to TJS.
(c) LIMITED TRANSFERABILITY. The New Options and Warrants shall not be
assignable or transferable by TJS, except in the event that TJS shall
distribute the Investment to its partners, in which event the New Options and
Warrants shall be distributed, as nearly as practicable, to TJS' partners, pro
rata, in the same proportions as the Investment is distributed.
(d) ADJUSTMENT PROVISIONS. The New Options and Warrants shall in each
case have identical adjustment provisions as the relevant Old Options and
Warrants. In each instance where there is an adjustment in the exercise price
or the number of shares for which the New Options and Warrants may be
exercised, SAI shall promptly notify TJS of such adjustment.
3. INVESTMENT REPRESENTATIONS. The exercise of the New Options and Warrants
shall be contingent upon receipt by SAI from TJS of a representation, in
writing, that it is TJS' intention to acquire the shares then being purchased
for investment and not for resale.
4. MISCELLANEOUS PROVISIONS. This Agreement shall be governed by the
provisions of Section 11 of the Purchase Agreement, which is incorporated
herein by this reference.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first stated above.
SECURITY ASSOCIATES INTERNATIONAL,
INC.
By: /s/ James S. Brannen
-----------------------------
Its: /s/ President
-----------------------------
TJS PARTNERS, LTD.
By: /s/ Thomas J. Salvatore
------------------------------
Its: Managing General Partner
------------------------------
5
<PAGE> 1
Exhibit 10.23
Neither this Warrant, the shares of Convertible Preferred
Stock issuable upon exercise of this Warrant nor the
shares of Common Stock that can be purchased upon
exercise of the conversion privileges of the Convertible
Preferred Stock have been registered under the Securities
Act of 1933, and may not be sold or otherwise transferred
unless a compliance with the registration provisions of
such Act has been made or unless availability of an
exemption from such registration provisions has been
established, or unless sold pursuant to Rule 144 under
the Securities Act of 1933.
AMENDED
STANDBY OPTION AND WARRANT AGREEMENT
THIS AMENDED STANDBY OPTION AND WARRANT AGREEMENT (this "Agreement") is
made effective as of December 31, 1996, by and between Security Associates
International, Inc., a Delaware corporation ("SAI") and TJS Partners, L.P., a
New York limited partnership ("TJS") (collectively, the "Parties").
R E C I T A L S
WHEREAS, SAI and TJS concurrently herewith will enter into an Amendment
to the Common Stock Subscription and Purchase Agreement, dated September 5, 1996
(the "Amendment"); and
WHEREAS, SAI has previously issued options and warrants entitling the
holders thereof to acquire SAI common stock which will continue to remain
outstanding and subject to exercise following the consummation of the Amendment,
which include the Reinstated Options as defined in the Amendment (the "Old
Options and Warrants"); and
WHEREAS, the Parties have agreed that TJS shall have the opportunity to
maintain its proportionate ownership of SAI following consummation of the
Amendment, in the event that any of the Old Options or Warrants are exercised;
and
WHEREAS, each share of SAI's Convertible Preferred Stock, $10.00 par
value per share (the "Convertible Preferred Stock") to be issued to TJS pursuant
to the Amendment is convertible into 100 shares of SAI's common stock (the
"Common Stock") and entitles the holder thereof to voting rights equal to those
to which a holder of 100 shares of Common Stock is entitled.
WHEREAS, in order to induce TJS to execute the Amendment and to provide
a mechanism for TJS to maintain its proportionate interest in SAI, the Parties
have agreed that SAI shall grant options and warrants to TJS with the same terms
and conditions as the Outstanding Options and Warrants, excepting only that the
options and warrants issued to TJS shall be exercisable for SAI's Convertible
Preferred Stock, all as is more specifically set forth below.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. OPTION/WARRANT GRANTS, TERMS, AND EXERCISE PRICES. SAI grants to TJS the
following options and warrants (the "New Options and Warrants"), provided,
however, that the New Options and Warrants shall be exercisable only if, and to
the extent that, the Old Options or Warrants are exercised and provided,
further, that the New Options and Warrants shall be exercisable for one share of
Convertible Preferred Stock for each 100 shares of Common Stock into which the
Old Options and Warrants are exercisable (at a purchase price per share of
Convertible Preferred Stock equal to one hundred times (100X) the purchase price
per share of Common Stock pursuant to the Old Options and Warrants) and
provided, further, that the Expiration Date of any New Option or Warrant shall
occur on the 30th day after the Expiration Date of the corresponding Old Option
or Warrant.
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
SHARES OF DATE OF
CONVERTIBLE OLD
PREFERRED EXERCISE OPTIONS NEW OPTIONS OLD OPTIONS AND
STOCK PRICE AND AND WARRANTS WARRANTS
WARRANTS
<S> <C> <C> <C> <C>
220.88 $57.00 12/31/96 the "Jones Equivalent Option" Lee Jones,
issued 01/01/91
125.00 $57.00 10/26/00 the "Jacobson Equivalent Option" Irwin Jacobson,
issued 08/21/92
125.00 $57.00 10/26/00 the "Scharmann Equivalent Mark Scharmann,
Option" issued 08/21/92
200.00 $100.00 06/21/99 the "Gallas Equivalent Option" Daniel Gallas,
issued 06/21/94
100.00 $100.00 06/21/99 the "Hagedal Equivalent Option" Tom Hagedal,
issued 06/21/94
100.00 $100.00 06/21/99 the "Burgwald Equivalent Option" Harold Burgwald,
issued 06/21/94
50.00 $100.00 06/21/99 the "Davis Equivalent Option" Bev Davis,
issued 06/21/94
500.00 $53.00 04/01/00 the "Figge 1 Equivalent Option" Fred Figge,
issued 10/01/95
190.00 $53.00 04/01/00 the "Figge 2 Equivalent Option" Fred Figge,
issued 01/21/96
170.00 $53.00 04/01/00 the "Figge 3 Equivalent Option: Fred Figge
issued 08/1/96
125.00 $200.00 12/31/98 the "Sered Equivalent Option" Bernard &
Samuel Sered,
issued 08/09/94
125.00 $200.00 12/31/98 the "Metro Suburban Pediatrics Metro Suburban
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C>
Equivalent Option" Pediatrics,
issued 08/09/94
125.00 $200.00 12/31/98 the "Figge 4 Equivalent Option" Fred Figge,
issued 09/02/94
100.00 $200.00 12/31/98 the "Infinity Partnership II Infinity
Equivalent Option" Partnership II,
issued 05/22/95
125.00 $200.00 12/31/98 the "Turner Equivalent Option" Brady Turner,
issued 06/07/95
250.00 $200.00 12/31/98 the "Dechter Equivalent Option" Sidney Dechter,
issued 10/19/95
2,783.08 $57.00 10/26/00 the "Davis Reinstatement Ronald I. Davis
Equivalent Option" issued 10/26/90
2,783.08 $57.00 10/26/00 the "Brannen Reinstatement James S. Brannen
Equivalent Option" issued 10/26/90
1,855.39 $57.00 10/26/00 the "Rubin Reinstatement Stephen Rubin
Equivalent Option" issued 10/26/90
200.00 $44.20 09/05/97 the "Conrad Equivalent Option" Bobbie Conrad
issued 09/05/96
200.00 $44.20 09/05/97 the "Dalmar Equivalent Option" Anita M. Dalmar
issued 09/05/96
500.00 $44.20 09/05/97 the "Dilworth Equivalent Option" Robert H.
Dilworth
issued 09/05/96
250.00 $44.20 09/05/97 the "Freeman Equivalent Option" Dianne Freeman
issued 09/05/96
750.00 $44.20 09/05/97 the "Greinwald Equivalent Phyllis V.
Option I" Greinwald
issued 09/05/96
250.00 $44.20 09/05/97 the "Brown Equivalent Option" Robert Brown
issued 09/05/96
20.00 $44.20 09/05/97 the "Greinwald Equivalent Phyllis V.
Option II" Greinwald
issued 09/05/96
2.50 $44.20 09/05/97 the "Grolle Equivalent Option" Cheryl Grolle
issued 09/05/96
2.50 $44.20 09/05/97 the "Small Equivalent Option" Lorraine Small
issued 09/05/96
1,200.00 $44.20 09/05/97 the "Aparicio Equivalent Option" Inversiones
Aparicio
issued 09/05/96
625.00 $44.20 09/05/97 the "Alanje Equivalent Option" Inversiones
Alanje
issued 09/05/96
1,000.00 $44.20 09/05/97 the "Erlanger Equivalent Option" Inversiones
Erlanger
issued 09/05/96
1,200.00 $100.00 12/31/99 the "Davis Equivalent Warrant" Ronald Davis,
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C> <C> <C>
issued 12/01/93
400.00 $100.00 12/31/99 the "Rubin Equivalent Warrant" Stephen Rubin,
issued 12/01/93
400.00 $100.00 12/31/99 the "Hoven Equivalent Warrant" Raymond Hoven,
issued 12/01/93
250.00 $125.00 10/10/99 the "Buttonwood Buttonwood
Equivalent Option 1" Advisory Group, Inc.
Issued 10/10/96
250.00 $200.00 10/10/99 the "Buttonwood Buttonwood
Equivalent Option 2" Advisory Group,
Inc.issued
10/10/96
250.00 $300.00 10/10/99 the "Buttonwood Buttonwood
Equivalent Option 3" Advisory Group, Inc.
Issued 10/10/96
250.00 $100.00 10/01/00 The "Star Security Equivalent Star Security Systems,
Option" Inc. issued 8/95
250.00 $100.00 10/01/00 The "Metronet Equivalent Metronet Installations,
Options" Inc. issued 8/95
250.00 $100.00 10/01/00 The "Schultz Equivalent Options" Jack and Gillian Schultz
issued 8/95
</TABLE>
2. TERMS AND CONDITIONS OF NEW OPTIONS AND WARRANTS
(a) NOTICE OF EXERCISE OF OLD OPTIONS AND WARRANTS. SAI shall notify
TJS within five (5) days of the exercise of any of the Old Options or Warrants.
The notice shall identify the party exercising such Old Option or Warrant, the
Old Option or Warrant exercised, the number of shares of Common Stock purchased
pursuant thereto and the price per share paid.
(b) METHOD OF EXERCISING NEW OPTIONS OR WARRANTS. TJS may exercise
any New Option or Warrant at any time after the relevant Old Option or Warrant
has been exercised prior to the expiration date set forth in the table in
Paragraph 1, in the same manner that such Old Option or Warrant has been
exercised, by delivering to SAI a written notice stating the number of shares of
Convertible Preferred Stock that TJS has elected to purchase together with
payment in full for the exercise price. TJS shall have none of the rights of a
shareholder with respect to a share until payment therefor has been made in
accordance with the terms of the relevant New Option or Warrant. Within fifteen
(15) days of receipt of the exercise price by SAI, it shall issue the
corresponding shares of Convertible Preferred Stock to TJS. SAI shall not
declare a record date for any purpose during any period following the receipt of
such notice and payment and prior to the issuance of such shares of Convertible
Preferred Stock unless TJS shall be afforded all of TJS' rights as holder of
such shares of Convertible Preferred Stock.
(c) LIMITED TRANSFERABILITY. The New Options and Warrants shall not
be assignable or transferable by TJS, except in the event that TJS shall
distribute the investment in SAI (the "Investment") to its partners .
(d) ADJUSTMENT PROVISIONS. The New Options and Warrants shall in
each case have identical adjustment provisions as the relevant Old Options and
Warrants. In each instance where
4
<PAGE> 5
there is an adjustment in the exercise price or the number of shares for which
the New Options and Warrants may be exercised, SAI shall promptly notify TJS of
such adjustment.
3. INVESTMENT REPRESENTATIONS. The exercise of the New Options and Warrants
shall be contingent upon receipt by SAI from TJS of a representation, in
writing, that it is TJS' intention to acquire the shares then being purchased
for investment and not for resale.
4. LIMITATION ON EXERCISE OF NEW OPTIONS AND WARRANTS. Notwithstanding
anything to the contrary contained in this Agreement, TJS agrees that if any
exercise of any New Option or Warrant would result in a significant dimunition
of the ability of SAI to advantageously utilize its net operating loss
carryforwards ("NOLS") for federal income tax purposes, in the judgment of SAI's
certified public accountants, its right to exercise any New Option or Warrant
will be limited to the right to purchase the maximum number of shares of Common
Stock that can be purchased without SAI losing its ability to utilize its NOLS.
SAI shall promptly notify TJS in writing of any determination by its certified
public accountants that all or any portion of the remaining New Options or
Warrants may be exercised without jeopardizing SAI's ability to use its NOLS.
The time period for the exercise of any New Option or Warrant (or any part
thereof) the exercise of which was previously prohibited pursuant to the
provisions of this Section shall be extended for a period of sixty (60) days
following the receipt of written notice from SAI that the conditions that gave
rise to the prohibition on exercise no longer apply.
5. MISCELLANEOUS PROVISIONS. This Agreement shall be governed by the
provisions of Section 11 of the Purchase Agreement, which is incorporated herein
by this reference.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first stated above.
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
--------------------------------------
James S. Brannen, President
TJS PARTNERS, L.P.
By: TJS Management, L.P., its General Partner
By: /s/ Thomas J. Salvatore
--------------------------------------
Thomas J. Salvatore, Managing
General Partner
5
<PAGE> 1
Exhibit 10.24
Neither this Warrant, the shares of Convertible Preferred
Stock issuable upon exercise of this Warrant nor the shares of
Common Stock that can be purchased upon exercise of the
conversion privileges of the Convertible Preferred Stock (the
"Conversion Stock") have been registered under the Securities
Act of 1933, and may not be sold or otherwise transferred
unless a compliance with the registration provisions of such
Act has been made or unless availability of an exemption from
such registration provisions has been established, or unless
sold pursuant to Rule 144 under the Securities Act of 1933.
SECURITY ASSOCIATES INTERNATIONAL, INC.
CONVERTIBLE PREFERRED STOCK PURCHASE WARRANT
EXPIRING DECEMBER 31, 2003
Issued: Effective as of December 31, 1996
No. 1
WARRANTHOLDER: TJS Partner, L.P.
NAME: TJS Partners, L.P.
ADDRESS: 52 Vanderbilt Avenue
5th Floor
New York, New York 10017
No. of Shares of Convertible Preferred Stock to be issued upon exercise in full:
15,000
For Value Received, Security Associates International, Inc., a Delaware
corporation (the "Corporation"), promises to issue to the holder of this Warrant
("Warrantholder"), its nominees, successors or assigns the nonassessable shares
(the "Shares") of the Convertible Preferred Stock (as hereinafter defined),
$10.00 par value, of the Corporation at any time from December 31, 1996 to
December 31, 2003 (the "Expiration Date") upon the payment by the Warrantholder
to the Corporation of the purchase price per share set forth in Section 2.2
hereof (the "Purchase Price") and to deliver to the Warrantholder a certificate
or certificates representing the Shares purchased. The Warrants are initially
exercisable at a price of $250.00 per share, payable in cash or by check to the
order of the Corporation, or any combination of cash or checks, subject to
adjustment as provided in Section 2.2 below. The Warrantholder shall have the
right to exercise this Warrant in whole or in part at any time or times on or
prior to the Expiration Date. Subject to the conditions hereinafter set forth,
the Warrantholder may sell, assign and transfer this Warrant, in whole or in
part, and, in the event of any such sale, assignment and transfer, the
<PAGE> 2
Corporation agrees to reissue a Warrant or Warrants of like tenor for the
unexercised portion hereof. The number of Shares purchasable upon exercise of
this Warrant and the Purchase Price per Share shall be subject to adjustment
from time to time as set forth herein.
1. Covenants of the Corporation. The Corporation will at all times reserve
and keep available out of its authorized shares of Convertible Preferred Stock
and Common Stock or its treasury shares, solely for the purpose of issuance upon
the exercise of this Warrant as herein provided and of the conversion privileges
of the Convertible Preferred Stock, such number of shares of Convertible
Preferred Stock and Common Stock as shall then be issuable upon the exercise of
this Warrant and the conversion privileges of the Convertible Preferred Stock,
respectively. The Corporation covenants that all shares of Convertible Stock and
Common Stock which shall be so issued shall be duly and validly issued and fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof. The Corporation will take all such action as may be
necessary to assure that all such shares of Convertible Preferred Stock and
Common Stock may be so issued without violation of any applicable requirements
of any federal or state securities laws. The Corporation will not take any
corporate action which would result in any adjustment of the Purchase Price as
provided below if by virtue of such adjustment the total number of shares of
Convertible Preferred Stock or Common Stock issuable after such action upon
exercise of this Warrant or the conversion privileges of the Convertible
Preferred Stock would exceed the total number of shares of Convertible Preferred
Stock or Common Stock then authorized by the Corporation's Certificate of
Incorporation. No corporate action may be taken which would have the effect of
terminating or restricting the exercise of this Warrant except with the written
consent of the holder of this Warrant.
2. Exercise of Warrant.
2.1 Dividends. No payment or adjustment shall be made upon any
exercise of this Warrant on account of any previous cash dividends.
2.2 Purchase Price. The Purchase Price shall be $250.00 per share
or, in case an adjustment of such price has taken place pursuant to the
provisions of this paragraph 2, then the Purchase Price shall be the price as
last adjusted and in effect at the date this Warrant (or any part hereof) is
surrendered for exercise.
2.3 Adjustment of Purchase Price. Upon each adjustment of the
Purchase Price, the Warrantholder shall thereafter be entitled to purchase at
the adjusted Purchase Price, the number of shares of Convertible Preferred Stock
obtained by multiplying the Purchase Price in effect immediately prior to such
adjustment by the number of shares of Convertible Preferred Stock purchasable
immediately prior to such adjustment and dividing the product by the Purchase
Price as adjusted. No adjustment of the Purchase Price shall be made in an
amount less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.01 per share or more.
-2-
<PAGE> 3
2.4 Subdivision or Combination of Stock.
(a) In case the Corporation shall at any time subdivide its
outstanding shares of Convertible Preferred Stock into a greater number of
shares or declare a dividend or make any other distribution upon the Convertible
Preferred Stock of the Corporation payable in Convertible Preferred Stock, the
Purchase Price in effect immediately prior to such subdivision, dividend or
distribution shall be proportionately reduced, and conversely, in case the
outstanding shares of Convertible Preferred Stock of the Corporation shall be
combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
(b) Record Date. In case the Corporation shall take a record
of the holders of its Convertible Preferred Stock for the purpose of entitling
them to receive a dividend or other distribution payable in Convertible
Preferred Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Convertible Preferred Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution, as the case may be.
2.5 Reorganization, Reclassification, Consolidation, Merger or Sale.
(a) Any capital reorganization, reclassification,
consolidation, merger or sale of all or substantially all of the Corporation's
assets to another person or entity which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as an "ORGANIC CHANGE." Prior to the
consummation of any Organic Change, the Corporation will make appropriate
provisions to insure that each holder of Warrants will thereafter have the right
to acquire and receive such shares of stock, securities or assets as such holder
would have received if such holder had exercised this Warrant and converted the
Convertible Preferred Stock immediately prior to such Organic Change. In any
such Organic Change, the Corporation will make appropriate provisions to insure
that the provisions of this Section 2.5 will thereafter be applicable as nearly
as may be to the Warrants. The Corporation will not effect any consolidation,
merger or sale, unless prior to the consummation thereof, the successor
corporation resulting from consolidation or merger or the corporation purchasing
such assets assumes the obligation to deliver to such holder of Warrants such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(b) If a purchase, tender or exchange offer is made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock of the Corporation, the Corporation shall not effect any consolidation,
merger or sale with the person having made such offer or with any affiliate of
such person, unless prior to the consummation of such consolidation, merger or
-3-
<PAGE> 4
sale the holder hereof shall have been given a reasonable opportunity to then
elect to receive, upon exercise of this Warrant and exercise of the conversion
privileges of the Convertible Preferred Stock, either the stock, securities or
assets then issuable with respect to the Common Stock of the Corporation or the
stock, securities or assets, or the equivalent, issued to previous holders of
the Common Stock in accordance with such offer.
2.6 Notice of Adjustment. Upon any adjustment of the Purchase Price,
then and in each such case the Corporation shall give written notice thereof to
the Warrantholder, which notice shall state the Purchase Price resulting from
such adjustment, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
2.7 Other Notices. In case at any time:
(a) the Corporation shall offer for subscription pro rata to
the holders of its Convertible Preferred Stock or Common Stock any additional
shares of stock of any class or other rights;
(b) the Corporation shall offer for subscription pro rata to
the holders of its Convertible Preferred Stock or Common Stock any additional
shares of stock of any class or other rights;
(c) there shall be any capital reorganization, or
reclassification of the capital stock of the Corporation, or consolidation or
merger of the Corporation with, or sale of all or substantially all of its
assets to, another corporation; or
(d) there shall be a voluntary dissolution, liquidation or
winding up of the Corporation; then, in any one or more of said cases, the
Corporation shall give to the Warrantholder, (i) at least 20 days prior written
notice of the date on which the books of the Corporation shall close or a record
shall be taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up ,at least 20
days prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Convertible Preferred Stock or Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Convertible Preferred Stock
or Common Stock shall
-4-
<PAGE> 5
be entitled to exchange their Convertible Preferred Stock or Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
2.8 Redemption. Intentionally omitted.
2.9 Definitions of Convertible Preferred Stock and Common Stock. As
used in this Paragraph 2, the term "Convertible Preferred Stock" shall mean the
Corporation's Convertible Preferred Stock, $10.00 par value, having the
designations, rights , preferences and limitations set forth in the Certificate
of Designations, Preferences, Rights and Limitations of Convertible Preferred
Stock, attached hereto as Exhibit "A", and "Common Stock" shall mean the
Corporation's Common Stock, $.001 par value, of any class as constituted on the
effective date hereof, and shall also include any capital stock of any class of
the Corporation (other than the Convertible Preferred Stock) thereafter
authorized which shall not be limited to a fixed sum or percentage of par value
in respect of the rights of the holders thereof to participate in dividends or
in the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation.
2.10 Issue Tax. The issuance of certificates for shares of
Convertible Preferred Stock upon exercise of this Warrant shall be made without
charge to the holder hereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of this Warrant.
2.11 Closing of Books. The Corporation will not close its books
against the transfer of any shares of Convertible Preferred Stock issued or
issuable upon the exercise of this Warrant.
2.12 Transferability and Registration Under Securities Act. The
provisions of the Common Stock Subscription and Purchase Agreement dated
September 5, 1996 entered into by the Corporation in connection with the initial
issuance of Common Stock to TJS Partners, L.P., a New York limited partnership
pertaining to the transferability and the rights to registration of the Common
Stock purchased pursuant to that agreement under the Securities Act of 1933, as
amended, are hereby incorporated herein by reference and made a part hereof and
shall be deemed to apply to the transferability of this Warrant (and any shares
of Convertible Preferred Stock and Common Stock or other securities acquired
upon exercise hereof and thereof ) and to the registration of the shares of
Common Stock (or other securities) which the Warrantholder may acquire upon
exercise of the Convertible Preferred Stock.
2.13 Notice. Any notice or other document required or permitted to be
given or delivered to the Warrantholder(s) and holder(s) of shares issued upon
exercise of this Warrant or the Convertible Preferred Stock shall be sent by
certified or registered mail, return receipt requested, to the Warrantholder at
the address now shown on this Warrant or at such other address as the holder(s)
shall
-5-
<PAGE> 6
furnish to the Corporation in writing. Any notice or other document required or
permitted to be given or delivered to the Corporation at 2001 South Arlington
Heights Road, Arlington Heights, Illinois 60005 or such other address as shall
have been furnished to the Warrantholder(s) and holder(s) of Shares by the
Corporation.
2.14 Exercise of Warrant. In order to exercise this Warrant, the
Warrantholder shall deliver to the Corporation (i) a written notice of such
holder's election to exercise this Warrant specifying the number of shares of
Convertible Preferred Stock to be purchased, and (ii) payment in cash or by
check of the per share Purchase Price multiplied by the number of shares
purchased. By acceptance of this Warrant the Warrantholder represents and
warrants to the Corporation that, unless a registration statement is in effect
with respect to the Shares, the Warrantholder shall acquire the Shares for its
own account and not with a view to the distribution thereof. Upon receipt of
written notice, the Corporation shall within ten (10) business days execute or
cause to be executed and delivered to such holder a certificate or certificates
representing the aggregate number of Shares purchased. If this Warrant shall
have been exercised only in part, the Corporation shall also deliver a new
Warrant of like tenor evidencing the rights of such holder to purchase the
remaining Shares called for by this Warrant.
2.15 Limitation on Exercise of Warrant. The holder of this Warrant
agrees that if any exercise of this Warrant would result in a significant
diminution of the ability of the Corporation to advantageously utilize its net
operating loss carryforwards ("NOLS") for federal income tax purposes, in the
judgment of the Corporation's certified public accountants, its right to
exercise this Warrant will be limited to the right to purchase the maximum
number of Shares that can be purchased without the Corporation losing its
ability to utilize its NOLS. The Corporation shall promptly notify the holder of
this Warrant in writing of any determination by its certified public accountants
that all or part of any remaining portion of this Warrant may be exercised
without jeopardizing SAI's ability to use its NOLS. The time period for the
exercise of any portion of this Warrant (or any part thereof) the exercise of
which was previously prohibited pursuant to the provisions of this Section shall
be extended for a period of sixty (60) days following the receipt of written
notice from SAI that the conditions that gave rise to the prohibition on
exercise no longer apply.
2.16 Limitation of Liability. No provisions hereof, in the absence of
affirmative action by the Warrantholder to purchase Shares hereunder, and no
mere enumeration herein of the rights or privileges of the Warrantholder shall
give rise to any liability of such holder for the Purchase Price or as a
shareholder of the Corporation (whether such liability is asserted by the
Corporation or creditors of the Corporation).
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by its President or a Vice President, thereunto duly authorized, the
execution hereof to be attested by its Secretary or an Assistant Secretary; and
the affixing of its corporate seal effective as of the 31st day of December,
1996.
SECURITY ASSOCIATES INTERNATIONAL, INC.
ATTEST:
By: /s/ Stephen Rubin By: /s/ James S. Brannen
----------------------------- ------------------------
Secretary President
-7-
<PAGE> 8
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ Shares and herewith
tenders in payment for such Shares cash or a check or a wire transfer of funds
payable to the order of Security Associates International, Inc. in the amount of
$______________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the name of
____________________, whose address is_______________________________________
_______________________, and that such Certificate be delivered to
__________________________, whose address is ______________________________.
Dated: Signature:____________________
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant Certificate.)
-----------------------------------------
----------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
s
-8-
<PAGE> 9
[FORM OF ASSIGNMENT]
[To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________ hereby sells, assigns
and transfers unto ___________________________________________________________
___________________________________(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________,
Attorney, to transfer the Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:____________________
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant Certificate.)
- -----------------------------------------
- -----------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
Neither this Warrant, the shares of Convertible Preferred Stock issuable upon
exercise of this Warrant nor the shares of Common Stock that can be purchased
upon exercise of the conversion privileges of the Convertible Preferred Stock
(the "Conversion Stock") have been registered under the Securities Act of 1933,
and may not be sold or otherwise transferred unless a compliance with the
registration provisions of such Act has been made or unless availability of an
exemption from such registration provisions has been established, or unless sold
pursuant to Rule 144 under the Securities Act of 1933.
-9-
<PAGE> 1
EXHIBIT 10.25
Security Associates International, Inc.
Common Stock Purchase Warrant
Expiring _____________________
Issued: ______________________
No.
WARRANTHOLDER: ___________________
NAME:
ADDRESS:
No. of Shares of Common Stock to be issued upon exercise in full:
For Value Received, Security Associates International, Inc., a Delaware
corporation (the "Corporation"), promises to issue to the holder of this
Warrant ("Warrantholder"), its nominees, successors or assigns the
nonassessable shares (the "Shares") of the Common Stock (as hereinafter
defined), $.0001 par value, of the Corporation at any time from _____________
to _________________ (the "Expiration Date") upon the payment by the
Warrantholder to the Corporation of the purchase price per share set forth in
Section 2.2 hereof (the "Purchase Price") and to deliver to the Warrantholder a
certificate or certificates representing the Shares purchased. The Warrants
are initially exercisable at a price of $___________ per share, payable in cash
or by check to the order of the Corporation, or any combination of cash or
checks, subject to adjustment as provided in Section 2.2 below. The
Warrantholder shall have the right to exercise this Warrant in whole or in part
at any time or times on or prior to the Expiration Date. Subject to the
conditions hereinafter set forth, the Warrantholder may sell, assign and
transfer this Warrant, in whole or in part, and, in the event of any such sale,
assignment and transfer, the Corporation agrees to reissue a Warrant or
Warrants of like tenor for the unexercised portion hereof. The number of
Shares purchasable upon exercise of this Warrant and the Purchase Price per
Share shall be subject to adjustment from time to time as set forth herein.
1. Covenants of the Corporation. The Corporation will at all times reserve and
keep available out of its authorized shares of Common Stock or its treasury
shares, solely for the purpose of issuance upon the exercise of this Warrant as
herein provided such number of shares of Common Stock as shall then be issuable
upon the exercise of this Warrant. The Corporation covenants that all shares
of Common Stock which shall be so issued shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof. The Corporation will take all such action as
may be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable requirements of any federal or state
securities laws. The Corporation will not take any corporate action which
would result in any adjustment of the Purchase Price as provided below if by
virtue
<PAGE> 2
of such adjustment the total number of shares of Common Stock issuable after
such action upon exercise of this Warrant would exceed the total number of
shares of Common Stock then authorized by the Corporation's Certificate of
Incorporation. No corporate action may be taken which would have the effect of
terminating or restricting the exercise of this Warrant except with the written
consent of the holder of this Warrant.
Exercise of Warrant.
2.1 Dividends. No payment or adjustment shall be made upon any exercise
of this Warrant on account of any previous cash dividends.
2.2 Purchase Price. The Purchase Price shall be $__________ per
share or, in case an adjustment of such price has taken place pursuant to the
provisions of this paragraph 2, then the Purchase Price shall be the price as
last adjusted and in effect at the date this Warrant (or any part hereof) is
surrendered for exercise.
2.3 Adjustment of Purchase Price. Upon each adjustment of the Purchase
Price, the Warrantholder shall thereafter be entitled to purchase at the
adjusted Purchase Price, the number of shares of Common Stock obtained by
multiplying the Purchase Price in effect immediately prior to such adjustment
by the number of shares of Common Stock purchasable immediately prior to such
adjustment and dividing the product by the Purchase Price as adjusted. No
adjustment of the Purchase Price shall be made in an amount less than $.01 per
share, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall amount to $.01 per share
or more.
2.4 Subdivision or Combination of Stock.
In case the Corporation shall at any time subdivide its outstanding shares
of Common Stock into a greater number of shares or declare a dividend or make
any other distribution upon the Common Stock of the Corporation payable in
Common Stock, the Purchase Price in effect immediately prior to such
subdivision, dividend or distribution shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the Corporation
shall be combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
Record Date. In case the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a dividend or
other distribution payable in Common Stock, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution, as the case may be.
Reorganization, Reclassification, Consolidation, Merger or Sale.
<PAGE> 3
(a) Any capital reorganization, reclassification, consolidation, merger or
sale of all or substantially all of the Corporation's assets to another person
or entity which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is
referred to herein as an "Organic Change." Prior to the consummation of any
Organic Change, the Corporation will make appropriate provisions to insure that
each holder of Warrants will +thereafter have the right to acquire and receive
such shares of stock, securities or assets as such holder would have received
if such holder had exercised this Warrant immediately prior to such Organic
Change. In any such Organic Change, the Corporation will make appropriate
provisions to insure that the provisions of this Section 2.5 will thereafter be
applicable as nearly as may be to the Warrants. The Corporation will not
effect any consolidation, merger or sale, unless prior to the consummation
thereof, the successor corporation resulting from consolidation or merger or
the corporation purchasing such assets assumes the obligation to deliver to
such holder of Warrants such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
(b) If a purchase, tender or exchange offer is made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock of the
Corporation, the Corporation shall not effect any consolidation, merger or sale
with the person having made such offer or with any affiliate of such person,
unless prior to the consummation of such consolidation, merger or sale the
holder hereof shall have been given a reasonable opportunity to then elect to
receive, upon exercise of this Warrant either the stock, securities or assets
then issuable with respect to the Common Stock of the Corporation or the stock,
securities or assets, or the equivalent, issued to previous holders of the
Common Stock in accordance with such offer.
2.6 Notice of Adjustment. Upon any adjustment of the Purchase Price, then
and in each such case the Corporation shall give written notice thereof to the
Warrantholder, which notice shall state the Purchase Price resulting from such
adjustment, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
2.7 Other Notices. In case at any time:
the Corporation shall offer for subscription pro rata to the holders of its
Common Stock any additional shares of stock of any class or other rights;
the Corporation shall offer for subscription pro rata to the holders of its
Common Stock any additional shares of stock of any class or other rights;
there shall be any capital reorganization, or reclassification of the capital
stock of the Corporation, or consolidation or merger of the Corporation with,
or sale of all or substantially all of its assets to, another corporation; or
there shall be a voluntary dissolution, liquidation or winding up of the
Corporation; then, in any one or more of said cases, the Corporation shall give
to the Warrantholder, (i) at least 20 days
<PAGE> 4
prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up ,at least 20 days prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (i)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Convertible Preferred
Stock or Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (ii) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Convertible Preferred Stock
or Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
2.8 Redemption.
(a) The Warrants may be redeemed, on not less than thirty (30) days' prior
written notice, at the option of the Corporation, given at any time after one
year from the date of issuance of the Warrants, at a redemption price of $.10
per Share for which the Warrant may be exercised (the "Redemption Price"),
provided that the Market Price of the Common Stock equals or exceeds $_________
per share (subject to adjustment for subdivision or combination of Common
Stock) for a period of 15 out of 20 consecutive trading days ending within 30
days of the date on which the notice of redemption (the "Redemption Notice") is
given. For purposes of this Section 2.8, Market Price shall mean (i) the last
reported sale price of the Common Stock as reported by the primary stock
exchange on which the Common Stock is traded if the Common Stock is traded on a
national stock exchange, or the NASDAQ Stock Market, Inc. ("NASDAQ") if the
Common Stock is quoted on NASDAQ or (ii) if last sales price information is not
available, the average closing bid price of the Common Stock as reported by
NASDAQ, or, if the Common Stock is not traded on an exchange or NASDAQ, as
reported by the National Quotation Bureau, Inc. All Warrants must be redeemed
if any are redeemed.
(b) The Redemption Notice shall be mailed to the Warrantholder and shall
state: (i) the date of redemption (the "Redemption Date"); (ii) the number of
Shares subject to purchase pursuant to the Warrants to be redeemed from the
holder to whom the notice is addressed; and (iii) instructions for surrender to
the Corporation, in the manner and at the place designated, a certificate or
certificates representing the number of shares subject to purchase pursuant to
the Warrants to be redeemed from such holder.
(c) Upon receipt of the Redemption Notice, the Warrantholder shall have
the option, at its sole election, to specify what portion of its Warrants
called for redemption in the Redemption Notice shall be redeemed as provided in
this paragraph 2.8 or exercisable for the purchase of Common Stock; provided
that the Warrantholder pays the Purchase Price to the Corporation on or prior
to the Redemption Date.
<PAGE> 5
(d) On or before the Redemption Date, the Warrantholder shall
surrender the required certificate or certificates representing such Warrants
to the Corporation, in the manner and at the place designated in the Redemption
Notice, and upon the Redemption Date the Redemption Price for such Warrants
shall be paid to the order of the person whose name appears on such certificate
or certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired.
2.9 Definitions of Common Stock. As used in this Paragraph 2, the term
"Convertible Preferred Stock" shall mean the Corporation's Convertible
Preferred Stock, $10.00 par value, having the designations, rights ,
preferences and limitations set forth in the Certificate of Designations,
Preferences, Rights and Limitations of Convertible Preferred Stock, attached
hereto as Exhibit "A", and "Common Stock" shall mean the Corporation's Common
Stock, $.0001 par value, of any class as constituted on the effective date
hereof, and shall also include any capital stock of any class of the
Corporation (other than the Corporation's Convertible Preferred Stock)
thereafter authorized which shall not be limited to a fixed sum or percentage
of par value in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
2.10 Issue Tax. The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the holder hereof for
any issuance tax in respect thereof, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the holder of this Warrant.
2.11 Closing of Books. The Corporation will not close its books against the
transfer of any shares of Common Stock issued or issuable upon the exercise of
this Warrant.
2.12 Notice. Any notice or other document required or permitted to be given or
delivered to the Warrantholder(s) and holder(s) of shares issued upon exercise
of this Warrant Preferred Stock shall be sent by certified or registered mail,
return receipt requested, to the Warrantholder at the address now shown on this
Warrant or at such other address as the holder(s) shall furnish to the
Corporation in writing. Any notice or other document required or permitted to
be given or delivered to the Corporation at 2001 South Arlington Heights Road,
Arlington Heights, Illinois 60005 or such other address as shall have been
furnished to the Warrantholder(s) and holder(s) of Shares by the Corporation.
2.13 Exercise of Warrant. In order to exercise this Warrant, the
Warrantholder shall deliver to the Corporation (i) a written notice of such
holder's election to exercise this Warrant specifying the number of shares of
Common Stock to be purchased, and (ii) payment in cash or by check of the per
share Purchase Price multiplied by the number of shares purchased. Upon
receipt of written notice, the Corporation shall within ten (10) business days
execute or cause to be executed and delivered to such holder a certificate or
certificates representing the aggregate number of Shares purchased. If this
Warrant shall have been exercised only in part, the
<PAGE> 6
Corporation shall also deliver a new Warrant of like tenor evidencing the
rights of such holder to purchase the remaining Shares called for by this
Warrant.
2.14 Limitation of Liability. No provisions hereof, in the absence of
affirmative action by the Warrantholder to purchase Shares hereunder, and no
mere enumeration herein of the rights or privileges of the Warrantholder shall
give rise to any liability of such holder for the Purchase Price or as a
shareholder of the Corporation (whether such liability is asserted by the
Corporation or creditors of the Corporation).
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its President or a Vice President, thereunto duly authorized, the execution
hereof to be attested by its Secretary or an Assistant Secretary; and the
affixing of its corporate seal effective as of the 31st day of December, 1996.
Security Associates International, Inc.
ATTEST:
By:___________________________ By:___________________________
Secretary President
<PAGE> 7
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ Shares and herewith
tenders in payment for such Shares cash or a check or a wire transfer of funds
payable to the order of Security Associates International, Inc. in the amount
of $______________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the name of
____________________, whose address is , and
that such Certificate be delivered to __________________________, whose
address is _______________________.
Dated: Signature:____________________
(Signature must conform in all respects to name of holder as specified on
the face of the Warrant Certificate.)
_________________________________________
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE> 8
[FORM OF ASSIGNMENT]
[To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________ hereby sells, assigns
and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________,
Attorney, to transfer the Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:____________________
(Signature must conform in all respects to name of holder as specified on
the face of the Warrant Certificate.)
________________________________
________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF
REGISTRANT
AMJ CENTRAL STATION CORPORATION, INC., a Delaware corporation
RMR MANAGEMENT CORP., a Delaware corporation
MCAP INVESTORS, INC., a Delaware corporation
WINNETKA INVESTORS, INC., a Delaware corporation
MONITOR SERVICE GROUP, L.L.C., a Delaware limited liability company
SECURITY ASSOCIATES COMMAND CENTER II, L.L.C., a Michigan limited liability
company
ALL SECURITY MONITORING SERVICES, L.L.C., an Illinois limited liability
company
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Re: Security Associates International, Inc.
Form S-1 Registration Statement
As independent public accountants, we hereby consent to the use of our
reports dated April 11, 1997 and July 2, 1997 and to all references to our
Form included in or made a part of this Registration Statement.
s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
July 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 632,355
<SECURITIES> 0
<RECEIVABLES> 1,564,170
<ALLOWANCES> (206,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,227,397
<PP&E> 872,795
<DEPRECIATION> (454,896)
<TOTAL-ASSETS> 16,532,723
<CURRENT-LIABILITIES> 6,744,911
<BONDS> 0
0
3,796,430
<COMMON> 3,699
<OTHER-SE> (2,531,665)
<TOTAL-LIABILITY-AND-EQUITY> 16,532,723
<SALES> 0
<TOTAL-REVENUES> 3,782,091
<CGS> 0
<TOTAL-COSTS> 4,124,923
<OTHER-EXPENSES> 248,635
<LOSS-PROVISION> 177,000
<INTEREST-EXPENSE> 1,384,239
<INCOME-PRETAX> (1,718,259)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,718,259)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,718,259)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> 0
</TABLE>
