<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [ ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SECURITY ASSOCIATES INTERNATIONAL, INC.
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(Name of Registrant as Specified in Its Charter)
SECURITY ASSOCIATES INTERNATIONAL, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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SECURITY ASSOCIATES INTERNATIONAL, INC.
2101 SOUTH ARLINGTON HEIGHTS ROAD
SUITE 100
ARLINGTON HEIGHTS, ILLINOIS 60005
(847) 956-8650
April 17, 1998
Dear Stockholder:
It is my pleasure to invite you to the 1998 Annual Meeting of Stockholders
of Security Associates International, Inc. The meeting will be held at 10 a.m.
central time, on May 19, 1998, at the Sheraton Suites, located at 121 Northwest
Point Boulevard, Elk Grove Village, Illinois.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement describe the items of business which will be discussed during the
meeting. It is important that you vote your shares whether or not you plan to
attend the meeting. To be sure your vote is counted, we urge you to carefully
review the Proxy Statement and to vote your choices. PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS SOON AS
POSSIBLE. If you attend the meeting and wish to vote in person, the ballot
that you submit at the meeting will supercede your proxy.
I look forward to seeing you at the meeting. On behalf of the management
and directors of Security Associates International, Inc., I want to thank you
in advance for your continued support and confidence in 1998.
Sincerely,
/s/ Ronald I. Davis
----------------------------
RONALD I. DAVIS
Chairman of the Board
<PAGE> 3
SECURITY ASSOCIATES INTERNATIONAL, INC.
2101 SOUTH ARLINGTON HEIGHTS ROAD
SUITE 100
ARLINGTON HEIGHTS, ILLINOIS 60005
(847) 956-8650
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Security Associates International, Inc.:
Notice is hereby given that the 1998 annual meeting of stockholders (the
"Meeting" or "Annual Meeting") of Security Associates International, Inc., a
Delaware corporation (the "Company"), will be convened at the Sheraton Suites,
located at 121 Northwest Point Boulevard, Elk Grove Village, Illinois, on May
19, 1998 at 10 a.m. central time (the "Meeting Date"). All stockholders of the
Company (the "Stockholders") are entitled to attend the Meeting. The Meeting
will be held for the following purposes:
(1) To elect five Directors to hold office until the next annual
meeting of Stockholders as provided in the Company's Bylaws (the
"Bylaws");
(2) To ratify the selection of Arthur Andersen LLP as the
Company's independent auditor for the fiscal year ending December
31, 1998;
(3) To consider and vote upon an amendment to the Company's
Certificate of Incorporation, as amended, to increase the number of
authorized shares of preferred stock from 500,000 to 1,000,000
shares;
(4) To consider and vote upon a proposal to amend the terms of
the Company's 12% Redeemable Preferred Stock to increase the
threshold levels of new equity raised by the Company which trigger
(i) an obligation to pay all accrued dividends, (ii) the
Company's right to redeem the 12% Redeemable Preferred Stock, and
(iii) the right of the holder of the 12% Redeemable Preferred Stock
to convert that stock into Common Stock; and
(5) To transact any other business as may properly come before
the Meeting or any adjournment thereof.
Stockholders of record of shares of the Company's Common Stock, $.001 par
value per share, and Convertible Preferred Stock, par value $10.00 per share
(collectively, "Shares"), at the close of business on March 25, 1998
("Stockholders"), the record date fixed by the Board of Directors, are entitled
to notice of, and to vote at, the Meeting, as more fully described in the Proxy
Statement. Prior to the mailing of this Notice of Annual Meeting and Proxy
Statement, the sole holder of the Company's 12% Redeemable Preferred Stock has
consented to the proposed amendment to the terms of the 12% Redeemable
Preferred Stock as set forth in Item No. 4 above. For ten days prior to the
Meeting, a list of Stockholders entitled to vote at the Meeting with the
address and the Shares held by each, will be kept on file at the offices of the
Company located at 2101 South Arlington Heights Road, Suite 100, Arlington
Heights, Illinois 60005 and at the offices of the Company's transfer agent
LaSalle National Bank, located at 135 South LaSalle Street,
<PAGE> 4
Chicago, Illinois 60628, and will be subject to inspection by any Stockholder
at any time during usual business hours. The list will also be available for
inspection by any Stockholder during the Meeting.
Stockholders who cannot attend are urged to sign, date and otherwise
complete the enclosed proxy card and return it promptly in the envelope
provided. Any Stockholder giving a proxy has the right to revoke it at any
time before it is voted. The proxy will not be used if you attend the Meeting
and vote in person.
By order of the Board of Directors:
/s/ James S. Brannen
----------------------------------
James S. Brannen
President
The Company's 1997 Annual Report is enclosed with this notice.
<PAGE> 5
SECURITY ASSOCIATES INTERNATIONAL, INC.
2101 SOUTH ARLINGTON HEIGHTS ROAD
SUITE 100
ARLINGTON HEIGHTS, ILLINOIS 60005
_____________
PROXY STATEMENT
_____________
The following information is provided in connection with the solicitation
of proxies for the 1998 Annual Meeting of Stockholders of Security Associates
International, Inc., a Delaware corporation (the "Company"), to be held on May
19, 1998, at 10 a.m. central time, at the Sheraton Suites, located at 121
Northwest Point Boulevard, Elk Grove Village, Illinois, and adjournments
thereof (the "Meeting" or "Annual Meeting"), for the purposes stated in the
Notice of Annual Meeting of Stockholders accompanying this Proxy Statement.
VOTING OF SHARES
This Proxy Statement and the accompanying proxy card are being mailed to
Stockholders, beginning on or about April 17, 1998, in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company (the
"Board") for the Annual Meeting. Proxies are solicited to give all
Stockholders of record on the close of business on March 25, 1998 (the "Record
Date") an opportunity to vote on matters to be presented at the Annual Meeting.
Shares can be voted at the meeting only if the Stockholder is present or
represented by proxy.
Each share of the Company's Common Stock (the "Common Stock"), $.001
par value per share (which are each entitled to one vote) and Convertible
Preferred Stock (the "Convertible Preferred Stock"), par value $10.00 per share
(which are each entitled to 100 votes) (collectively the Common Stock and
Convertible Preferred Stock are referred to herein as the "Shares") represented
at the Annual Meeting is entitled to vote on each matter properly brought
before the Meeting. Please specify your choices by marking the appropriate
boxes on the enclosed proxy card and signing it. Directors are elected by a
plurality of the votes cast by the Shares entitled to vote at a Meeting at
which a quorum is present. A plurality means that the nominees with the
largest number of votes are elected as directors up to the maximum number of
directors to be chosen at the Meeting. Any other matters that may be submitted
at the Meeting shall be determined by a majority of the votes cast (the
amendment to the terms of the 12% Redeemable Preferred Stock also requires the
consent of the holder thereof, which has already been obtained). Shares
represented by proxies that are marked "withhold authority" with respect to the
election of one or more nominees for election as director, and proxies which
are marked to deny discretionary authority on other matters, will not be
counted in determining whether a majority vote was obtained in such matters. If
no directions are given and the signed card is returned, the person named in
the proxy card will vote the shares in favor of the election of all listed
nominees and all the other items listed in the Notice of Annual Meeting of
Stockholders, and at his discretion on any other matter that may properly come
before the Meeting in accordance with his best judgment. As of the date this
Proxy Statement went to press, the Company knew of no other matter, other than
those described in the Notice of Annual Meeting of Stockholders, that are to
come before the Meeting. If a broker or other nominee holding Shares for a
beneficial owner does not vote on a proposal (broker non-votes), the Shares
will not be counted in determining the number of votes cast. Stockholders
voting by proxy may revoke that proxy at any time before it is voted at the
Meeting by delivering to the Company a proxy bearing a later date or by
attending in person and casting a ballot.
YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED AND SIGNED PROXY CARD
PROMPTLY SO YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE
MEETING IN PERSON.
<PAGE> 6
As of the Record Date, 6,110,230 shares of Common Stock and 64,584.43
shares of Convertible Preferred Stock (representing 6,458,443 shares of Common
Stock on an as converted basis) were issued and outstanding.
A copy of the Company's 1997 Annual Report is being mailed to Stockholders
concurrently with this Proxy Statement.
BOARD OF DIRECTORS
GENERAL
The business affairs of the Company are managed under the direction of the
Board of Directors. Members of the Board are kept informed through various
reports and documents sent to them on a regular basis, through operating and
financial reports routinely presented at Board and committee meetings by the
Chief Executive Officer and other officers, and through other means.
The Board met twice in 1997: first in April, at which three of the
directors were present, and again in October, at which all directors were
present. Additionally, the Board acted by unanimous consent on seven occasions
during 1997.
Biographical information on the director nominees is set forth herein
under the caption "Item No. 1 - Election of Directors."
COMMITTEES
The Board has formed a standing Audit Committee and a standing
Compensation Committee to assist the Board in carrying out its duties.
The AUDIT COMMITTEE has three members. Members of this committee are
Thomas J. Salvatore, Michael B. Jones and Douglas Oberlander. The Audit
Committee considers the adequacy of the internal controls of the Company and
the objectivity and integrity of financial reporting and meets with the
Company's independent certified public accountants and appropriate Company
financial personnel about these matters.
The COMPENSATION COMMITTEE has three members. Members of this committee
are Thomas J. Salvatore, Michael B. Jones and Douglas Oberlander. This
committee monitors and makes recommendations to the Board with respect to
compensation programs for directors and officers, and administers compensation
plans for executive officers.
The Audit Committee and Compensation Committee were established in January
1998 and, therefore, did not meet in the fiscal year ended December 31, 1997.
DIRECTOR COMPENSATION
Beginning January 1998, directors who are not executive officers of the
Company are paid a fee of five hundred dollars ($500) per month as compensation
for their services. All directors (other than Mr. Salvatore) 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. Mr. Jones was awarded options to
purchase 10,000 shares of the Company's Common Stock, at an exercise price of
$6.00 per share, when he joined the Board of Directors. Mr. Jones' options
expire December 31, 2002.
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ITEM NO. 1 - ELECTION OF DIRECTORS
The Board, pursuant to the Company's Certificate of Incorporation, as
amended, and Bylaws, as amended, has determined that the number of directors
shall be five. The five Directors will be elected at the Meeting, each to
serve until the next annual meeting of Stockholders and until their respective
successors are elected and qualified. The following nominees have been selected
and approved by the Board for submission to the Stockholders for approval:
Ronald I. Davis, James S. Brannen, Thomas J. Salvatore, Douglas Oberlander and
Michael B. Jones. Unless instructions to the contrary are given, the person
named as the proxy voter ("Proxy") in the accompanying proxy card, or his
substitute, will vote for the nominees for director set forth below with
respect to all proxies received by the Company. If any nominee should become
unable or unwilling to serve for any reason, the Proxy intends to cast votes
for a substitute nominee designated by the Board. Management knows of no
reason why a nominee should be unable or unwilling to serve.
The names of nominees for director and certain information regarding them,
including their principal occupations for the past five years, are as follows:
RONALD I. DAVIS, age 59, is 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, the chairman and principal shareholder of SAI Partners,
Inc., an alarm dealer buying group which also provided alarm 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 venturer with
Pittway Corporation. Prior to 1982, Mr. 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, age 59, is 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
employed by 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 an MBA degree from Northwestern University.
THOMAS J. SALVATORE, age 30, 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 (the remaining director has not been
designated as of the date of this Proxy Statement). Mr. Salvatore holds a
Bachelors Degree in Business Administration from Fordham University.
DOUGLAS OBERLANDER, age 47, 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.
MICHAEL B. JONES, age 46, was appointed a Director of the Company in
January 1998. He has been president of ProFinance Associates, Inc. since he
co-founded it in 1985. ProFinance has been a broker-dealer firm since 1990. Mr.
Jones was with Marine Midland Bank from 1977 until 1985. He was responsible for
starting a communications/electronics lending group in 1991 and, in his last
position as group executive, for leading that group. That group was one of the
first institutional lenders to the alarm
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<PAGE> 8
industry. Mr. Jones has a Bachelors Degree in Liberal Arts from the University
of Arizona and a Masters Degree in International Relations from the Johns
Hopkins University School of Advanced International Studies.
RECOMMENDATION
THE BOARD RECOMMENDS A VOTE "FOR" THESE NOMINEES
ITEM NO. 2 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS
The financial statements of the Company are included in the Company's
Annual Report furnished to all Stockholders. The Board of Directors has
appointed Arthur Andersen LLP as independent public accountants for the Company
to examine its financial statements for the fiscal year ending December 31,
1998 and seeks the Stockholders' ratification of this appointment. The Board of
Directors believes that Arthur Andersen LLP is knowledgeable about the
Company's operations and accounting practices and is well qualified to act in
the capacity of independent public accountants to the Company.
Arthur Andersen LLP acted as the Company's principal accountants for the
fiscal year ended December 31, 1997. The total fees for services rendered in
1997 by Arthur Andersen LLP to the Company were approximately $132,512, which
fees included the preparation of the financial statements for the Company's
Registration Statement on Form S-1 and reviews and audits of businesses
acquired by the Company, as well as the audit fees which are incurred in
conjunction with the preparation of the Company's quarterly and annual
financial statements. The independent public accountants have advised the
Company that they have no direct or material indirect financial interest in the
Company.
Fees applicable to the audit of the Company's financial statements will be
reviewed by the Audit Committee before the services are provided. Generally,
other services to be provided by Arthur Andersen LLP will not require prior
approval by the Board of Directors, but will be subsequently reviewed by the
Board of Directors.
Although the selection of an auditor does not require a vote of the
Stockholders, the Board of Directors believes it is desirable to obtain the
ratification of the Stockholders of this selection. Due to the difficulty and
expense involved in retaining another independent firm on short notice, the
Board of Directors does not contemplate appointing another firm to act as the
Company's independent auditor for the fiscal year ending December 31, 1998 if
the Stockholders do not ratify the appointment of Arthur Andersen LLP. Instead,
if the Stockholders do not ratify the appointment of Arthur Andersen LLP for
the fiscal ending December 31, 1998, the Board of Directors will consider the
vote as advice in making their selection of an independent auditor for the
following year. A representative of Arthur Andersen LLP is expected to be
present at the Meeting and will have the opportunity to make a statement, if he
so desires, and will be available to respond to appropriate questions.
RECOMMENDATION AND VOTE REQUIRED
The affirmative vote of a majority of the votes cast by Stockholders
present in person or by proxy and eligible to vote at the Meeting, a quorum
being present, is required to ratify the selection.
THE BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE BOARD'S
SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR THE YEAR 1998.
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<PAGE> 9
ITEM NO. 3 - PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION, AS AMENDED, TO INCREASE THE COMPANY'S AUTHORIZED
SHARES OF PREFERRED STOCK FROM 500,000 SHARES TO 1,000,000 SHARES.
The Board of Directors has unanimously adopted resolutions approving, and
authorizing management to take such actions as are necessary to submit to a
vote of the Stockholders, an amendment to the Company's Certificate of
Incorporation, as amended, (the "Certificate"), to increase the Company's
authorized shares of preferred stock from 500,000 shares to 1,000,000 shares
(the "Amendment"). The text of the proposed amendment is attached hereto as
Annex A. As of March 31, 1998, there were 408,749.43 shares of preferred stock
issued and outstanding, leaving 91,250.57 authorized but unissued shares of
preferred stock available for issuance to take advantage of attractive business
opportunities, future financings or other proper corporate purposes.
The Board of Directors currently has the authority to cause the issuance,
from time to time, of preferred stock in one or more series for any proper
purpose without further Stockholder approval. The Board of Directors has the
express right to determine when, and if, to issue preferred stock and with
respect to any issuance of preferred stock, the number of shares to be issued,
the stated value and dividend rate and relative, participating and special
rights, qualifications, limitations and restrictions thereof. However, only
91,250.57 additional shares of preferred stock are currently available for
issuance.
In the opinion of the Board of Directors, it is desirable to increase the
number of authorized shares of preferred stock in order to afford the Company
the flexibility necessary to take immediate advantage of an attractive business
opportunity if one should become available, for future financings or other
proper corporate purposes.
The issuance of additional shares of preferred stock may, among other
things, have a dilutive effect on earnings per share and on the proportionate
equity ownership and voting power of current Stockholders. Stockholders do not
have any preemptive rights. Under certain circumstances, the issuance of
preferred stock may have the effect of hindering or delaying a merger or
acquisition of the Company or a change in control of the Company. New
issuances of preferred stock may also cause restrictions on the payment of
dividends or distributions to holders of the Company's Common Stock or other
preferred stock ranking junior to such newly issued shares. Under applicable
Delaware law, holders of preferred stock are generally entitled to vote on any
proposed amendment to the Certificate of Incorporation or other corporate
action, such as a merger, which would effect an exchange or reclassification of
all or a portion of the class or series of stock of which their shares are a
part, increase or decrease the aggregate number of authorized shares of such
class, or otherwise affect the preferences or relative rights of such class.
RECOMMENDATION AND VOTE REQUIRED
The affirmative vote of a majority of the votes cast by Stockholders
present in person or by proxy and eligible to vote at the Meeting, a quorum
being present, is required to approve the proposed amendment to the Certificate
of Incorporation, as amended.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION, AS AMENDED, TO INCREASE THE COMPANY'S AUTHORIZED
SHARES OF PREFERRED STOCK FROM 500,000 SHARES TO 1,000,000 SHARES.
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<PAGE> 10
ITEM NO. 4 - PROPOSAL TO AMEND THE TERMS OF THE CERTIFICATE OF
DESIGNATIONS OF RIGHTS, PREFERENCES AND LIMITATIONS OF THE
COMPANY'S 12% REDEEMABLE PREFERRED STOCK, TO INCREASE THE
THRESHOLD LEVELS OF NEW EQUITY RAISED BY THE COMPANY WHICH TRIGGER
(i) AN OBLIGATION TO PAY ALL ACCRUED DIVIDENDS, (ii) THE COMPANY'S
RIGHT TO REDEEM THE 12% REDEEMABLE PREFERRED STOCK, AND (iii) THE
RIGHT OF THE HOLDER OF THE 12% REDEEMABLE PREFERRED STOCK TO CONVERT THAT
STOCK INTO COMMON STOCK.
The Board of Directors has unanimously adopted resolutions whereby the
terms of the Company's 12% Redeemable Preferred Stock (the "12% Stock"), as
stated in the Certificate of Designations of Rights, Preferences and
Limitations (the "Certificate of Designation"), would be amended to increase
the threshold levels of new equity raised by the Company which trigger (i) an
obligation to pay all accrued dividends, (ii) the Company's right to redeem the
12% Stock, and (iii) the right of the holder of the 12% Stock to convert that
stock into Common Stock.
Each share of 12% 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. The Certificate of Designation currently provides that in the
event the Company raises $10 million in new equity, all dividends that have
accrued, but have not yet been paid, must be paid. Further, if the Company
raises $15 million in new equity, the Company will have the right to redeem the
12% Stock for its liquidation value plus accrued but unpaid dividends. If the
Company does not redeem the 12% Stock at that time, the dividend rate will
increase to 18% and the holder thereof will have the right to convert such
stock into Common Stock according to a conversion ratio determined by dividing
the stated value of the 12% Stock ($10.00 per share) plus accrued but unpaid
dividends per share by 80% of the per-share market value of the Common Stock at
the date of conversion. The holders of 12% Stock do not have voting rights
(except with respect to an amendment to the Certificate of Incorporation, as
amended, or the Certificate of Designation 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%
Stock has a $10.00 per share liquidation plus accrued, but unpaid dividends,
preference over the Convertible Preferred Stock and the Common Stock.
The Board of Directors has received the agreement of the sole holder of
the 12% Stock to an amendment to the Certificate of Designation whereby unpaid
dividends would not become payable until the Company has raised $20 million in
new equity, rather than the current $10 million. In addition, the Company will
not have the right to redeem the 12% Stock and the holder of the 12% Stock will
not have the right to convert that stock into Common Stock until the Company
has raised $30 million in new equity rather than the current $15 million. The
Board of Directors believes the proposed amendment will substantially increase
the financial flexibility of the Company by delaying the time until it is
required to pay accrued but unpaid dividends, redeem the 12% Stock or be faced
with a substantial increase in its dividend rate.
RECOMMENDATION AND VOTE REQUIRED
The affirmative vote of a majority of the votes cast by Stockholders
present in person or by proxy and eligible to vote at the Meeting, a quorum
being present, is required to approve the modifications to the terms of the
Company's Certificate of Designation with respect to the 12% Stock.
Additionally, the consent of the holder of the 12% Stock, which has already
been obtained, is required for this amendment.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE TERMS OF THE
CERTIFICATE OF DESIGNATIONS OF RIGHTS, PREFERENCES AND LIMITATIONS OF THE
COMPANY'S 12% REDEEMABLE PREFERRED STOCK, TO INCREASE THE THRESHOLD LEVELS OF
NEW EQUITY RAISED BY THE COMPANY WHICH TRIGGER (i) AN OBLIGATION TO PAY ALL
ACCRUED DIVIDENDS, (ii) THE COMPANY'S RIGHT TO REDEEM THE 12% REDEEMABLE
PREFERRED STOCK, AND (iii)
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<PAGE> 11
THE RIGHT OF THE HOLDER OF THE 12% REDEEMABLE PREFERRED STOCK TO CONVERT THAT
STOCK INTO COMMON STOCK.
OTHER MATTERS TO COME BEFORE THE MEETING
If any matter not described herein should properly come before the
Meeting, the person named in the proxy card will vote the Shares in accordance
with his best judgment. At the time this Proxy Statement went to press, the
Company knew of no other matters which might be presented for Stockholder
action at the Annual Meeting.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
Although neither the Board of Directors nor the Compensation Committee,
which was formed in January 1998, has adopted a formal overall compensation
policy applicable to the Company's executive officers, the purpose of the
Company's executive compensation is to enable the Company to attract, maintain
and motivate qualified executives to ensure the long-term success of the
Company and its business strategies.
On April 28, 1997, the Company adopted an executive deferred
compensation plan, the Security Associates International, Inc. Supplemental
Employees' Retirement Plan (the "Plan"), pursuant to which annual awards may be
made to plan participants in the form of shares of the Company's Common Stock,
with up to 20% of said awards to be earned at the end of each of the five years
following an initial award based on the Board's assessment of each officer's
performance against the Company's goals and objectives for that year. As of
December 31, 1997, a total of 1,081,768 shares were awarded under the Plan. Of
the potential 216,354 shares that could have been earned in 1997, 162,265
shares were actually earned, 75% of that year's eligible shares. The Board
approved a new award whereby the 54,088.5 shares that were not earned in 1997,
plus an additional 54,088.5 shares, were credited to the participants' accounts
and are eligible to be earned over a five-year period beginning January 1,
1998, subject to the same terms as the original award.
The Compensation Committee intends to review the compensation policy for
the Company's executive officers in order to align executive compensation with
the business objectives and performance of the Company and to continue to
emphasize incentive compensation. Executive compensation has generally
consisted of three principal components: base salary, bonus and awards of
Common Stock under the Plan.
On August 29, 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 currently receives an annual
salary of $175,000, which amount may be increased following an annual salary
review. In addition, Mr. Brannen will participate in such other benefits as are
offered to other executive employees of the Company.
The employment agreements and salary, bonus and Common Stock awards paid
or granted by the Company to the Chief Executive Officer and the other most
highly compensated executive officers of the Company in 1997 are set forth in
the tables in the section entitled "Executive Compensation". The Board of
Directors believes that the present executive officers of the Company are
dedicated to increasing profitability and Stockholder value and that the
compensation to be paid to the executives of the Company will contribute to
this focus.
-7-
<PAGE> 12
THE BOARD OF DIRECTORS
Ronald I. Davis James S. Brannen
Thomas J. Salvatore Douglas Oberlander
Michael B. Jones
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee is presently composed of Thomas J. Salvatore,
Michael B. Jones and Douglas Oberlander. None of the members of the
Compensation Committee is or was formerly an officer or employee of the
Company.
STOCKHOLDER RETURN AND PERFORMANCE GRAPH
Set forth below is a line graph comparing the percent change in the
cumulative total Stockholder return on the Company's Common Stock against the
Russell 2000 Index and the Mallon Global Security Index. The graph assumes
that $100 was invested on January 1, 1993 at the price of $3.50 per share in
the Company's Common Stock, and each of the Russell 2000 Index and the Mallon
Global Security Index, and that all dividends were reinvested.
TOTAL SHAREHOLDER RETURNS
PERFORMANCE GRAPH FOR SECURITY ASSOCIATES INTERNATIONAL, INC.
Prepared by Buttonwood Advisory Group, Inc.
Produced on February 11, 1998, including data to December 31, 1997
GRAPHIC REPRESENTATION OF THE
INFORMATION CONTAINED IN THE TABLE BELOW.
ASSUMES $100 INVESTED ON JANUARY 1, 1993
ASSUMES DIVIDENDS REINVESTED THROUGH
FISCAL YEAR ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
MEASUREMENT PERIOD RUSSELL 2000 INDEX MALLON GLOBAL SECURITY INDEX THE COMPANY
- ------------------ ------------------ ---------------------------- -----------
<S> <C> <C> <C>
January 1, 1993 $100.00 $100.00 $100.00
FYE 1993 $117.00 $129.40 $ 21.40
FYE 1994 $113.25 $127.76 $ 7.13
FYE 1995 $142.90 $189.98 $ 11.60
FYE 1996 $164.00 $268.82 $ 80.15
FYE 1997 $203.00 $323.40 $151.40
</TABLE>
-8-
<PAGE> 13
EXECUTIVE OFFICERS
The following table sets forth information with respect to the executive
officers of the Company. The biographies of James S. Brannen and Ronald I.
Davis are set forth above under Item No. 1 - Election of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
JAMES S. BRANNEN 59 PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
RONALD I. DAVIS 59 CHAIRMAN OF THE BOARD OF DIRECTORS
DANIEL S. ZITTNAN 43 VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
STEPHEN RUBIN 51 SENIOR VICE PRESIDENT
RONALD J. CARR 46 VICE PRESIDENT
TIMOTHY M. MCAULIFF 39 VICE PRESIDENT
KAREN B. DANIELS 43 VICE PRESIDENT
SCOTT J. MACDOUGAL 39 VICE PRESIDENT
</TABLE>
DANIEL S. ZITTNAN, age 43, has served as Vice President, Chief Financial
Officer and Treasurer of the Company since October 7, 1997. Mr. Zittnan spent
over thirteen years with Arthur Andersen LLP, most recently as a senior
manager. Mr. Zittnan holds a BA in accounting from DePaul University and is a
member of the AICPA and ICPA Society.
STEPHEN RUBIN, age 51, is a founder of the Company and has been Senior
Vice President 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.
RONALD J. CARR, age 46, has been a Vice President of the Company since
March 1997. Mr. Carr is also the president of Telecommunications Associates
Group, Inc., a wholly owned subsidiary of the Company, and is a member of the
board of directors of the Central Station Alarm Association. 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, age 39, has served as Vice President and Chief Credit
Officer since January 1998. Prior to becoming Chief Credit Officer, Mr.
McAuliff was Vice President of Operations starting in 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.
KAREN B. DANIELS, age 43, has served as Vice President since October 7,
1997. Prior to becoming a Vice President, Ms. Daniels acted as a consultant
for the Company starting in March 1997, and prior to that for Ameritech AIIS,
since 1995. From March, 1990, to June, 1995, Ms. Daniels was vice
president/controller for Editel-Chicago, a division of Unitel Video, Inc., a
video post-production company. Ms. Daniels has a Bachelors Degree in
Industrial Administration-Finance from Iowa State University. Ms. Daniels is
also a Certified Public Accountant.
-9-
<PAGE> 14
SCOTT J. MacDOUGAL, age 39, has been a Vice President with the Company and
president of Alarm Funding Corporation, a wholly owned subsidiary of the
Company, since October 7, 1997. Previously, he was principal of Cornerstone
Funding Inc., a financial advisory company serving small businesses. Mr.
MacDougal spent five years in the venture capital industry, as vice president
of business development for Kentco Capital Corp. of Northfield, Illinois.
Prior to that, he spent eight years in the banking industry, most recently as
vice president in the communications companies division at The First National
Bank of Chicago. Mr. MacDougal holds a BA in journalism from the University of
Wisconsin, and an MBA in Finance from The Wharton School.
The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors, until their successors are duly
elected and qualified or until his or her death, resignation or removal by the
Board. Each executive officer is a full time employee of the Company. 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.
EXECUTIVE COMPENSATION
GENERAL
The following table sets forth compensation awarded or earned by the
Company's President and Chief Executive Officer and the other most highly paid
executive officers during the year ended December 31, 1997 (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------------- -------------------------------------
AWARDS PAYOUTS
----------------------- ----------
RESTRICTED ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL STOCK SECURITIES LTIP COMPENSA
POSITION YEAR SALARY BONUS COMPENSATION AWARDS UNDERLYING PAYOUTS(4) -TION(5)
- ------------------ ---- ------ ----- ------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James S. Brannen 1997 $125,000 $11,635 $23,835(1) -- -- $154,103 $838
President, Chief
Executive Officer
and Director 1996 $ 94,523 -- -- -- -- -- --
Ronald I. Davis 1997 $125,858 $11,635 $22,949(2) -- -- $154,103 $844
Chairman of the
Board(6)
Stephen Rubin 1997 $104,999 $ 8,462 $11,586(3) -- -- $ 95,625 $694
Senior Vice
President(6)
</TABLE>
________________________
1) Includes $22,871 for automobile allowance.
2) Includes $22,319 for automobile allowance.
3) Includes $10,752 for automobile allowance.
4) Earned awards under the Company's Supplemental Employees' Retirement
Plan. See "Deferred Compensation Stock Plan."
5) Amount is matching funds from Company pursuant to the Company's 401(k)
Plan.
6) Annual salary and bonus did not exceed $100,000 in 1996.
EXECUTIVE OPTION EXERCISES TABLE
The following table contains information concerning the stock option
exercises made by each of the Named Executive Officers in 1997:
-10-
<PAGE> 15
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR END YEAR END
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
James S. Brannen 278,308 $442,510 --/-- --/--
Ronald I. Davis 278,308 $442,510 120,000/--(2) $517,500/--
Stephen Rubin 185,539 $295,007 40,000/--(3) $172,500/--
</TABLE>
____________________
1) Pursuant to an appraisal of the stock performed by an independent
appraiser.
2) By virtue of a warrant owned by SAI Partners, Inc. of which Mr. Davis is
the sole stockholder. The warrant has an exercise price of $1 per share
and expires December 31, 1999.
3) By virtue of a warrant with an exercise price of $1 per share which
expires December 31, 1999.
LONG-TERM INCENTIVE PLANS TABLE
The following table contains information concerning awards under the
Company's long-term incentive plan to the Named Executive Officers in 1997:
LONG-TERM INCENTIVE PLANS - AWARD IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
PRICE-BASED PLANS
-----------------------------------------------
NUMBER OF SHARES, PERFORMANCE OR
UNITS OR OTHER OTHER PERIOD UNTIL
NAME RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
- ---------------- ----------------- -------------------- --------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
James S. Brannen 29,008 Maximum of 20% per -- 38,677 shares per 193,384 shares
year for each of year
five years starting
FYE 1997
Ronald I. Davis 29,008 Maximum of 20% per -- 38,677 shares per 193,384 shares
year for each of year
five years starting
FYE 1997
Stephen Rubin 18,000 Maximum of 20% per -- 24,000 shares per 120,000 shares
year for each of year
five years starting
FYE 1997
</TABLE>
______________________
1) Awards under the Company's Supplemental Employee's Retirement Plan. See
"- Deferred Compensation Stock Plan."
EMPLOYMENT AGREEMENTS
On August 29, 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 currently receives an annual
salary of $175,000, which amount may be increased following an annual salary
review. The employment agreement provides that Mr. Brannen is entitled to
severance pay equal to 2.99 times his annual salary at the time of termination
upon: (i) expiration of the term of the employment agreement (including any
renewals) unless terminated for cause, as defined in the employment agreement;
(ii) death or disability; or (iii) if Mr. Brannen terminates his employment
because of: (a) a diminution of his responsibilities or authority or being
assigned duties inconsistent with the position of President; (b) a requirement
that he serve from a location other than the greater Chicago metropolitan area;
(c) breach of the employment agreement by the Company; or (d) a change of
control of the Company. In addition, Mr. Brannen will participate in such
other benefits as are offered to other executive employees of the Company.
On August 29, 1996, the Company entered into a three year employment
agreement with Ronald I. Davis to serve as the Company's Chairman of the Board
of Directors. Pursuant thereto, Mr. Davis
-11-
<PAGE> 16
currently receives an annual salary of $175,000, which amount may be increased
following an annual salary review. The employment agreement provides that Mr.
Davis is entitled to severance pay equal to 2.99 times his annual salary at the
time of termination upon: (i) expiration of the term of the employment
agreement (including any renewals) unless terminated for cause, as defined in
the employment agreement; (ii) death or disability; or (iii) if Mr. Davis
terminates his employment because of: (a) a diminution of his responsibilities
or authority or being assigned duties inconsistent with the position of
Chairman of the Board; (b) a requirement that he serve from a location other
than the greater Chicago metropolitan area; (c) breach of the employment
agreement by the Company; or (d) a change of control of the Company. In
addition, Mr. Davis will participate in such other benefits as are offered to
other executive employees of the Company.
On August 30, 1996, the Company entered into a three year employment
agreement with Stephen Rubin to serve as the Company's Senior Vice President.
Pursuant thereto, Mr. Rubin currently receives an annual salary of $120,000,
which amount may be increased following an annual salary review. The
employment agreement provides that Mr. Rubin is entitled to severance pay equal
to 2.99 times his annual salary at the time of termination upon: (i) expiration
of the term of the employment agreement (including any renewals) unless
terminated for cause, as defined in the employment agreement; (ii) death or
disability; or (iii) if Mr. Rubin terminates his employment because of: (a) a
diminution of his responsibilities or authority or being assigned duties
inconsistent with the position of Senior Vice President; (b) a requirement that
he serve from a location other than the greater Chicago metropolitan area; (c)
breach of the employment agreement by the Company; or (d) a change of control
of the Company. In addition, Mr. Rubin will participate in such other benefits
as are offered to other executive employees of the Company.
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" (the "Plan"), whereby the Board of Directors may
make annual year-end awards to plan participants in the form of shares of the
Company's Common Stock. The Plan establishes a deferred compensation program
for participating officers, by crediting an initial amount of shares to the
plan and awarding the shares in the following manner. At the end of each
fiscal year for the first five years following an award, each participant may
earn up to a maximum of 20% of the aggregate shares credited to such
participant. The actual number of shares awarded is based on the Board's
assessment of each participating officer's performance against the Company's
goals and objectives for the year. As of December 31, 1997, a total of
1,081,768 shares have been credited to the Plan. For the Company's first
Plan year ending December 31, 1997, the Board awarded 75% of the eligible year
end award shares (162,265 in the aggregate) to the Plan's participants. The
Board approved a new award under the Plan whereby the 54,088.5 shares that were
not earned in 1997, plus an additional 54,088.5 shares, were credited to the
participants' accounts and are eligible to be earned over a five year period
beginning January 1998. The Company had no executive deferred compensation plan
or stock plan prior to the adoption of the 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 Officers, who has completed six months of
employment 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.
-12-
<PAGE> 17
CERTAIN RELATIONSHIPS AND RELATED 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 (the "Agreement") and a loan to the Company of
$3,441,649 evidenced by a Convertible Subordinated Promissory Note. The bid
and asked prices of the Company's Common Stock on September 5, 1996 was $.875
bid and $1.125 asked. 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 contingent
"mirror options" (or "Standby Options") to purchase 1,855,243 shares of Common
Stock that were exercisable in an equivalent number and at the same price in
the event any of the Company's then existing option holders (designated in the
Standby Option and Warrant Agreement) exercised their options. TJS must
exercise its Standby Options within 30 days of the dates on which the existing
option holders exercise their options. Under the Agreement and amendments
thereto (see paragraph below describing the 1997 restructuring of the TJS'
investment effective as of December 31, 1996), the mirror options are now
exercisable at prices ranging from $57.00 to $300.00 per share of Convertible
Preferred Stock (the equivalent of $0.57 to $3.00 per share of Common Stock).
The 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.
The proxy expired after the 1997 Annual Meeting of Shareholders held on
September 19, 1997. TJS was also granted certain rights of first refusal with
respect to issuance of new securities, which have been waived in connection
with the Company's offering pursuant to a Registration Statement on Form S-1
(the "Offering") and in connection with the private placement of 1,000,000
shares of the Company's Common Stock which closed on December 31, 1997. Also,
TJS was granted "piggyback" and demand registration rights for its shares of
the Company's capital stock. Those rights were waived in connection with the
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 Proxy Statement, TJS has not designated an additional Board member.
The Convertible Subordinated Promissory Note provided the holder of that
Note with the right to convert the principal amount of that Note into Common
Stock in the event of a public offering, other than the 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% Stock and a warrant to purchase
15,000 shares of Convertible Preferred Stock at $250.00 per share. In
addition, TJS entered into a Subordinated Loan Agreement with the Company
pursuant to which the Company has a $5,000,000 line of credit. The $5,000,000
line of credit bears interest at 12% per annum payable semiannually and is due
on December 31, 2002. On November 1, 1996, TJS loaned the Company $500,000 and
made further loans of $4,200,000 on January 2, 1997, $250,000 on May 1, 1997,
and $50,000 on December 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) for an aggregate purchase price of $233,370
pursuant to the mirror options. Since October 20, 1997, the effective date of
the Company's Registration Statement covering the Offering, TJS has purchased
an additional 8,761.55 shares of Convertible Preferred Stock (the
-13-
<PAGE> 18
equivalent of 876,155 shares of Common Stock) pursuant to the exercise of
Standby Options, for an aggregate price of $588,079.40. On November 12, 1997,
TJS also exercised its Warrant to purchase 15,000 shares of Convertible
Preferred Stock (the equivalent of 1,500,000 shares of Common Stock) for a
total exercise price of $3,750,000. Thus TJS now owns a total of 64,584.43
shares of Convertible Preferred Stock (of the 68,810 shares of Convertible
Preferred Stock designated). TJS may purchase the remaining 4,225.57
designated but unissued shares of Convertible Preferred Stock if and when the
remaining option holders identified in the Amended Standby Option and Warrant
Agreement exercise their options.
On January 22, 1998, TJS agreed to amendments to the Certificate of
Designation with respect to the 12% Stock and to the Subordinated Loan
Agreement, which will allow the Company to raise additional capital without
triggering TJS' rights 1) to receive payment of accrued but unpaid dividends
from the 12% Stock; 2) to a receive a higher dividend rate (18% instead of
12%); 3) to convert the 12% Stock into Common Stock according to a conversion
ratio determined by dividing the stated value of the 12% Stock ($10.00 per
share) plus accrued but unpaid dividends per share by 80% of the per share
market value of the Common Stock at the date of conversion; and 4) to receive
payment of all of the Corporation's obligations under the Subordinated Loan
Agreement. As a result of this agreement, the "new equity thresholds" are $20
million (increased from $10 million previously) with respect to the right to
receive payment of accrued but unpaid dividends and $30 million (increased from
$15 million previously) with respect to the other three enumerated rights. The
Company and TJS have agreed to amend the Subordinated Loan Agreement and the
Company's Board has recommended to the Stockholders that the Certificate of
Designation for the 12% Stock be amended consistent with the foregoing terms.
ProFinance Associates, Inc., a registered broker-dealer, was due a
financing fee of $218,208 in connection with the foregoing sales of securities
to TJS, pursuant to an agreement with the Company. On December 31, 1997, the
Company and ProFinance entered into an agreement to settle this obligation as
follows: 1) payment of $175,000 cash, offset by $50,000 owed to the Company by
a joint venture between ProFinance and the Company; and 2) issuance of an
option to ProFinance to purchase 25,000 shares of the Company's Common Stock at
an exercise price of $6.00 per share, said option, which was issued on January
6, 1998, to expire December 31, 2002.
On December 18, 1997, the Company's Board elected Michael B. Jones, the
principal shareholder of ProFinance Associates, Inc., to serve as a Director of
the Company effective January 1, 1998. In consideration of his agreement to
become a Director, on January 6, 1998, the Company also granted Mr. Jones an
option to purchase 10,000 shares of the Company's Common Stock at an exercise
price of $6.00 per share, said option to expire on December 31, 2002. The
Company has also agreed to pay him and the other two non-employee Directors
(Thomas J. Salvatore and Douglas Oberlander) Directors' Fees of $500.00 per
month.
In connection with the December 31, 1997 agreement with ProFinance, the
Company engaged ProFinance as an investment banker and has agreed to pay it a
monthly retainer of $2,500 for financial advisory services to be rendered to
the Company for a period of one year. Under the agreement, ProFinance will
introduce the Company to acquisition opportunities and it will be entitled to
receive transaction fees according to the standard "Lehman Formula" (as defined
in that agreement) for each purchase that is closed.
On December 12, 1997, TJS was issued an option to purchase 20% of the
Common Stock of the Company's wholly-owned subsidiary Alarm Funding
Corporation, at an exercise price of $1,000, in consideration of TJS' agreement
to lend the subsidiary up to $1,500,000.
On December 12, 1997, ProFinance Associates, Inc. was issued an option to
purchase 20% of the Common Stock of the Company's wholly-owned subsidiary Alarm
Funding Corporation, at an exercise price of $1,000, in consideration of leads
to be provided identifying potential borrowers.
On January 3, 1997, the Company paid $135,000 to Ronald I. Davis in
connection with a previously negotiated agreement with SAI Partners, Inc. which
is wholly-owned by Mr. Davis.
-14-
<PAGE> 19
Since October 20, 1997, Messrs. Brannen, Davis and Rubin have exercised
options and Warrants to acquire shares for an aggregate exercise price of
$423,028.35 as set forth below:
<TABLE>
<CAPTION>
Average
Option Exercise Number of Aggregate Per-Share
Holder Date Shares Exercise Price Exercise Price
------ ---- ------ -------------- --------------
<S> <C> <C> <C> <C>
Ronald I. Davis 10/30/97 278,308 $158,636 $0.57
James S. Brannen 10/30/97 278,308 $158,636 $0.57
Stephen Rubin 10/30/97 185,539 $105,757 $0.57
------- --------
Totals 742,155 $423,029
======= ========
</TABLE>
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE
OFFICERS AND PRINCIPAL HOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 31, 1998 by: (a) each person
known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock; (b) each of the Company's directors; (c)
each of the Named Executive Officers; and (d) all directors and officers of the
Company as a group. The Company believes that each person 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>
BENEFICIAL OWNERSHIP
----------------------------
NAME NUMBER OF SHARES PERCENT(1)
---- ---------------- ----------
<S> <C> <C>
TJS Partners, L.P.(2)
52 Vanderbilt Avenue
New York, New York 10017....................... 6,458,443 51.4%
Ronald I. Davis(3)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005.............. 928,422 7.3%
James S. Brannen(4)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005.............. 526,616 4.2%
Thomas J. Salvatore(5)
c/o TJS Partners, L.P.
52 Vanderbilt Avenue
New York, New York 10017....................... 6,458,443 51.4%
Douglas Oberlander
10225 N. Knoxville Avenue
Peoria, Illinois 61615......................... 106,022 *
</TABLE>
-15-
<PAGE> 20
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------
NAME NUMBER OF SHARES PERCENT(1)
---- ---------------- ----------
<S> <C> <C>
Michael B. Jones (6)
33 Riverside Avenue
Westport, CT 06880............................. 41,000 *
Stephen Rubin(7)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005.............. 362,078 2.9%
All Executive Officers and Directors as a group
(10 persons)................................... 8,422,581 66.2%
</TABLE>
* Less than 1%
_______________________
(1) Applicable percentage of ownership as of March 31, 1998 is based upon
12,568,673 shares of Common Stock outstanding (including 6,458,443 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) Consists of 64,584.43 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 is the only holder of Convertible Preferred
Stock.
(3) Includes 808,422 shares owned by Mr. Davis and SAI Partners, Inc. and
120,000 shares purchasable upon the exercise of a currently exercisable
warrant. Excludes 225 shares owned by Beverly Davis, Mr. Davis' wife, 8,200
shares owned by Scott Davis, Mr. Davis' son, 3,000 shares owned by Ethan Davis,
Mr. Davis' grandson, 3,000 shares owned by Benjamin Davis, Mr. Davis' grandson,
and 9,301 shares owned by Ann Davis, Mr. Davis' sister, as to which Mr. Davis
disclaims beneficial ownership.
(4) Includes 526,616 shares owned by Mr. Brannen. Excludes 7,580 shares owned
by Martha A. Brannen, Mr. Brannen's wife, 10,000 shares owned by Craig Brannen,
10,000 shares owned by Sarah B. Ozee and 10,000 shares owned by Peter Brannen,
Mr. Brannen's children, as to which Mr. Brannen disclaims beneficial ownership.
(5) Consists of 64,584.43 shares of Convertible Preferred Stock owned by TJS,
Mr. Salvatore controls voting and disposition of these shares through TJS
Management, L.P., which is the sole general partner of TJS.
(6) Includes 6,000 shares held directly; an option to purchase 10,000 shares of
the Company's Common Stock at a price of $6.00 per share expiring December 31,
2002; and an option held by ProFinance Associates, Inc. (of which Mr. Jones is
the principal stockholder) to purchase 25,000 shares of the Company's Common
Stock at a price of $6.00 per share expiring December 31, 2002.
(7) Includes 362,078 shares owned by Mr. Rubin. Excludes 9,000 shares owned by
Jamie Rubin, Mr. Rubin's son, as to which Mr. Rubin disclaims beneficial
ownership.
The following table sets forth certain information regarding the
beneficial ownership of Convertible Preferred Stock as of March 31, 1998 by
(if applicable): (a) each person known by the Company to
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<PAGE> 21
beneficially own more than five percent of the outstanding shares of
Convertible Preferred Stock; (b) each of the Company's directors; (c) each of
the Named Executive Officers; and (d) all directors and officers of the Company
as a group. The Company believes that each person named below has sole voting
and investment power with respect to all shares of Convertible Preferred Stock
shown as beneficially owned by such holder, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------
NAME NUMBER OF SHARES PERCENT(1)
---- ---------------- ----------
<S> <C> <C>
TJS Partners, L.P.(2)
52 Vanderbilt Avenue
New York, New York 10017....................... 64,584.43 100%
Thomas J. Salvatore(3)
c/o TJS Partners, L.P.
52 Vanderbilt Avenue
New York, New York 10017....................... 64,584.43 100%
All Executive Officers and Directors as a group
(10 persons)................................... 64,584.43 100%
</TABLE>
__________________________________
(1) Applicable percentage of ownership as of March 31, 1998 is based upon
64,584.43 shares of Convertible Preferred 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.
(2) Consists of 64,584.43 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 is the only holder of Convertible Preferred
Stock.
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<PAGE> 22
(3) Consists of 64,584.43 shares of Convertible Preferred Stock owned by TJS,
Mr. Salvatore controls voting and disposition of these shares through TJS
Management, L.P., which is the sole general partner of TJS.
The following table sets forth certain information regarding the
beneficial ownership of 12% Stock as of March 31, 1998 by (if applicable): (a)
each person known by the Company to beneficially own more than five percent of
the outstanding shares of 12% Stock; (b) each of the Company's directors; (c)
each of the Named Executive Officers; and (d) all directors and officers of the
Company as a group. The Company believes that each person named below has sole
voting and investment power with respect to all shares of 12% Stock shown as
beneficially owned by such holder, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------
NAME NUMBER OF SHARES PERCENT(1)
---- ---------------- ----------
<S> <C> <C>
TJS Partners, L.P.(2)
52 Vanderbilt Avenue
New York, New York 10017....................... 344,165 100%
Thomas J. Salvatore(3)
c/o TJS Partners, L.P.
52 Vanderbilt Avenue
New York, New York 10017....................... 344,165 100%
All Executive Officers and Directors as a group
(10 persons)................................... 344,165 100%
</TABLE>
___________________________
(1) Applicable percentage of ownership as of March 31, 1998 is based upon
344,165 shares of 12% Stock outstanding. Beneficial ownership is determined
in accordance with the rules of the Securities and
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<PAGE> 23
Exchange Commission, and unless otherwise noted includes voting and investment
power with respect to the shares shown as beneficially owned.
(2) Consists of 344,165 shares of 12% Stock. Each share of 12% Stock is
convertible into and has the voting rights of 100 shares of Common Stock. TJS
is the only holder of 12% Stock.
(3) Consists of 344,165 shares of 12% Stock owned by TJS, Mr. Salvatore
controls voting and disposition of these shares through TJS Management, L.P.,
which is the sole general partner of TJS.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and any persons who own more than
ten percent of the Company's Common Stock, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock. Such persons are required by the Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1997, all such
Section 16(a) filing requirements were complied with.
STOCKHOLDER PROPOSALS FOR THE 1999 PROXY STATEMENT
Any Stockholder satisfying the SEC requirements and wishing to submit a
proposal to be included in the Proxy Statement for the 1999 Annual Meeting of
Stockholders should submit the proposal in writing to: Howard Schickler,
Secretary, Security Associates International, Inc., 2101 South Arlington
Heights Road, Suite 100, Arlington Heights, Illinois 60005. The Company must
receive a proposal by January 5, 1999 in order to consider it for inclusion in
the Proxy Statement for the 1999 Annual Meeting of Stockholders.
VOTING PROCEDURES
Abstentions and broker non-votes are counted for purposes of determining
the presence or absence of a quorum for the transaction of business at the
Annual Meeting of Stockholders. With regard to the election of directors,
votes may be cast in favor or withheld. Votes that are withheld and broker
non-votes will be excluded entirely from the vote and will have no effect on
the outcome.
OTHER INFORMATION
The 1997 Annual Report to Stockholders of the Company which includes a
copy of the Company's Annual Report on Form 10-K for the fiscal year 1997, is
being mailed to all Stockholders of record and accompanies this Proxy
Statement. Additional copies of the Annual Report on Form 10-K as filed with
the SEC (excluding exhibits) will be furnished, without charge, by writing to
John Aneralla, c/o Buttonwood Advisory Group, Inc., P.O. Box 2158,
Huntersville, North Carolina 28070.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, the Company's independent public accountants, has
examined the Company's financial statements for the fiscal year ended December
31, 1997. The Company expects a representative to be available at the Annual
Meeting to respond to appropriate questions from Stockholders.
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<PAGE> 24
EXPENSES OF SOLICITATION
All expenses incident to the solicitation of proxies by the Company will
be paid by the Company. Solicitation may be made personally, or by telephone,
telegraph or mail, by one or more employees of the Company, who will receive no
additional compensation for such activities. In addition, the Company may
engage the services of a professional proxy solicitation firm to assist in the
solicitation of proxies and will pay the fees and expenses charged by such
firm. The Company will reimburse brokerage houses and other custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred in
forwarding copies of solicitation materials to beneficial owners of Common
Stock and Convertible Preferred Stock held of record by such persons.
The above Notice of Annual Meeting and Proxy Statement are sent by order
of the Board of Directors.
/s/ James S. Brannen
-------------------------------------
JAMES S. BRANNEN
President and Chief Executive Officer
Arlington Heights, Illinois
April 17, 1998
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<PAGE> 25
PROXY FOR ANNUAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SECURITY ASSOCIATES INTERNATIONAL, INC.
2101 SOUTH ARLINGTON HEIGHTS ROAD
SUITE 100
ARLINGTON HEIGHTS, ILLINOIS 60005
The undersigned hereby appoints Howard Schickler as Proxy, with the power to
appoint his substitute, and hereby authorizes him to represent and to vote, as
designated below, all the shares of Common Stock and Convertible Preferred
Stock of Security Associates International, Inc. held of record by the
undersigned on March 25, 1998, at the Annual Meeting of Stockholders to be held
on May 19, 1998 or any adjournment thereof.
1. ELECTION OF DIRECTORS (Mark only one box)
FOR [ ] AGAINST [ ]
All nominees listed below all nominees listed below
(except as marked to the
contrary below)
Ronald I. Davis; James S. Brannen; Thomas J. Salvatore; Douglas Oberlander;
Michael B. Jones
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list above.)
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998 (Mark only one box)
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION, AS AMENDED,
TO INCREASE THE COMPANY'S AUTHORIZED SHARES OF PREFERRED STOCK FROM 500,000
SHARES TO 1,000,000 SHARES (Mark only one box).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO AMEND THE TERMS OF THE CERTIFICATE OF DESIGNATIONS OF RIGHTS,
PREFERENCES AND LIMITATIONS OF THE COMPANY'S 12% REDEEMABLE PREFERRED STOCK, TO
INCREASE THE THRESHOLD LEVELS OF NEW EQUITY RAISED BY THE COMPANY WHICH TRIGGER
(i) AN OBLIGATION TO PAY ALL ACCRUED DIVIDENDS, (ii) THE COMPANY'S RIGHT TO
REDEEM THE 12% REDEEMABLE PREFERRED STOCK, AND (iii) THE RIGHT OF THE HOLDER OF
THE 12% REDEEMABLE PREFERRED STOCK TO CONVERT THAT STOCK INTO COMMON STOCK
(Mark only one box).
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<PAGE> 26
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
This Proxy when properly executed will be voted in the manner directed herein
by the undersigned Stockholder. If no direction is made, this Proxy will be
voted FOR Proposals 1,2,3,4, and 5.
Please sign exactly as name appears below.
____________________________________________
(Affix Mailing Label Here)
Date: ________________________________, 1998
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<PAGE> 27
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
When shares are held by joint tenants, both should sign. When signing as
executor, trustee, guardian or in another representative capacity, please give
full title as such. If a corporation, please sign in full corporate name by the
president or other authorized officer. If a limited liability company, please
sign in the name of the company by an authorized person. If a partnership,
please sign in partnership name by an authorized person.
_________________________________________
Signature of Stockholder
_________________________________________
Signature, if held jointly
If signing as attorney, executor, administrator, trustee or guardian or on
behalf of an entity (corporation, partnership, etc.), please indicate office or
capacity.
Title: ____________________________________
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<PAGE> 28
ANNEX A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION,
AS AMENDED
Security Associates International, Inc. (the "Corporation"), a corporation
organized and existing under any by virtue of the General Corporation Law of
the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That on February 10, 1998, the Board of Directors of the
Corporation duly adopted the following resolutions setting forth a proposed
amendment to the Corporation's Certificate of Incorporation, as amended,
declaring the amendment to be advisable. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation, as amended, 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 51,000,000 shares, which shall be classified as follows:
(i) 50,000,000 shares of Common Stock, $0.001 par value per share
("Common Stock")
(ii) 1,000,000 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
dividend 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 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, as amended, 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.
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