<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 [X]
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.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(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.
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(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):
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
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<PAGE> 2
SECURITY ASSOCIATES INTERNATIONAL, INC.
2101 SOUTH ARLINGTON HEIGHTS ROAD
SUITE 100
ARLINGTON HEIGHTS, ILLINOIS 60005
(847) 956-8650
May 29, 1999
Dear Stockholder:
It is my pleasure to invite you to the 1999 Annual Meeting of
Stockholders of Security Associates International, Inc. The Annual Meeting will
be held at 10:00 a.m. central time, on July 8, 1999, at our corporate offices,
located at 2101 S. Arlington Heights Road, Suite 115, Arlington Heights,
Illinois 60005.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement describe the items of business that will be discussed during the
Annual Meeting. It is important that you vote your shares whether or not you
plan to attend the Annual Meeting. To be sure your vote is counted, we urge you
to carefully review the Proxy Statement and COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE. If you
attend the Annual Meeting and wish to vote in person, the ballot that you submit
at the Annual Meeting will supercede your proxy.
I look forward to seeing you at the Annual Meeting. On behalf of the
management and Directors of Security Associates International, Inc., I thank you
in advance for your continued support and confidence in 1999.
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 BE HELD ON JULY 8, 1999, AT 10:00 A.M.
To the Stockholders of Security Associates International, Inc.:
The 1999 Annual Meeting of Stockholders of Security Associates
International, Inc., a Delaware corporation, will be convened at our corporate
offices, located at 2101 S. Arlington Heights Road, Suite 115, Arlington
Heights, Illinois 60005, on July 8, 1999 at 10:00 a.m. central time. All of our
stockholders are entitled and encouraged to attend the Annual Meeting. The
following agenda has been set by the Board of Directors:
(1) To elect five Directors to hold office until the next Annual
Meeting of Stockholders as provided in our Bylaws;
(2) To ratify the selection of Arthur Andersen LLP as our
independent public accountants for the fiscal year ending
December 31, 1999;
(3) To consider and vote upon the Security Associates
International, Inc. Employee Stock Purchase Plan;
(4) To consider and vote upon the Security Associates
International, Inc. Stock Option Plan; and
(5) To transact any other business as may properly come before the
Annual Meeting or any adjournment.
Owners of common stock and convertible preferred stock appearing on our
stock register at the close of business on May 19, 1999 (the date fixed by our
Board of Directors, and known as the "record date"), are entitled to receive
notice of the Annual Meeting and to vote at the Annual Meeting in person or by
proxy. For ten days prior to the Annual Meeting, we will keep a list with the
names, addresses, and holdings of the stockholders entitled to vote at the
Annual Meeting, available at our corporate office, and at the offices of our
transfer agent, LaSalle National Bank, located at 135 South LaSalle Street,
Chicago, Illinois 60628. Any stockholder may inspect the list at any time during
normal business hours. We will also have the list available for inspection at
the Annual Meeting.
In order to be certain that sufficient votes are present to conduct
business at the Annual Meeting, we urge all stockholders who cannot attend to
complete, sign, date and return the enclosed proxy card in the envelope
provided, as soon as possible. Any stockholder has the right to revoke its proxy
at any time before it is voted. If you attend the Annual Meeting in person and
wish to revoke your proxy, you should do so at that time. In that event, your
proxy will be cancelled and you will be able to cast your vote in person.
By order of the Board of Directors:
/s/ James S. Brannen
--------------------
James S. Brannen
President and CEO
Our 1998 Annual Report is enclosed with this notice.
<PAGE> 4
SECURITY ASSOCIATES INTERNATIONAL, INC.
2101 SOUTH ARLINGTON HEIGHTS ROAD
SUITE 100
ARLINGTON HEIGHTS, ILLINOIS 60005
-------------
PROXY STATEMENT
-------------
We are providing the following information in order to request the
authority to vote your shares at our 1999 Annual Meeting, and any adjournment.
The Annual Meeting will be held on July 8, 1999, at 10:00 a.m. central time, at
our corporate offices, located at 2101 S. Arlington Heights Road, Suite 115,
Arlington Heights, Illinois 60005, for the purposes stated in the Notice of
Annual Meeting of Stockholders accompanying this Proxy Statement.
VOTING OF SHARES
We mailed this Proxy Statement and the enclosed proxy card on May 29,
1999, to request your proxy for the Annual Meeting on behalf of our Board of
Directors. The purpose of proxy voting is to ensure that all stockholders of
record have an opportunity to vote on matters presented at the Annual Meeting,
whether or not they attend in person. You may vote your shares only if you are
present, or if you give your proxy to a person who will be present, at the
Annual Meeting.
Each share of our common stock represented at the Annual Meeting is
entitled to one vote and each share of convertible preferred stock is entitled
to 100 votes. If you intend to vote by proxy, please specify your choices by
marking the appropriate boxes on the enclosed proxy card and complete, sign,
date and return the proxy card to us, in the envelope provided, before 10:00
a.m. central time on July 8, 1999. Directors are elected by a plurality of the
votes cast at the Annual Meeting, if a quorum is present. A plurality means that
the five nominees for Director with the largest number of votes will be elected.
Any other matters submitted for a vote will be decided by a majority of the
votes cast. If you mark "withhold authority" on your proxy card for any nominees
for Director, or if you mark your proxy to deny discretionary authority on other
matters, your vote will not be counted in determining whether a majority vote
was obtained in such matters.
If you sign the proxy card without giving any instructions, your shares
will be voted in favor of the election of all listed Director nominees and also
in favor of all of the other items listed in the Notice of Annual Meeting of
Stockholders. Your proxy will also exercise his discretion in voting on any
other matter brought before the Annual Meeting. We know of no matters, other
than those described in the Notice of Annual Meeting of Stockholders, that are
to come before the Annual Meeting. If a broker or other nominee does not vote on
a proposal, the votes represented by that stock will not be counted in
determining the number of votes cast. Stockholders voting by proxy may revoke
their proxy at any time before it is voted at the Annual Meeting by delivering a
proxy bearing a later date, by a written revocation of the proxy or by attending
the Annual Meeting in person and casting a ballot.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR
PROXY CARD PROMPTLY, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON.
THIS WILL ENSURE THAT YOUR SHARES ARE REPRESENTED.
As of the Record Date, May 19, 1999, 6,573,165 shares of common stock
and 66,659.44 shares of convertible preferred stock (which has the voting power
of 6,665,944 shares of common stock ) were issued and outstanding.
A copy of our 1998 Annual Report is enclosed with this Proxy Statement.
-1-
<PAGE> 5
BOARD OF DIRECTORS
GENERAL
The Board of Directors governs our business affairs. The management
keeps the Board informed through various reports and information sent to them on
a regular basis and by means of financial reports that our President and other
officers routinely present at Board and committee meetings.
The Board met five times in 1998: in January, April, May, August and
November. All five Directors were present at each of these meetings. The Board
also acted by unanimous written consent, without a meeting, on ten occasions
during 1998.
Biographical information on the Director nominees can be found under
the caption "Item No. 1 - Election of Directors."
COMMITTEES
The Board has a standing Audit Committee and a standing Compensation
Committee to assist the Board in carrying out its duties.
The Audit Committee has three members: Thomas J. Salvatore, Michael B.
Jones and Douglas Oberlander. The Audit Committee reviews and examines the
adequacy of our internal controls and the objectivity and integrity of our
financial reporting. It also meets with our independent public accountants and
appropriate financial personnel in our company about these matters.
The Compensation Committee has three members: Thomas J. Salvatore,
Michael B. Jones and Douglas Oberlander. This committee monitors and makes
recommendations to the Board with respect to compensation of Directors and
officers and administers compensation plans for executive officers.
The Audit Committee and the Compensation Committee were established in
January 1998. The Audit Committee met twice in 1998, in May and November. The
Compensation Committee met once in 1998, in January.
DIRECTOR COMPENSATION
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. On January 6, 1998, when he joined the Board of Directors, Mr. Jones was
awarded options to purchase 10,000 shares of our common stock, at an exercise
price of $6.00 per share, which expire on December 31, 2002. In February 1999,
the Board terminated the $500 per month Directors' fee previously paid to Mr.
Oberlander and Mr. Jones. In lieu of the monthly fee and in recognition of their
continued commitment, on March 10, 1999, Directors Jones and Oberlander each
were awarded options under our Stock Option Plan. These options entitle
Directors Jones and Oberlander to purchase 25,000 shares of common stock each.
These options, as stated in the individual stock option agreements, are
exercisable for a period of six years, half of which are exercisable at $4.50
per share, and the other half at $6.00 per share. Each stock option agreement
also provides that if the exercise price of any option is less than the closing
price on the date of the Annual Meeting, the exercise price will be changed so
that it is equal to the closing market price of the common stock on that date.
Stock options granted to Board members vest immediately. The closing price of
the common stock on the American Stock Exchange on March 10, 1999, was $3.00.
The Stock Option Plan is subject to stockholder approval (see Item 4, below).
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<PAGE> 6
ITEM NO. 1 - ELECTION OF DIRECTORS
The Board has determined that the number of Directors shall be five.
The five Directors will be elected at the Annual Meeting. Each Director will
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: Ronald I. Davis,
James S. Brannen, Thomas J. Salvatore, Douglas Oberlander and Michael B. Jones.
Unless you give instructions to the contrary on the enclosed proxy card, the
proxy or his substitute will vote for these nominees. If, prior to the Annual
Meeting, any nominee should become unable or unwilling to serve, your proxy will
cast your votes for a substitute named by the Board of Directors.
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 60, is one of our founders and has been our
Chairman of the Board since October 1990. He has many years of experience in the
security alarm industry. From 1987 to 1990 he was the principal owner and
founder of SAI Partners, Inc., an alarm dealer buying group. SAI Partners, Inc.
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 venture with Pittway Corporation. Prior to 1982, Mr. Davis
was a full time consultant to many of the alarm companies that now make up our
network of dealers. Mr. Davis attended Roosevelt University where he earned a
Bachelors of Arts degree.
JAMES S. BRANNEN, age 60, is one of our founders and has been a
Director and our President since October 1990, and our Chief Executive Officer
since 1993. 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
the commercial banking department. In that capacity, he managed, among other
things, 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 earned an A.B. Degree from Dartmouth
College and a MBA from Northwestern University.
THOMAS J. SALVATORE, age 31, was elected a Director in December 1996.
Since 1991, Mr. Salvatore has been the Managing General Partner of TJS Partners,
L.P. ("TJS"), our principal stockholder. TJS has a contractual right to
designate two Directors to our 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 earned a Bachelors Degree in Business
Administration from Fordham University.
DOUGLAS OBERLANDER, age 48, was elected a Director in January 1994.
Since 1989, Mr. Oberlander has been President of Lease I, Inc. a commercial
lease and finance company serving alarm dealers. 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 47, was elected a Director in January 1998. He
has been President of ProFinance Associates, Inc. since 1985. ProFinance has
been a securities broker-dealer, registered with the NASD, since 1990. Mr. Jones
was with Marine Midland Bank from 1977 until 1985. He was responsible for
starting a communications/electronics lending group in 1981 and, eventually, for
leading that group. That group was one of the first institutional lenders to the
alarm industry. Mr. Jones earned 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.
-3-
<PAGE> 7
The five nominees with the largest numbers of votes cast at the Meeting
will be elected as Directors.
RECOMMENDATION:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FIVE NOMINEES LISTED ABOVE.
ITEM NO. 2 - RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
Our financial statements are included in our Annual Report which is
enclosed with this Proxy Statement. The Board of Directors has appointed Arthur
Andersen LLP as our independent public accountants to examine our financial
statements for the fiscal year ending December 31, 1999, and seeks your
ratification of this appointment. The Board of Directors believes that Arthur
Andersen LLP is knowledgeable about our operations and accounting practices and
is well qualified to act as our independent public accountants.
Arthur Andersen LLP acted as our principal accountants for the fiscal
year ended December 31, 1998. The total fees Arthur Andersen LLP charged us in
1998 were approximately $68,510. These fees included fees incurred in connection
with the audit of the annual financial statements, audits of certain businesses
we acquired, consultations in connection with our filings with the Securities
and Exchange Commission and the preparation of our income tax returns. Arthur
Andersen LLP has advised us that it has no material direct or indirect financial
interest in our company.
Our Audit Committee reviewed Arthur Andersen LLP's fees for auditing
our 1998 financial statements before the services were provided, and it will
review the 1999 audit fees 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 and the Audit Committee.
Although the selection of an independent accountant does not require a
vote of the stockholders, we believe that it is desirable to have the
stockholders ratify the selection. Due to the difficulty and expense involved in
retaining another independent firm of accountants on short notice, we do not
contemplate appointing another firm to act as our independent accountants for
the fiscal year ending December 31, 1999 if the appointment of Arthur Andersen
LLP is not ratified. Instead, if the appointment of Arthur Andersen LLP for the
fiscal year ending December 31, 1999 is not ratified, the Board of Directors
will consider the vote as advice in making their selection of an independent
accountant for the following year. A representative of Arthur Andersen LLP is
expected to be present at the Annual Meeting and he or she will be available to
respond to appropriate questions.
Ratification of the selection of Arthur Andersen LLP requires approval
by stockholders holding a majority of the votes eligible to be cast at the
Annual Meeting.
RECOMMENDATION:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
ARTHUR ANDERSEN LLP AS OUR INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 1999.
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<PAGE> 8
ITEM NO. 3 -APPROVAL OF
THE SECURITY ASSOCIATES INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted The Security Associates International,
Inc. Employee Stock Purchase Plan on November 13, 1998, subject to stockholder
approval. The following is a brief summary of the material terms of the Plan.
The complete text of the Plan is contained in Appendix A to this Proxy
Statement.
DESCRIPTION OF THE PLAN
The purpose of the Plan is to facilitate and encourage our eligible
employees to purchase common stock in our company through regular, periodic
payroll deductions. The purchase price under the Plan's initial offering will be
$2.76 per share, which is eighty-five percent (85%) of the closing sale price of
our common stock on April 1, 1999. Under the Plan, the Board of Directors may
elect to make additional offerings, the terms of which may differ from the
initial offering. One million (1,000,000) shares of our common stock are
available under the Plan for the initial and any subsequent offerings. The Board
of Directors may make additional offerings to accommodate our future growth or
for other reasons they deem appropriate. On April 1, 1999, the market value of
the 1,000,000 shares was $3,250,000.
The Plan will be administered by the Board of Directors or by a
committee of the Board. The Board will have full power to construe and interpret
the Plan and the rights granted under the Plan, and to establish and amend rules
and regulations for its administration. The Board will also have full authority
to correct any defect or reconcile any inconsistency in the Plan. All decisions
of the Board in this regard are final.
All of our employees and our subsidiaries' employees who work more than
twenty (20) hours per week are eligible to participate in the Plan. As of the
date of this Proxy Statement, virtually all of our employees are eligible to
participate in the Plan.
Any eligible employee who wishes to participate in the Plan must have
elected to do so prior to April 1, 1999. Any participant may elect to deduct
between one percent (1%) and fifteen percent (15%) of his or her gross
compensation to purchase common stock under the Plan. A participant may reduce
the deduction rate at any time by filing an amendment form with the Board or
Board committee. A participant may cease making contributions and withdraw from
the Plan at any time before the actual purchase of the shares occurs. The
purchase of the shares is to occur on July 1, 2001. A withdrawing participant
will be entitled to a distribution of all of his or her payroll deductions with
interest calculated at a rate of three and one-half percent (3 1/2%) per year.
If more than the 1,000,000 shares available under the Plan are
subscribed for, then the common stock will be allocated pro rata among the
participants based upon the number of shares subscribed for.
The Board of Directors may amend the Plan, but may not increase the
maximum number of shares available for purchase (except upon stock splits and
dividends, combinations and similar events) and may not change the class of
eligible employees and range of compensation deductions without stockholder
approval. The Board of Directors may terminate this Plan at any time. However,
no termination or amendment will affect the rights previously granted to
participants without their consent.
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of
the Plan. In order for common stock transactions to qualify for the tax
treatment discussed below, the stockholders must approve
-5-
<PAGE> 9
the Plan. Although we believe that the following statements are currently
correct under the Internal Revenue Code, changes or interpretations of the
applicable sections of the Code may result in a different tax treatment.
The Plan is designed to qualify as an employee stock purchase plan
under the provisions of Sections 421 and 423 of the Internal Revenue Code.
Neither the grant of the right to purchase common stock nor the purchase of
common stock under the Plan will have a tax impact on a participant or on our
company. A participant's initial tax basis in the common stock purchased under
the Plan, for tax purposes, will be 85% of its closing price on April 1, 1999.
The closing price on April 1, 1999 was $3.25 per share and participant's initial
tax basis will be $2.76 per share. Participants who sell their shares after July
1, 2002, will recognize ordinary income equal to the difference between either
$3.25 and $2.76 or the actual sales price when they sell the shares and $2.76
which ever is less. The balance of any gain realized upon the sale of the shares
will be taxed as a long-term capital gain. If the employee holds the common
stock at the time of his or her death, the holding period requirements are
deemed satisfied and the estate will recognize ordinary income and long-term
capital gains as described above, upon the sale or other disposition of the
common stock. Our company cannot take a tax deduction if the holding period
requirements are satisfied or deemed satisfied.
If a participant disposes of the common stock before July 1, 2002, then
the participant will pay ordinary income tax on the difference between the fair
market value on the purchase date and $2.76. The balance of any gain realized on
the sale of the shares will be taxed as ordinary income. If the holding periods
have not been satisfied, our company may deduct the amount of ordinary income
recognized by the employee.
The affirmative vote of a majority of the votes present in person or by
proxy will be required to approve the Plan.
RECOMMENDATION:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE EMPLOYEE
STOCK PURCHASE PLAN.
ITEM NO. 4 - APPROVAL OF
THE SECURITY ASSOCIATES INTERNATIONAL, INC.
STOCK OPTION PLAN
On March 10, 1999, the Board of Directors adopted the Security
Associates International, Inc. Stock Option Plan, subject to stockholder
approval. The complete text of the Stock Option Plan is contained in Appendix B
to this Proxy Statement.
STOCK OPTION PLAN
The purpose of our Stock Option Plan is to advance the interests and
enhance the value of our company by:
- - aligning the economic interests of our key employees, consultants and
Directors with those of our stockholders;
- - inducing individuals of outstanding ability and potential to join and/or
remain with us; and
- - providing key employees, consultants and Directors with an additional
incentive to contribute to our success.
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<PAGE> 10
The Stock Option Plan will be administered by a committee of the Board
of Directors. The committee will have discretion as to which employees,
non-employee Directors, consultants or independent contractors will receive
options. The committee will also establish the terms, conditions and limitations
of each option, including the type and amount of the option, the number of
shares of common stock underlying each option, the exercise price and the date
or dates upon which the option vests and become exercisable.
Our Stock Option Plan permits grants of qualified incentive stock
options, as defined by the Internal Revenue Code, and also non-qualified stock
options. Qualified incentive options must have a per share exercise price equal
to the market price of the underlying common stock at the time the option is
granted. If a qualified incentive option is granted to any participant who owns
more than ten percent of the voting power of our company (a "Significant
Stockholder"), then the exercise price per share must be not less than one
hundred ten percent (110%) of this price. The exercise price for non-qualified
options will be determined by the committee in its sole discretion on the date
of grant, and may be less than fair market value.
Each participant receiving a qualified incentive option must be an
employee of our company or of a subsidiary at the time an incentive option is
granted. The maximum exercise period may not be greater than ten years
(qualified incentive options granted to a Significant Stockholder will have an
exercise period of five years). The fair market value of shares as to which
qualified incentive options are exercisable for the first time by any key
employee during any single calendar year (under this Plan and any other
incentive option plan of our company or a subsidiary) may not exceed $100,000.
A participant who ceases to be an employee, consultant or Director of
our company or a subsidiary for any reason other than death, disability or
termination "for cause" will be permitted to exercise any option, to the extent
it is vested, within three months of such termination. If a participant dies,
his or her estate or personal representative may exercise the option, to the
extent it was vested and exercisable on the date of death. If a participant
becomes permanently disabled, he or she may exercise the option to the extent it
was vested and exercisable at the time of the onset of the disability or, if the
option vests periodically, to the extent it would have been exercisable as of
the next periodic vesting date. In the case of either death or disability, the
option must be exercised within twelve (12) months after the date of death or
onset of disability, and/or prior to the original expiration date of the option.
A participant who is terminated "for cause" will immediately lose all rights to
exercise any options.
On March 10, 1999, the Board of Directors granted options to purchase
common stock under the Stock Option Plan to certain executive officers subject
to stockholder approval of the Plan. Under the terms of each executive officer's
stock option agreement, 50% of the option will be exercisable at $4.50 per share
and 50% of the option will be exercisable at $6.00 per share. Each stock option
agreement provides that if the exercise price of any option is less than the
closing price on the date of the Annual Meeting, the exercise price will be
changed so that it is equal to the closing market price of the common stock on
that date. The closing price of the common stock on the American Stock Exchange
on March 10, 1999, the date the Stock Option Plan was approved by the Board, was
$3.00. The options will vest over a three year period (one-third per year, with
all of the $4.50 options vesting first), and expire on the sixth anniversary of
the grant date. In the event of a stock split or other similar events, the
options will be increased or decreased to adjust for the split.
The Board may amend the Stock Option Plan in any respect and it will
seek stockholder approval for such amendments, when approval is required by the
Internal Revenue Code or another federal or state statute or the rules of the
American Stock Exchange or any other exchange on which our shares may be listed.
The Board may terminate the Stock Option Plan at any time. However, no
termination or amendment will affect the rights of participants under options
previously granted without a participant's consent. Unless previously
terminated, the Stock Option Plan will terminate on March 10, 2009, and no
options will be granted after that date.
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<PAGE> 11
A total of 1,800,000 shares of common stock currently have been made
available for issuance under the Stock Option Plan and as of March 10, 1999, the
market value of the shares was $5,400,000. The Board of Directors has determined
that the number of shares available is consistent with our business objectives,
and has set the exercise prices of the options awarded to date materially above
the current market price of our common stock.
The following table presents the benefits or amounts that will be
initially received by or allocated to each of the following individuals under
the Stock Option Plan:
NEW PLAN BENEFITS
SECURITY ASSOCIATES INTERNATIONAL, INC. STOCK OPTION PLAN
<TABLE>
<CAPTION>
Name And Position No. of Shares
Underlying Option
Granted(1)
<S> <C>
James S. Brannen
President and Chief Executive Officer 210,000
Ronald I. Davis
Chairman of the Board 210,000
Stephen Rubin
Senior Vice President 210,000
Ronald J. Carr
Senior Vice President 300,000
Daniel S. Zittnan
Senior Vice President 300,000
Executive Group (9 individuals) 1,530,000
Non-Executive Director Group (3 individuals) 50,000
Non-Executive Officer Employee Group (376 individuals) 220,000
</TABLE>
1) The New Plan Benefits Table reflects the number of shares underlying
the options which the Board has authorized to be granted in the 1999
calendar year.
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of
the Stock Option Plan.
In general, a participant will not recognize ordinary income upon the
grant or exercise of a qualified incentive stock option. If the participant
holds the stock acquired through the exercise of a qualified incentive stock
option for one year from the date of exercise and two years from the date of the
grant, the participant will recognize long-term capital gain or loss upon a
subsequent sale of the stock, based upon the difference between the exercise
price and the sale price. However, if the participant sells the stock before the
requisite holding periods have elapsed, the participant will recognize ordinary
income equal to the difference between the exercise price and the lesser of the
sales price or the fair market value on the date of exercise.
A participant will not recognize ordinary income upon the grant of a
non-qualified option. Unlike qualified incentive stock options, however, a
participant generally will recognize ordinary income upon exercise of the
option, in an amount equal to the difference between the exercise price for the
option and the fair market value of the common stock on the exercise date. The
common stock acquired through such exercise will have a tax basis equal to the
exercise price plus any income recognized upon the exercise of the option. Upon
the subsequent sale of the common stock, a participant generally will recognize
a capital
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<PAGE> 12
gain or loss equal to the excess of the sale price of the common stock over the
participant's tax basis in the stock. The capital gain or loss will be long-term
or short-term, depending upon the holding period of the shares.
Neither the grant nor the exercise of a qualified option under the
Stock Option Plan will have a tax consequence to our company. However, the
exercise of a non-qualified option will entitle our company to a business
expense deduction equal to any ordinary income recognized by participants as
compensation under the Stock Option Plan.
The affirmative vote of a majority of the votes present in person or by
proxy will be required to approve the Stock Option Plan.
RECOMMENDATION:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE STOCK
OPTION PLAN.
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
If any other matter properly comes before the Annual Meeting, the proxy
will vote your shares in accordance with his best judgment. At the time this
Proxy Statement went to press, we knew of no other matters to be presented for
stockholder action at the Annual Meeting.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Neither our company nor the Compensation Committee has formally adopted
a compensation policy for our executive officers. However, our ultimate goal is
to attract, retain and motivate qualified personnel to ensure our long-term
success. The Compensation Committee reviewed the informal compensation policy
for our executive officers in order to align executive compensation with our
business objectives, the economic interests of our stockholders and reward
superior performance. Executive compensation has generally consisted of three
principal components: base salary, bonus, and equity participation in our
company. In the future, equity participation will be awarded through the grant
of options under our Stock Option Plan.
On April 28, 1997, we adopted an executive deferred compensation plan
(the Security Associates International, Inc. Supplemental Employees' Retirement
Plan) which allowed the Board of Directors to make annual common stock awards to
plan participants. Up to 20% of the total shares of stock authorized for the
plan could be earned at the end of each of the five years following the initial
authorization. The actual number of shares earned was based on the Compensation
Committee's assessment of each officer's performance against our goals and
objectives for each year. At the beginning of each year, the Board of Directors
met with management to establish budgeted performance goals. These goals
included, but were not limited to, increasing the total number of monitored
accounts, increasing cash flow, increasing operating margins and decreasing
expenses. The Board approved awards based on management's degree of success in
meeting these goals for the years 1997 and 1998. In 1997, 162,265 shares were
awarded. In 1998, 154,693 shares were awarded. On March 10, 1999, the Board
determined that this plan was no longer appropriate for our objectives and,
therefore, there would be no further awards under this plan. The Board
determined that the Stock Option Plan, as adopted by the Board, and subject to
stockholder approval, is fair and a more appropriate means to meet our
objectives.
On August 29, 1996, we entered into a three year employment agreement
with James S. Brannen to serve as our President and Chief Executive Officer.
This agreement automatically renews for one-year terms after the initial term,
unless terminated. Under that agreement, Mr. Brannen currently receives an
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<PAGE> 13
annual salary of $175,000, which may be increased following an annual salary
review. In addition, Mr. Brannen will participate in any additional benefits the
Board of Directors makes available to our other executive employees.
The employment agreements and salary, bonus and common stock awards
that we paid or granted to the Chief Executive Officer and to our other most
highly compensated executive officers in 1998 are set forth in the tables in the
section entitled "Executive Compensation." The Compensation Committee believes
that our executive officers are dedicated to increasing stockholder value and
that our compensation structure, including the Stock Option Plan, will enhance
their dedication and focus.
THE COMPENSATION COMMITTEE
Thomas J. Salvatore Michael B. Jones Douglas Oberlander
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 our
company. Mr. Salvatore is a controlling party of TJS Partners, L.P. Our
company's relationship with TJS is described below under the caption "Certain
Relationships and Related Transactions."
STOCKHOLDER RETURN AND PERFORMANCE GRAPH
Presented below is a line graph comparing the percent change in the
cumulative total stockholder return on our common stock against the Russell 2000
Index and the Mallon Global Security Index. The graph assumes that $100 was
invested on January 1, 1994, in our common stock and each of the Russell 2000
Index and the Mallon Global Security Index, and that all dividends were
reinvested.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLLY BLANK]
-10-
<PAGE> 14
TOTAL STOCKHOLDER RETURNS
PERFORMANCE GRAPH FOR SECURITY ASSOCIATES INTERNATIONAL, INC.
Prepared by Buttonwood Advisory Group
Produced on March 31, 1999 Including Data to December 31, 1998
$100 invested January 1, 1994
(assumes all dividends reinvested)
FISCAL YEAR ENDED DECEMBER 31, 1998
GRAPHIC REPRESENTATION OF THE
INFORMATION CONTAINED IN THE TABLE BELOW.
ASSUMES $100 INVESTED ON JANUARY 1, 1994
ASSUMES DIVIDENDS REINVESTED THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
MEASUREMENT PERIOD RUSSELL 2000 INDEX MALLON GLOBAL SECURITY INDEX THE COMPANY
- ------------------ ------------------ ---------------------------- -----------
<S> <C> <C> <C>
January 1, 1994(1) $100.00 $100.00 $100.00
FYE 1994 $ 96.79 $ 98.73 $ 33.32
FYE 1995 $122.14 $146.82 $ 54.12
FYE 1996 $140.17 $207.74 $374.53
FYE 1997 $173.50 $249.92 $707.48
FYE 1998 $168.69 $253.50 $524.35
</TABLE>
1) The price of our common stock was $0.75 on this date.
EXECUTIVE OFFICERS
The following table presents information with respect to our executive
officers. The biographies of James S. Brannen and Ronald I. Davis appear above
under Item No. 1 - Election of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
RONALD I. DAVIS 60 CHAIRMAN OF THE BOARD OF DIRECTORS
JAMES S. BRANNEN 60 PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
RONALD J. CARR 47 SENIOR VICE PRESIDENT
STEPHEN RUBIN 52 SENIOR VICE PRESIDENT
HOWARD SCHICKLER 51 VICE PRESIDENT, GENERAL COUNSEL, AND SECRETARY
DANIEL S. ZITTNAN 44 SENIOR VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
KAREN B. DANIELS 44 VICE PRESIDENT
TIMOTHY M. MCAULIFF 40 VICE PRESIDENT
</TABLE>
-11-
<PAGE> 15
RONALD J. CARR has been a Vice President since March 1997, and a Senior
Vice President and Chief Operating Officer for the Central Station Division
since August 1998. Mr. Carr is also the President of a number of our operating
subsidiaries, and he 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 SecurityLink, a
subsidiary of Ameritech. From 1991 to 1996 he was Director of Telecommunications
for ADT, Inc. Mr. Carr earned a Bachelors Degree in Business Administration from
Brookdale College.
STEPHEN RUBIN is one of our founders and has been a Senior Vice
President since October 1990. From 1987 to 1990, he was a Senior Vice President
of SAI Partners, Inc. Mr. Rubin is primarily responsible for the design and
implementation of our marketing and dealer programs. From 1978 to 1986, Mr.
Rubin was an officer of Davis Marketing Group and Security Alliance Corporation.
Mr. Rubin earned a Bachelors Degree from Northern Michigan University and an MBA
from Loyola University.
HOWARD SCHICKLER has served as General Counsel of our company since
January 1997, was appointed Secretary on October 1997 and Vice President in
April 1998. Prior to joining us, Mr. Schickler spent eight years with Sachnoff &
Weaver, Ltd., a Chicago law firm. He became a member of that firm in 1994. Mr.
Schickler earned a Bachelors Degree from Brooklyn College, MA and an MBA from
The University of Wisconsin at Milwaukee and a JD from Northwestern University.
DANIEL S. ZITTNAN has been a Senior Vice President since August 1998,
and has served as our Chief Financial Officer and Treasurer since October 1997.
Prior to joining us, Mr. Zittnan spent over thirteen years with Arthur Andersen
LLP, most recently as a Senior Manager. Mr. Zittnan earned a Bachelors Degree in
accounting from DePaul University and is a member of the AICPA and ICPA Society.
KAREN B. DANIELS has been a Vice President since October 1997, having
been a consultant to us from March to October 1997. Prior to that she was with
Ameritech AIIS since 1995. Ms. Daniels is primarily responsible for internal
financial management and reporting. 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 earned a Bachelors Degree in
Industrial Administration-Finance from Iowa State University. Ms. Daniels is
also a Certified Public Accountant.
TIMOTHY M. MCAULIFF has been a Vice President since 1998, having served
in various positions with us since 1996. Mr. McAuliff is primarily responsible
for credit operations. 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. Mr. McAuliff earned a Bachelors
Degree in Business Administration from Elmhurst College.
Our executive officers are appointed annually by the Board of
Directors, and they serve at the Board's discretion, until their successors are
duly elected and qualified or until his or her death, resignation or removal by
the Board. Ronald I. Davis and Stephen Rubin are brothers-in-law. There are no
other family relationships between any of our Directors or executive officers.
EXECUTIVE COMPENSATION
GENERAL
The following table is a summary of the compensation awarded or earned
by our President and Chief Executive Officer and the other most highly paid
executive officers (the "Named Executive Officers") during the last three fiscal
years:
-12-
<PAGE> 16
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------------- -------------------------------
AWARDS PAYOUTS
-------------------------------
SECURITIES
RESTRICTED UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS(#) PAYOUTS(4) COMPENSATION(5)
- -------------------------- ---- -------- --------- ------------ ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
James S. Brannen 1998 $175,000 $55,000 $32,215(1) -- -- $108,888 $2,019
President and Chief 1997 $125,000 $11,635 $23,835(1) -- -- $154,103 $ 837
Executive Officer 1996 $ 94,523 -- -- -- -- -- --
Ronald I. Davis 1998 $175,000 $55,000 $31,889(2) -- -- $108,888 $ 676
Chairman of the 1997 $125,858 $11,635 $22,949(2) -- -- $154,103 $ 843
Board(6)
Stephen Rubin 1998 $127,400 $40,000 $16,456(3) -- -- $67,568 $ 697
Senior Vice President(6) 1997 $104,999 $ 8,462 $11,586(3) -- -- $95,625 $ 694
Ronald J. Carr 1998 $126,538 -- $10,750(8) -- -- $67,568 $ 646
Senior Vice President(7)
Daniel S. Zittnan(9) 1998 $139,615 -- $4,000(10) -- -- $67,568 --
Senior Vice President
</TABLE>
- ------------------------------
1) Includes $22,871 and $24,965 for automobile allowances for 1997 and 1998,
respectively.
2) Includes $22,319 and $25,439 for automobile allowances for 1997 and 1998,
respectively.
3) Includes $10,750 and $11,856 for automobile allowances for 1997 and 1998,
respectively.
4) Earned awards under our Supplemental Employees' Retirement Plan. See
"Supplemental Employees' Retirement Plan."
5) Amount is matching funds pursuant to our 401(k) Plan.
6) Annual salary and bonus did not exceed $100,000 in 1996.
7) Annual salary and bonus did not exceed $100,000 in 1996 and 1997.
8) Includes $10,750 for automobile allowance.
9) Annual salary and bonus did not exceed $100,000 in 1996 and 1997.
10) Includes $4,000 for automobile allowance.
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<PAGE> 17
EXECUTIVE OPTION EXERCISES TABLE
The following table contains information concerning the stock option
exercises made by the Named Executive Officers in 1998. No Named Executive
Officer other than those listed in the table below exercised options in 1998. No
Named Executive Officer held options or SARs at the end of fiscal year 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE
UNEXERCISED OPTIONS/SARs AT MONEY OPTIONS/SARs AT
FISCAL YEAR END FISCAL YEAR END
SHARES ACQUIRED VALUE ------------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- ------------------------------- ---------------------------
<S> <C> <C>
Ronald I. Davis 120,000(1) $525,000 --/-- --/--
Stephen Rubin 40,000 $175,000 --/-- --/--
</TABLE>
- -------------
1) Mr. Davis is the sole stockholder of SAI Partners, Inc., which is the
sole general partner of J, S & R Ltd., L.P., the limited partners of
which are James S. Brannen and Stephen Rubin. On June 1, 1998, SAI
Partners contributed warrants to purchase 120,000 shares of our common
stock to J, S & R as a required capital contribution under J, S & R's
limited partnership agreement. J, S & R exercised these warrants on
August 18, 1998, at the exercise price of $1.00 per share.
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-14-
<PAGE> 18
LONG-TERM INCENTIVE PLANS TABLE
The following table contains information concerning awards under our
long-term incentive plan to the Named Executive Officers at the end of fiscal
year 1998:
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
NUMBER OF SHARES, PERFORMANCE OR OTHER PRICE-BASED PLANS
UNITS OR OTHER PERIOD UNTIL -------------------------------------------
NAME RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM(1)
- ------------------ ------------------ --------------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
James S. Brannen 27,654 Vests 20% per year for -- 42,544 212,722
each of five years shares per shares
starting FYE 1997 and year
1998
Ronald I. Davis 27,654 Vests 20% per year for -- 42,544 shares 212,722
each of five years per year shares
starting FYE 1997 and
1998
Stephen Rubin 17,160 Vests 20% per year for -- 26,400 shares 132,000
each of five years per year shares
starting FYE 1997 and
1998
Ronald J. Carr 17,160 Vests 20% per year for -- 26,400 shares 132,000
each of five years per year shares
starting FYE 1997 and
1998
Daniel S. Zittnan 17,160 Vests 20% per year for -- 26,400 shares 132,000
each of five years per year shares
starting FYE 1997 and
1998
</TABLE>
- ---------------------------
1) The maximum numbers of shares authorized by the Board of Directors for award
to each participant over a five-year period. The "Target" column shows the
maximum number of shares that could have been awarded for 1998, and the "Number
of Shares" column shows the number of shares that were actually awarded for that
year. The Board does not plan to make any further awards under this Plan. We had
no executive deferred compensation plan prior to the adoption of this plan.
EMPLOYMENT AGREEMENTS
In August, 1996, we entered into three year employment agreements with
James S. Brannen, Ronald I. Davis and Stephen Rubin to serve as our President
and Chief Executive Officer, Chairman of the Board of Directors, and Senior Vice
President, respectively. Pursuant thereto, Mr. Brannen and Mr. Davis currently
receive an annual salary of $175,000, and Mr. Rubin receives an annual salary of
$120,000. These amounts may be increased following annual salary reviews. The
employment agreements provide that these executives are 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 they terminate their employment because of: (a) a
diminution of responsibilities or authority or being assigned duties
inconsistent with their positions; (b) a requirement that they serve from a
location other than the greater Chicago metropolitan area; (c) breach of the
employment agreement by our company; or (d) certain change of control
transactions of our company. In addition, they are entitled to participate in
such other benefits as are offered to other executive employees. The agreements
automatically renew for successive one-year periods.
We anticipate entering into Confidentiality Agreements with all of our
other executive officers. These agreements are expected to contain non-compete,
non-solicitation, and confidentiality provisions, and also provide that in the
event of termination of the executive officer as a result of a change of control
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<PAGE> 19
each executive officer will be paid a one-time cash payment equal to 2.99 times
his or her salary, plus an additional payment to compensate the employee for any
federal excise tax imposed as a result of this payment.
If our Stock Option Plan is approved by our stockholders, certain
executive officers will be granted options to purchase shares of our common
stock. Under the terms of each executive officer's stock option agreement, which
describes the terms of his or her options, 50% of the options will be
exercisable at $4.50 per share and 50% of the options will be exercisable at
$6.00 per share. The options will expire in six (6) years and will vest over
three (3) years. If our company undergoes certain change of control
transactions, however, the options will vest immediately. For a description of
this plan, please refer to Item 4, above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 22, 1998, TJS agreed to amend the terms of its 12%
redeemable preferred stock. The amendments increased the threshold for
triggering TJS' rights to receive payment of accrued but unpaid dividends; to a
receive a higher dividend rate (18% instead of 12%); and to convert the 12%
redeemable preferred stock plus any accrued but unpaid dividends into common
stock.
As a result of these amendments, the threshold for triggering TJS'
right to receive accrued but unpaid dividends was raised to $20,000,000 in "new
equity" (from $10,000,000 previously) and, with respect to the other provisions,
was raised to $30,000,000 (from $15,000,000 previously). The stockholders
approved the amendments to the terms of the 12% redeemable preferred stock at
the May 19, 1998 Annual Meeting.
On January 22, 1998, our line of credit from TJS was amended to
increase the threshold for triggering TJS' right to receive payment of all
obligations to $30 million (from $15 million previously).
On June 1, 1998, we sold an additional 155,835 shares of 12%
redeemable preferred stock to TJS at $10.00 per share, bringing its total
holdings of redeemable preferred stock to 500,000 shares.
During 1998, the TJS line of credit was amended to increase the amount
of borrowing available to us from $5,000,000 to $8,500,000. In the first quarter
of 1999, this line of credit was further increased to $10,000,000, of which we
have borrowed $9,400,000. The interest rate on these borrowings has remained
unchanged at twelve percent (12%) per annum, and the obligations fall due on
December 31, 2002.
During 1998, TJS purchased an additional 2,075 shares by exercising an
option. As of April 16, 1999, TJS owns a total of 66,659.44 shares of
convertible preferred stock. Each share of convertible preferred stock is
convertible into 100 shares of common stock.
On December 18, 1997, our Board elected Michael B. Jones, the principal
stockholder of ProFinance Associates, Inc., to serve as a Director effective
January 1, 1998. In consideration of his agreement to become a Director, we
granted Mr. Jones an option to purchase 10,000 shares of our common stock at an
exercise price of $6.00 per share, expiring on December 31, 2002. We also agreed
to pay ProFinance a monthly retainer of $2,500 for financial advisory services
during 1998. Under the agreement, ProFinance is entitled to receive a
transaction fee for each transaction that it introduces and that is closed. The
amount of the transaction fee will be depend on the size of the transaction.
Effective January 1, 1999, the monthly retainer was reduced to $1,000.
In 1997, we agreed to pay ProFinance Associates, Inc. a financing fee
of $218,208 in connection with TJS' investment in our company. Under the
original agreement ProFinance was to receive additional fees if TJS were to make
additional investments in our company. On December 31, 1997, we agreed to amend
ProFinance's compensation arrangement so that its entire fee in connection with
TJS' investment would be a one time payment of $175,000, and issuance of an
option to ProFinance to purchase 25,000 shares of our common stock at an
exercise price of $6.00 per share. This option was issued to ProFinance on
January 6, 1998, and expires December 31, 2002.
-16-
<PAGE> 20
On August 5, 1998, TJS and ProFinance surrendered options to purchase
up to 20% of the common stock of Alarm Funding Corporation, our wholly-owned
subsidiary, after we determined to discontinue this line of business. TJS and
ProFinance received these options in consideration of providing capital and
referring business opportunities, respectively, to Alarm Funding. The $500,000
borrowed from TJS and is now part of our company's obligation to TJS.
Since January 1, 1998, Ronald I. Davis and Stephen Rubin have
exercised options and warrants to acquire shares of common stock for an
aggregate price of $160,000 as shown 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(1) 8/14/98 120,000 120,000 1.00
Stephen Rubin 8/12/98 40,000 40,000 1.00
Totals 160,000 $160,000 1.00
</TABLE>
1) Mr. Davis owned his option through SAI Partners, Inc., the sole general
partner of J, S & R Ltd., L.P., of which James S. Brannen and Stephen Rubin are
the limited partners. On June 1, 1998, SAI Partners contributed 120,000 warrants
(to purchase our common stock) to J, S & R as a required capital contribution
under J, S & R's limited partnership agreement. J, S & R exercised these
warrants on August 14, 1998, at the exercise price of $1.00 per share.
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE
OFFICERS AND PRINCIPAL HOLDERS
The following table presents certain information regarding the
beneficial ownership of common stock as of April 16, 1999 by: (a) each person
known by us to beneficially own more than five percent of the outstanding shares
of common stock; (b) each of our Directors; (c) each of the Named Executive
Officers; and (d) all Directors and officers as a group. We believe that each
person named below has sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to community
property laws where applicable. Only those Named Executive Officers that
beneficially own common stock are presented in the table below.
-17-
<PAGE> 21
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------------
NAME NUMBER OF SHARES PERCENT(1)
---- -----------------------------------
<S> <C> <C>
TJS Partners, L.P.(2)
115 East Putnam Avenue
Greenwich, CT 06830................................................. 6,665,944 50.35%
Ronald I. Davis(3)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005................................... 906,333 6.85%
James S. Brannen(4)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005................................... 516,616 3.90%
Thomas J. Salvatore(5)
c/o TJS Partners, L.P.
115 East Putnam Ave.
Greenwich, CT 06830................................................. 6,665,944 50.35%
Douglas J. Oberlander
10225 N. Knoxville Avenue
Peoria, Illinois 61615.............................................. 96,022 *
Michael B. Jones (6)
c/o ProFinance, Inc.
6540 Lusk Blvd., Suite C-240
San Diego, CA 92121................................................. 41,000 *
Stephen.Rubin(7)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005................................... 402,191 3.04%
Daniel S. Zittnan(8)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005................................... 3,189 *
Ronald J. Carr(9)
c/o Security Associates International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005................................... 0 *
All Executive Officers and Directors as a group
(12 persons)...................................................... 8,176,655
</TABLE>
- ---------------
1) Applicable percentage of ownership as of April 16, 1999 is based upon
13,239,109 shares of common stock outstanding (including 6,665,944 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.
-18-
<PAGE> 22
2) Consists of 66,659.44 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 906,333 shares owned by Mr. Davis and J, S & R Ltd., L.P. Excludes
337 shares owned by Beverly Davis, Mr. Davis' wife, 10,700 shares owned by Scott
Davis, Mr. Davis' son, 5,500 shares owned by Ethan Davis, Mr. Davis' grandson,
5,500 shares owned by Benjamin Davis, Mr. Davis' grandson, and 10,500 shares
owned by Ann Davis, Mr. Davis' sister, as to which Mr. Davis disclaims
beneficial ownership. Does not include 56,662 shares which were awarded under
our Supplemental Employees' Retirement Plan.
4) Includes 516,616 shares owned by Mr. Brannen and a family limited
partnership. 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. Does not include 56,662 shares which
were awarded under our Supplemental Employees' Retirement Plan.
5) Consists of 66,659.44 shares of convertible preferred stock owned by TJS, Mr.
Salvatore controls voting and disposition of these shares as the Managing
Partner of TJS.
6) Includes 6,000 shares held directly; an option to purchase 10,000 shares of
our common stock at a price of $6.00 per share expiring December 31, 2002; an
option held by ProFinance Associates, Inc. (of which Mr. Jones is the principal
stockholder) to purchase 25,000 shares of our common stock at a price of $6.00
per share expiring December 31, 2002.
7) Includes 402,191 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. Does not include 35,160 shares which were awarded under our
Supplemental Employees' Retirement Plan.
8) Does not include 35,160 shares which were awarded under our Supplemental
Employees' Retirement Plan.
9) Does not include 35,160 shares which were awarded under our Supplemental
Employees' Retirement Plan.
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-19-
<PAGE> 23
The following table presents certain information regarding the
beneficial ownership of convertible preferred stock as of April 16, 1999 by: (a)
each person known by us to beneficially own more than five percent of the
outstanding shares of convertible preferred stock; (b) each of our Directors;
(c) each of the Named Executive Officers; and (d) all Directors and officers as
a group. We believe 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 them, subject to community property laws where applicable.
Only TJS Partners, L.P. and Thomas J. Salvatore are the sole beneficial owners
of convertible preferred stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------------
NAME NUMBER OF SHARES PERCENT(1)
---- ------------------------------------
<S> <C> <C>
TJS Partners, L.P.(2)
115 East Putnam Avenue
Greenwich, CT 06830.................................................. 66,659.44 100%
Thomas J. Salvatore(3)
c/o TJS Partners, L.P.
115 East Putnam Avenue
Greenwich, CT 06830.................................................. 66,659.44 100%
All Executive Officers and Directors as a group
(12 persons)....................................................... 66,659.44 100%
</TABLE>
- ---------------
1) Applicable percentage of ownership as of April 16, 1999 is based upon
66,659.44 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 66,659.44 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.
3) Consists of 66,659.44 shares of convertible preferred stock owned by TJS, Mr.
Salvatore controls voting and disposition of these shares as the Managing
General Partner of TJS.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
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<PAGE> 24
The following table presents certain information regarding the
beneficial ownership of 12% redeemable preferred stock as of April 16,1999 by:
(a) each person known by us to beneficially own more than five percent of the
outstanding shares of 12% redeemable preferred stock; (b) each of our Directors;
(c) each of the Named Executive Officers; and (d) all of our Directors and
officers as a group. We believe that each person named below has sole voting and
investment power with respect to all shares of 12% redeemable preferred stock
shown as beneficially owned by them, subject to community property laws where
applicable. Only TJS Partners, L.P. and Thomas J. Salvatore are the sole
beneficial owners of 12% redeemable preferred stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------------
NAME NUMBER OF SHARES PERCENT(1)
---- ------------------------------------
<S> <C> <C>
TJS Partners, L.P.(2)
115 East Putnam Avenue
Greenwich, CT 06830......................... 500,000 100%
Thomas J. Salvatore(3)
C/O TJS Partners, L.P.
115 East Putnam Avenue
Greenwich, CT 06830......................... 500,000 100%
All Executive Officers and Directors as a group
(10 persons)..............................
500,000 100%
</TABLE>
- ---------------
1) Applicable percentage of ownership as of April 16, 1999 is based upon 500,000
shares of 12% redeemable 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 500,000 shares of 12% redeemable preferred stock.
3) Consists of 500,000 shares of 12% redeemable preferred stock owned by TJS,
Mr. Salvatore controls voting and disposition of these shares as the Managing
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 our Directors, executive officers and any persons who beneficially own
more than ten percent of our 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 our company with copies of all
Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of such reports
and written representations received by us, during the year ended December 31,
1998, all such Section 16(a) filing requirements were complied with, except for:
reports of options exercised by TJS Partners, L.P. which
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<PAGE> 25
were due in September and November of 1998 on Form 4, but were instead reported
on Form 5 in January 1999; and a report of a stock transfer by James S. Brannen,
which was due in January 1998 on Form 4, but instead was reported in February
1999 on Form 5.
STOCKHOLDER PROPOSALS FOR THE 1999 PROXY STATEMENT
Any stockholder satisfying the Securities and Exchange Commission's
requirements and wishing to submit a proposal to be included in the Proxy
Statement for the 2000 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. We must receive a proposal by January 30, 2000 in order to consider it
for inclusion in the Proxy Statement for the 2000 Annual Meeting of
Stockholders.
VOTING PROCEDURES
Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum 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
Our 1998 Annual Report to Stockholders, which includes a copy of our
Annual Report on Form 10-K for the fiscal year 1998, 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 Securities and Exchange
Commission (excluding exhibits) will be furnished to you, 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, our independent public accountants, has examined
our financial statements for the fiscal year ended December 31, 1998. We expect
a representative to be available at the Annual Meeting to respond to appropriate
questions from stockholders.
EXPENSES OF SOLICITATION
We will pay all expenses in connection with the solicitation of
proxies. Solicitation may be made personally, or by telephone, telegraph or
mail, by one or more of our employees, who will receive no additional
compensation for such activities. In addition, we 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 them. We will reimburse brokerage
firms and other custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred in forwarding copies of solicitation materials
to beneficial owners of our common stock and convertible preferred stock held by
such persons on May 19, 1999.
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
May 29, 1999
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<PAGE> 26
APPENDIX A
SECURITY ASSOCIATES INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
The purpose of the Security Associates International, Inc. Employee
Stock Purchase Plan is to provide eligible Employees of Security Associates
International, Inc., and its Affiliates with an opportunity to acquire a
proprietary interest in the Company through the purchase of Common Stock of the
Company on a payroll deduction basis. It is believed that participation in the
ownership of the Company will be to the mutual benefit of the eligible Employees
and the Company. It is intended that this Plan shall constitute an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue
Code of 1986, as amended. The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner consistent with
the requirements of Code Section 423.
2. DEFINITIONS
Unless otherwise specified or unless the context otherwise requires,
the following terms, as used in this Plan, have the following meanings. Wherever
appropriate, words used in the singular shall be deemed to include the plural
and vice versa, and the masculine gender shall be deemed to include the feminine
gender.
(a) ACCOUNT means the funds accumulated with respect to an Employee as
a result of deductions from his paycheck for the purpose of purchasing
Common Stock under the Plan. The funds allocated to an Employee's
Account shall remain the property of the Employee at all times prior to
the purchase of the Common Stock, but may be commingled with the assets
of the Company and used for general corporate purposes. Except as
otherwise set forth herein, no interest shall be paid or accrued on any
funds accumulated in the Accounts of Employees.
(b) AFFILIATE means a corporation, as defined in Section 424(f) of the
Code, that is a parent or subsidiary of the Company, direct or
indirect.
(c) BOARD means the Board of Directors of the Company.
(d) CODE means the Internal Revenue Code of 1986, as amended.
(e) COMMITTEE means the committee to which the Board delegates the
power to act under or pursuant to the provisions of the Plan, or the
Board if no committee is selected.
(f) COMMON STOCK means the shares of common stock of the Company, $.001
par value.
(g) COMPANY means Security Associates International, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of
the assets or voting stock of the Company.
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<PAGE> 27
(h) COMPENSATION means the compensation paid to an Employee by the
Company during a payroll period for federal income tax purposes, as
reported on an Employee's Form W-2 (or comparable reporting form) for
income tax withholding purposes.
(i) EFFECTIVE DATE means the date the Plan is adopted by, and made
effective by, the Board, subject to the limitations of Section 16.
(j) EMPLOYEE means any person who is employed by the Company or an
Affiliate on a regular full-time or part-time basis. A person shall be
considered employed on a regular full-time or part-time basis if he is
customarily employed for more than twenty (20) hours per week.
(k) OFFERING DATE means the date on which the Committee grants
Employees the option to purchase shares of Common Stock.
(l) OFFERING PERIOD means the period between the Offering Date and the
Purchase Date.
(m) PURCHASE DATE means the date on which the Committee purchases the
shares of Common Stock, which date shall be the last day of an Offering
Period.
(n) PARTICIPANT means an Employee who elects to participate in the
Plan.
(o) PLAN means the Security Associates International, Inc. Employee
Stock Purchase Plan.
3. ELIGIBILITY
All Employees of the Company and, if designated by the Board, any
Affiliate, who are employed by the Company and/or such designated Affiliate
shall be eligible to participate in the Plan on the first Offering Date
coincident with or next following the Employee's first day of employment with
the Company or an Affiliate.
4. ADMINISTRATION
The Plan shall be administered by the Committee, which shall consist of
not less than two (2) members of the Board. Subject to the provisions of the
Plan, the Committee shall be vested with full authority to make, administer, and
interpret such rules and regulations as it deems necessary to administer the
Plan, and any determination, decision, or action of the Committee in connection
with the construction, interpretation, administration, and application of the
Plan shall be final, conclusive, and binding upon all Participants and any and
all persons claiming under or through any Participant. Notwithstanding anything
to the contrary in the Plan, the Committee shall have the discretion to modify
the terms of the Plan with respect to Participants who reside outside of the
United States or who are employed by a subsidiary of the Company that has been
formed under the laws of any foreign country, if such modification is necessary
in order to conform such terms to the requirements of local laws.
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<PAGE> 28
5. STOCK
(a) The Common Stock to be sold to Participants under the Plan may, at
the election of the Company, be either treasury shares, shares acquired
on the open market, and/or shares originally issued for such purpose.
The aggregate number of shares of Common Stock that shall be made
available for purchase under the Plan shall not exceed one million
(1,000,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in subparagraph (b) below. In
the event any purchase right granted under the Plan expires or
terminates for any reason without having been exercised in full or
ceases for any reason to be exercisable in whole or in part, the
unpurchased shares subject thereto will again be available for purchase
by Employees upon the exercise of purchase rights. If the total number
of shares that otherwise would have been acquired under the Plan on any
Purchase Date exceeds the number of shares of Common Stock then
available under the Plan, the Company shall make a pro rata allocation
of the shares remaining available in as nearly a uniform manner as
shall be practicable and as it shall determine to be equitable. In such
event, the payroll deductions to be made pursuant to the Participants'
authorizations shall be reduced accordingly, or refunded to the
Participants, as the case may be, and the Company shall give written
notice of such reduction or refund to each affected Participant.
(b) Appropriate adjustments in the aggregate number of shares of Common
Stock that shall be made available for purchase under the Plan shall be
made to give effect to any stock splits, stock dividends, or other
similar changes in the capitalization of the Company occurring after
the Effective Date. The establishment of the Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations, or changes in its capital or
business structure or to merge, consolidate, dissolve, liquidate, sell,
or otherwise transfer all or any part of its business or assets.
Adjustments under this Section 5 shall be made in the sole discretion
of the Committee, and its decision shall be binding and conclusive.
(c) A Participant shall not have any interest in shares covered by his
authorized payroll deduction until shares of Common Stock are acquired
for his Account.
6. PARTICIPATION
(a) Each Employee may become a Participant in the Plan by authorizing a
payroll deduction on a form provided by the Committee. Such
authorization shall become effective on the Offering Date following the
delivery of the authorization form to the Committee (or its designated
representative); provided, (i) that the Employee is eligible under
Section 3 to participate in the Plan on such day and (ii) that if the
authorization form is delivered to the Committee later than 4:00 P.M.
C.S.T. on the last business day prior to the first day of the Offering
Date, it shall not be effective and a new authorization form must be
delivered to elect to participate in a subsequent Offering Period.
(b) At the time an Employee files his authorization for a payroll
deduction, he shall elect to have deductions made from each paycheck
that he receives, such deductions to continue until the Participant
withdraws from the Plan or otherwise becomes ineligible to participate
in the Plan. Authorized payroll deductions shall be for a minimum of
one
A-3
<PAGE> 29
percent (1%) and a maximum of fifteen percent (15%) of the
Participant's Compensation. The deduction rate so authorized shall
continue in effect through the Offering Period and each succeeding
Offering Period, subject to the following: (i) a Participant may, at
any time during any Offering Period, reduce his rate of payroll
deduction by filing a new authorization form with the Company, which
shall become effective as soon as practicable after it is filed; and
(ii) a Participant may increase the rate of his payroll deduction
effective as of any subsequent Offering Date by filing a new
authorization form with the Committee by 4:00 p.m. C.S.T. on the last
business day prior to the next Offering Date.
(c) All Compensation deductions made for a Participant shall be
credited to his Account. Except as may otherwise be provided by the
Committee under Section 4, a Participant may not make any separate cash
payment into his Account.
7. PURCHASE OF SHARES
(a) On the date when a Participant's authorization form for a deduction
becomes effective, and on each Offering Date thereafter, he shall be
deemed to have been granted an option to purchase as many full shares
of Common Stock as he will be able to purchase with the Compensation
deductions credited to his Account during the payroll periods within
the applicable Offering Period for which the Compensation deductions
are made.
(b) The purchase price for the shares of Common Stock to be purchased
with payroll deductions from the Participant shall be equal to
eighty-five percent (85%) (or such other amount as the Committee shall
authorize, but in no event less than eighty-five percent (85%)) of the
"fair market value" of a share of Common Stock on the Offering Date.
Fair market value shall be defined as the closing sales price of the
Common Stock on the largest national securities exchange on which such
Common Stock is listed on the Offering Date. If the Common Stock is not
then listed on any such exchange, the fair market value shall be the
closing sales price if such is reported or otherwise the mean between
the closing "Bid" and the closing "Ask" prices, if any, as reported in
the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") for the date of valuation, or if none, on the most
recent trade date thirty (30) days or less prior to the date of
valuation for which such quotations are reported. If the Common Stock
is not then listed on any such exchange or quoted in NASDAQ, the fair
market value shall be the mean between the average of the "Bid" and the
average of the "Ask" prices, if any, as reported in the National Daily
Quotation Service for the date of valuation, or, if none, for the most
recent trade date thirty (30) days or less prior to the date of
valuation for which such quotations are reported. If the fair market
value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Committee.
8. TIME OF PURCHASE
From time to time, the Committee shall grant to each Participant an
option to purchase shares of Common Stock in an amount equal to the number of
shares of Common Stock that the accumulated payroll deductions to be credited to
his Account during the Offering Period may purchase at the applicable purchase
price. Each Offering Period shall be for a period of twenty-
A-4
<PAGE> 30
seven (27) months' duration. Each Participant who elects to purchase shares of
Common Stock hereunder shall be deemed to have exercised his option
automatically on such date of purchase. Administrative and commission costs on
purchases shall be paid by the Company. The Committee shall cause to be
delivered periodically to each Participant a statement showing his aggregate
Compensation deductions for the Offering Period, the price per share paid for
the shares of Common Stock purchased for him during the Offering Period, and the
amount of cash, if any, remaining in his Account at the end of the Offering
Period.
As soon as practicable following the Purchase Date, the Company shall
deliver to the Participant a certificate representing the number of shares of
Common Stock purchased for the Participant's Account. All of the cash deposits
in his Account shall be paid to him promptly after receipt of notice of
withdrawal, with interest at the rate of 3-1/2%, compounded annually. Shares of
Common Stock to be delivered to a Participant under the Plan shall be registered
in the name of the Participant or, if the Participant so directs in writing to
the Committee, in the name of the Participant and such person(s) as may be
designated by the Participant, to the extent permitted by applicable law, and
delivered to the Participant as soon as practicable after the request for a
withdrawal.
9. CESSATION OF PARTICIPATION
A Participant may cease participation in the Plan at any time by
notifying the Committee in writing of his intent to cease his participation. If
such notice is received by the Committee the Company shall distribute to the
Participant all of his accumulated payroll deductions, with interest at the rate
of 3-1/2%, compounded annually. If any Participant ceases participation in the
Plan, no further Compensation deductions shall be made on his behalf after the
effective date of his cessation, except in accordance with a new authorization
form filed with the Committee as provided in Section 6. Upon ceasing
participation in the Plan, a Participant shall not be permitted to reenter the
Plan until six (6) months have elapsed from the date his cessation becomes
effective.
10. INELIGIBILITY
An Employee must be employed by the Company or an Affiliate on the
Purchase Date in order to participate in the purchase for that Offering Period.
If an option expires without first having been exercised, all funds credited to
the Participant's Account shall be refunded, with interest at the rate of
3-1/2%, compounded annually. If a Participant becomes ineligible to participate
in the Plan at any time, all Compensation deductions made on behalf of the
Participant that have not been used to purchase shares of Common Stock shall be
paid to the Participant within sixty (60) days after the Committee determines
that the Participant is not eligible to participate in the Plan.
11. DESIGNATION OF BENEFICIARY
A Participant may file a written designation of a beneficiary who shall
receive any shares of Common Stock (or remaining Compensation deductions)
credited to the Participant's Account under the Plan in the event of such
Participant's death prior to delivery to him of the certificates for such shares
(or remaining Compensation deductions). The designation of a beneficiary may be
changed by the Participant at any time by written notice given in accordance
with rules and
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<PAGE> 31
procedures established by the Committee. Upon the death of a Participant, and
upon receipt by the Company of proof of the identity and existence, at the
Participant's death, of a beneficiary validly designated by him under the Plan,
the Company shall deliver such shares of Common Stock (or remaining Compensation
deductions) to such beneficiary. In the event of the death of the Participant,
and in the absence of a beneficiary validly designated under the Plan who is
living at the time of such Participant's death, the Company shall deliver such
shares (or remaining Compensation deductions) to the executor or administrator
of the estate of the Participant, or if no such executor or administrator has
been appointed, the Company, in its sole discretion, may deliver such shares (or
remaining Compensation deductions) to the Participant's spouse or to any one or
more dependents or relatives of the Participant, or to such other person or
persons as the Company may designate on behalf of the estate of such deceased
Participant.
12. TRANSFERABILITY
Neither Compensation deductions credited to a Participant's Account nor
any rights with regard to Plan participation or the right to purchase shares of
Common Stock under the Plan may be assigned, transferred, pledged, or otherwise
disposed of in any way by a Participant other than by will or the laws of
descent and distribution; provided, however, that shares of Common Stock
purchased on behalf of a Participant and left in his Account shall be subject to
his absolute control. Any attempted assignment, transfer, pledge, or other
disposition shall be void and without effect.
13. AMENDMENT OR TERMINATION
The Board may, without further action on the part of the stockholders
of the Company, at any time amend the Plan in any respect, or terminate the
Plan, except that it may not:
(a) Permit the sale of more shares of Common Stock than are authorized
under Section 5;
(b) Change the class of Affiliates whose Employees are eligible to
participate in the Plan; or
(c) Effect a change inconsistent with Section 423 of the Code or the
regulations issued thereunder.
14. NOTICES
All notices or other communications by a Participant under or in
connection with the Plan shall be deemed to have been duly given when received
in writing by the Chief Financial Officer of the Company or when received in the
form specified by the Committee at the location and by the person designated by
the Committee for the receipt thereof.
15. LIMITATIONS
Notwithstanding any other provisions of the Plan:
(a) The Company intends that this Plan shall constitute an employee
stock purchase plan within the meaning of Section 423 of the Code. Any
provisions required to be
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<PAGE> 32
included in the Plan under said Section, and under regulations issued
thereunder, are hereby included as though set forth in the Plan at
length.
(b) No Employee shall be entitled to participate in the Plan if,
immediately after the grant of an option hereunder, the Employee would
own stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or an
Affiliate. For purposes of this Section 15, stock ownership shall be
determined under the rules of Section 424(d) of the Code and stock that
the Employee may purchase under outstanding options shall be treated as
stock owned by the Employee.
(c) No Employee shall be permitted to purchase Common Stock hereunder
if his right and option to purchase Common Stock under this Plan and
under all other employee stock purchase plans (as defined in Section
423 of the Code) of the Company or any Affiliates would result in an
entitlement to purchase Common Stock in any one (1) calendar year in
excess of a fair market value of $25,000 (determined at the time of
grant).
(d) All Employees shall have the same rights and privileges under the
Plan, except that the amount of Common Stock that may be purchased
pursuant to the Plan shall bear a uniform relationship to an Employee's
Compensation. All rules and determinations of the Committee shall be
uniformly and consistently applied to all persons in similar
circumstances.
(e) Nothing in the Plan shall confer upon any Employee the right to
continue in the employment of the Company or any Affiliate or affect
the right that the Company or any Affiliate may have to terminate the
employment of such Employee.
(f) No Participant shall have any right as a stockholder unless and
until certificates for shares of Common Stock are issued to him or
allocated to his Account.
(g) If under any provision of the Plan that requires a computation of
the number of shares of Common Stock to be purchased, the number so
computed is not a whole number of shares of Common Stock, such number
of shares of Common Stock shall be rounded down to the next whole
number.
(h) The Plan is intended to provide shares of Common Stock for
investment and not for resale. The Company does not, however, intend to
restrict or influence any Participant in the conduct of his own
affairs. A Participant, therefore, may sell shares of Common Stock
purchased under the Plan at any time he chooses, subject to compliance
with any applicable federal or state securities laws or any applicable
Company restriction or blackout periods; provided, however, that
because of certain federal tax requirements, each Participant shall
agree, by entering the Plan:
(i) promptly to give the Company notice of any shares of Common
Stock disposed of within two (2) years after the date of grant of
the applicable option, or within one (1) year of the Purchase Date,
and the number of such shares disposed of (a "disqualifying
disposition");
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<PAGE> 33
(ii) that the Company may withhold, pursuant to Code ss.ss. 3102,
3301, and 3402, from his wages and other cash compensation paid to
him in all payroll periods following in the same calendar year, any
additional taxes the Company may become liable for in respect of
amounts includable in his income as additional compensation as a
result of a disqualifying disposition of Common Stock acquired
under the Plan, or as a result of the acquisition of Common Stock
under the Plan; and
(iii) that he shall repay the Company any amount of additional
taxes the Company may become liable for in respect of amounts
includable in his income as additional compensation as a result of
a disqualifying disposition of Common Stock acquired under the
Plan, or as a result of the acquisition of Common Stock under the
Plan, that cannot be satisfied by withholding from the wages and
other cash compensation paid to him by the Company.
(i) This Plan is intended to comply in all respects with applicable law
and regulations, including with respect to Participants who are
officers or directors for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended from time to time, Rule 16b-3 of the
Securities and Exchange Commission. In case any one or more provisions
of this Plan shall be held invalid, illegal, or unenforceable in any
respect under applicable law and regulations (including Rule 16b-3),
the validity, legality, and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby and the invalid,
illegal, or unenforceable provision shall be deemed null and void;
however, to the extent permitted by law, any provision that could be
deemed null and void shall first be construed, interpreted, or revised
retroactively to permit this Plan to be construed in compliance with
all applicable law (including Rule 16b-3), so as to further the intent
of this Plan. Notwithstanding anything herein to the contrary, with
respect to Participants who are officers and directors for purposes of
Section 16(b) of the Securities Exchange Act of 1934, as amended from
time to time, and if required to comply with the rules promulgated
thereunder, such Participants shall not be permitted to direct the sale
of any Common Stock purchased hereunder until at least six (6) months
have elapsed from the date of a purchase, unless the Committee
determines that the sale of the Common Stock otherwise satisfies the
then current Rule 16b-3 requirements.
16. EFFECTIVE DATE AND APPROVALS
The Plan shall become effective at a time when:
(a) the Plan has been adopted by the Board; and
(b) a registration statement on Form S-8 under the Securities Act of
1933, as amended, has become effective with respect to the Plan; and
(c) the Committee has notified the eligible Employees that they may
commence participation in the Plan; and
(d) the Plan is approved by the holders of a majority of the
outstanding shares of Common Stock of the Company, which approval must
occur within the period ending
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<PAGE> 34
twelve (12) months after the date the Plan is adopted by the Board. In
the event such stockholder approval is not obtained, the Plan shall
terminate and have no further force or effect, and all amounts
collected from the Participants during any initial Offering Period(s)
hereunder shall be refunded.
Unless sooner terminated by the Board, or as set forth above, the Plan shall
terminate upon the earlier of (i) the tenth (10th) anniversary of the adoption
of the Plan by the Board, or (ii) the date on which all shares available for
issuance under the Plan shall have been sold under the Plan.
17. APPLICABLE LAW
All questions pertaining to the validity, construction, and administration of
the Plan shall be determined in conformity with the laws of Illinois, to the
extent not inconsistent with Section 423 of the Code and the regulations
thereunder.
Adopted the 13th day of November, 1998.
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APPENDIX B
SECURITY ASSOCIATES INTERNATIONAL, INC.
STOCK OPTION PLAN
I. PURPOSE AND DEFINITIONS
A. PURPOSE OF THE PLAN
The Plan is intended to encourage ownership of Shares by Key
Employees and Key Non-Employees in order to attract and retain
such Key Employees in the employ of the Company or an
Affiliate, or to attract such Key Non-Employees to provide
services to the Company or an Affiliate, and to provide
additional incentive for such persons to promote the success
of the Company or an Affiliate.
B. DEFINITIONS
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Plan, have the following meanings:
1. AFFILIATE means a corporation which, for purposes of
Section 422 of the Code, is a parent or subsidiary of
the Company, direct or indirect.
2. BOARD means the Board of Directors of the Company.
3. CODE means the Internal Revenue
Code of 1986, as amended.
4. COMMITTEE means the committee to which the Board
delegates the power to act under or pursuant to the
provisions of the Plan, or the Board if no committee
is selected. If the Board delegates powers to a
committee, then, such committee shall consist
initially of not less than two (2) members of the
Board, each member of which must be a "non-employee
director," within the meaning of the applicable rules
promulgated pursuant to the Exchange Act. In
addition, no member of the Committee shall receive
any Option pursuant to the Plan or any similar plan
of the Company or any Affiliate while serving on the
Committee unless the Board determines that the grant
of such an Option satisfies the then current Rule
16b-3 requirements under the Exchange Act.
Notwithstanding anything herein to the contrary, and
insofar as the Board determines that it is necessary
in order for compensation recognized by Participants
pursuant to the Plan to be fully deductible to the
Company for federal income tax purposes, each member
of the Committee also shall be an "outside director"
(as defined in regulations or other guidance issued
by the Internal Revenue Service under Code Section
162(m)).
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5. COMPANY means Security Associates International,
Inc., a Delaware corporation, and includes any
successor or assignee corporation or corporations
into which the Company may be merged, changed, or
consolidated; any corporation for whose securities
the securities of the Company shall be exchanged; and
any assignee of or successor to substantially all of
the assets of the Company.
6. DISABILITY or DISABLED means permanent and total
disability as defined in Section 22(e)(3) of the
Code.
7. EXCHANGE ACT means the Securities Exchange Act of
1934, as amended from time to time, or any successor
statute thereto.
8. INCENTIVE OPTION means an Option which, when granted,
is intended to be an "incentive stock option," as
defined in Section 422 of the Code.
9. KEY EMPLOYEE means an employee of the Company or of
an Affiliate (including, without limitation, an
employee who also is serving as an officer or
director of the Company or of an Affiliate),
designated by the Board or the Committee as being
eligible to be granted one or more Options under the
Plan.
10. KEY NON-EMPLOYEE means a non-employee director,
consultant, or independent contractor of the Company
or of an Affiliate who is designated by the Board or
the Committee as being eligible to be granted one or
more Options under the Plan.
11. NONSTATUTORY OPTION means an Option which, when
granted, is not intended to be an "incentive stock
option," as defined in Section 422 of the Code.
12. OPTION means a right or option granted under the
Plan.
13. OPTION AGREEMENT means an agreement between the
Company and a Participant executed and delivered
pursuant to the Plan.
14. PARTICIPANT means a Key Employee to whom one or more
Incentive Options or Nonstatutory Options are granted
under the Plan, and a Key Non-Employee to whom one or
more Nonstatutory Options are granted under the Plan.
15. PLAN means this Stock Option Plan, as amended from
time to time.
16. SHARES means the following shares of the capital
stock of the Company as to which Options have been or
may be granted under the Plan: treasury shares
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or authorized but unissued Common Stock, $.001 par
value, or any shares of capital stock into which the
Shares are changed or for which they are exchanged
within the provisions of Article VI of the Plan.
II. SHARES SUBJECT TO THE PLAN
The aggregate number of Shares as to which Options may be granted from
time to time shall be One Million Eight Hundred Thousand (1,800,000)
Shares (subject to adjustment for stock splits, stock dividends, and
other adjustments described in Article VI hereof); provided, however,
that, in accordance with Section 162(m) of the Code, the aggregate
number of Shares as to which Options may be granted in any calendar
year to any one Key Employee shall not exceed Four Hundred Thousand
(400,000) (subject to adjustment for stock splits, stock dividends, and
other adjustments described in Article VI hereof).
If an Option ceases to be "outstanding," in whole or in part, the
Shares which were subject to such Option, if the Option was not
exercised, shall be available for the granting of other Options. Any
Option shall be treated as "outstanding" until such Option is exercised
in full, terminates or expires under the provisions of the Plan or
Option Agreement, or is canceled by agreement of the Company and the
Participant.
Subject to the provisions of Article VI, the aggregate number of Shares
as to which Incentive Options may be granted shall be subject to change
only by means of an amendment of the Plan duly adopted by the Company
and approved by the stockholders of the Company within one year before
or after the date of the adoption of any such amendment.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum at any meeting thereof (including
by telephone conference) and the acts of a majority of the members
present, or acts approved in writing by a majority of the entire
Committee without a meeting, shall be the acts of the Committee for
purposes of this Plan. The Committee may authorize one or more of its
members or an officer of the Company to execute and deliver documents
on behalf of the Committee. A member of the Committee shall not
exercise any discretion respecting himself or herself under the Plan.
The Board shall have the authority to remove, replace or fill any
vacancy of any member of the Committee upon notice to the Committee and
the affected member. Any member of the Committee may resign upon notice
to the Board. The Committee may allocate among one or more of its
members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Subject to the provisions of the Plan, the Committee is authorized to:
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A. interpret the provisions of the Plan or of any Option or
Option Agreement and to make all rules and determinations
which it deems necessary or advisable for the administration
of the Plan;
B. determine which employees of the Company or of an Affiliate
shall be designated as Key Employees and which of the Key
Employees shall be granted Options;
C. determine the Key Non-Employees to whom Nonstatutory Options
shall be granted;
D. determine whether the Option to be granted shall be an
Incentive Option or Nonstatutory Option;
E. determine the number of Shares for which an Option or Options
shall be granted;
F. provide for the acceleration of the right to exercise an
Option (or portion thereof); and
G. specify the terms and conditions upon which Options may be
granted;
provided, however, that with respect to Incentive Options, all such
interpretations, rules, determinations, terms, and conditions shall be
made and prescribed in the context of preserving the tax status of the
Incentive Options as incentive stock options within the meaning of
Section 422 of the Code.
All determinations of the Committee shall be reduced to writing and
signed by or on behalf of the Committee. No member of the Committee
shall be liable for any action or determination made in good faith with
respect to the Plan or any Option.
IV. ELIGIBILITY FOR PARTICIPATION
The Committee may at any time and from time to time grant one or more
Options to one or more Key Employees or Key Non-Employees and may
designate the number of Shares to be subject to each Option so granted,
provided, however, that (i) each Participant receiving an Incentive
Option must be a Key Employee of the Company or of an Affiliate at the
time an Incentive Option is granted; (ii) no Incentive Options shall be
granted after the expiration of ten (10) years from the earlier of the
date of the adoption of the Plan by the Company or the approval of the
Plan by the stockholders of the Company; and (iii) the fair market
value of the Shares (determined at the time the Option is granted) as
to which Incentive Options are exercisable for the first time by any
Key Employee during any single calendar year (under the Plan and under
any other incentive option plan of the Company or an Affiliate) shall
not exceed $100,000.
Notwithstanding the foregoing, no individual who is a member of the
Committee shall be eligible to receive an Option, unless the Board
determines that the grant of the Option satisfies the then current Rule
16b-3 requirements under the Exchange Act. If, at any time,
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the Company is no longer subject to Section 16 of the Exchange Act,
then no individual who is a member of the Committee shall be eligible
to receive an Option under the Plan unless the granting of such Option
shall be approved by the Committee, with all of the members voting
thereon being disinterested members. For the purpose of this Article
IV, a "disinterested member" shall be any member who shall not then be,
or at any time within the year prior thereto have been, granted an
Option under the Plan or any other plan of the Company or an Affiliate,
other than an Option granted under a formula plan established by the
Company or an Affiliate.
Notwithstanding any of the foregoing provisions, the Committee may
authorize the grant of an Option to a person not then in the employ of
or serving as a director, consultant, or independent contractor of the
Company or of an Affiliate, conditioned upon such person becoming
eligible to become a Participant at or prior to the execution of the
Option Agreement evidencing the actual grant of such Option.
V. TERMS AND CONDITIONS OF OPTIONS
Each Option shall be set forth in an Option Agreement, duly executed on
behalf of the Company and by the Participant to whom such Option is
granted. Except for the setting of the Option price under Paragraph A,
no Option shall be granted and no purported grant of any Option shall
be effective until such Option Agreement shall have been duly executed
on behalf of the Company and by the Participant. Each such Option
Agreement shall be subject to at least the following terms and
conditions:
A. OPTION PRICE
The exercise price of the Shares covered by each Option
granted under the Plan shall be determined by the Committee.
The Option price per share shall be such amount as may be
determined by the Committee in its sole discretion on the date
of the grant of the Option. In the case of an Incentive
Option, if the optionee owns directly or by reason of the
applicable attribution rules ten percent (10%) or less of the
total combined voting power of all classes of share capital of
the Company, the Option price (per share) of the Shares
covered by each Incentive Option shall be not less than the
"fair market value" of the Shares on the date of the grant of
the Incentive Option. In all other cases of Incentive Options,
the Option price shall be not less than one hundred ten
percent (110%) of the said fair market value on the date of
grant. If the Shares are listed on any national securities
exchange, the fair market value shall be the closing sales
price, if any, on the largest such exchange on the date of the
grant of the Option, or, if none, on the most recent trade
date thirty (30) days or less prior to the date of the grant
of the Option. If the Shares are not then listed on any such
exchange, the fair market value of such Shares shall be the
closing sales price if such is reported or otherwise the mean
average of the closing "Bid" and the closing "Ask" prices, if
any, as reported on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") for the date of
the grant of the Option, or if none, on the most recent trade
date thirty (30) days or less
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prior to the date of the grant of the Option for which such
quotations are reported. If the Shares are not then either
listed on any such exchange or quoted on NASDAQ, the fair
market value shall be the mean between the average of the
"Bid" and the average of the "Ask" prices, if any, as reported
in the National Daily Quotation Service for the date of the
grant of the Option, or, if none, for the most recent trade
date thirty (30) days or less prior to the date of the grant
of the Option for which such quotations are reported. If the
fair market value cannot be determined under the preceding
three sentences, it shall be determined in good faith by the
Committee.
B. NUMBER OF SHARES
Each Option shall state the number of Shares to which it
pertains.
C. TERM OF OPTION
Each Incentive Option shall terminate not more than ten (10)
years from the date of the grant thereof, or at such earlier
time as the Option Agreement may provide, and shall be subject
to earlier termination as herein provided, except that if the
Option price is required under Paragraph A of this Article V
to be at least one hundred ten percent (110%) of fair market
value, each such Incentive Option shall terminate not more
than five (5) years from the date of the grant thereof, and
shall be subject to earlier termination as herein provided.
D. DATE OF EXERCISE
Upon the authorization of the grant of an Option, or at any
time thereafter, the Committee may, subject to the provisions
of Paragraph C of this Article V, prescribe the date or dates
on which the Option becomes exercisable, and may provide that
the Option rights become exercisable in installments over a
period of years, or upon the attainment of stated goals.
E. MEDIUM OF PAYMENT
The Option price shall be paid on the date of purchase
specified in the notice of exercise, as set forth in Paragraph
I. It shall be paid in such form (permitted by Section 422 of
the Code in the case of Incentive Options) as the Committee
shall, either by rules promulgated pursuant to the provisions
of Article III of the Plan, or in the particular Option
Agreement, provide.
F. TERMINATION OF EMPLOYMENT
1. A Participant who ceases to be an employee or Key
Non-Employee of the Company or of an Affiliate for
any reason other than death, Disability, or
termination for cause, may exercise any Option
granted to such Participant,
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<PAGE> 41
to the extent that the right to purchase Shares
thereunder has become exercisable on the date of such
termination, but only within three (3) months after
such date, or, if earlier, within the originally
prescribed term of the Option, and subject to the
condition that no Option shall be exercisable after
the expiration of the term of the Option. A
Participant's employment shall not be deemed
terminated by reason of a transfer to another
employer which is the Company or an Affiliate.
2. A Participant who ceases to be an employee or Key
Non-Employee for cause shall, upon such termination,
cease to have any right to exercise any Option. For
purposes of this Plan, cause shall be deemed to
include (but shall not be limited to) wrongful
appropriation of funds of the Company or an
Affiliate, divulging confidential information about
the Company or an Affiliate to the public, the
commission of a gross misdemeanor or felony, or the
performance of any similar action that the Board or
the Committee, in their sole discretion, may deem to
be sufficiently injurious to the interests of the
Company or an Affiliate to constitute substantial
cause for termination. The determination of the Board
or the Committee as to the existence of cause shall
be conclusive and binding upon the Participant and
the Company.
3. A Participant who is absent from work with the
Company or an Affiliate because of temporary
disability (any disability other than a permanent and
total Disability as defined at Paragraph B(6) of
Article I hereof), or who is on leave of absence for
any purpose permitted by any authoritative
interpretation (i.e., regulation, ruling, case law,
etc.) of Section 422 of the Code, shall not, during
the period of any such absence, be deemed, by virtue
of such absence alone, to have terminated his
employment or relationship with the Company or with
an Affiliate, except as the Committee may otherwise
expressly provide or determine.
4. Paragraph F(1) shall control and fix the rights of a
Participant who ceases to be an employee or Key
Non-Employee of the Company or of an Affiliate for
any reason other than death, Disability, or
termination for cause, and who subsequently becomes
Disabled or dies. Nothing in Paragraphs G and H of
this Article V shall be applicable in any such case
except that, in the event of such a subsequent
Disability or death within the three (3) month period
after the termination of employment or, if earlier,
within the originally prescribed term of the Option,
the Participant or the Participant's estate or
personal representative may exercise the Option
permitted by this Paragraph F, in the event of
Disability, within twelve (12) months after the date
that the Participant ceased to be an employee or Key
Non-Employee of the Company or of an Affiliate or, in
the event of death, within twelve (12) months after
the date of death of such Participant.
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G. TOTAL AND PERMANENT DISABILITY
A Participant who ceases to be an employee or Key Non-Employee
of the Company or of an Affiliate by reason of Disability may
exercise any Option granted to such Participant (i) to the
extent that the right to purchase Shares thereunder has become
exercisable on or before the date such Participant becomes
Disabled as determined by the Committee, and (ii) if the
Option becomes exercisable periodically under Paragraph D, to
the extent of any additional rights that would have become
exercisable had the Participant not become so Disabled until
after the close of business on the next periodic exercise
date.
A Disabled Participant shall exercise such rights, if
at all, only within a period of not more than twelve (12)
months after the date that the Participant became Disabled as
determined by the Committee (notwithstanding that the
Participant might have been able to exercise the Option as to
some or all of the Shares on a later date if the Participant
had not become Disabled) or, if earlier, within the originally
prescribed term of the Option.
H. DEATH
In the event that a Participant to whom an Option has
been granted ceases to be an employee or Key Non-Employee of
the Company or of an Affiliate by reason of such Participant's
death, such Option, to the extent that the right is
exercisable but not exercised on the date of death, may be
exercised by the Participant's estate or personal
representative within twelve (12) months after the date of
death of such Participant or, if earlier, within the
originally prescribed term of the Option, notwithstanding that
the decedent might have been able to exercise the Option as to
some or all of the Shares on a later date if the Participant
were alive and had continued to be an employee or Key
Non-Employee of the Company or of an Affiliate.
I. EXERCISE OF OPTION AND ISSUE OF STOCK
Options shall be exercised by giving written notice
to the Company. Such written notice shall: (l) be signed by
the person exercising the Option, (2) state the number of
Shares with respect to which the Option is being exercised,
(3) contain the warranty, if any, required by Paragraph M of
this Article V, and (4) specify a date (other than a Saturday,
Sunday or legal holiday) not less than five (5) nor more than
ten (10) days after the date of such written notice, as the
date on which the Shares will be purchased. Such tender and
conveyance shall take place at the principal office of the
Company during ordinary business hours, or at such other hour
and place agreed upon by the Company and the person or persons
exercising the Option. On the date specified in such written
notice (which date may be extended by the Company in order to
comply with any law or regulation which requires the Company
to take any action with respect to the Option Shares prior to
the issuance
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thereof, whether pursuant to the provisions of Article VI or
otherwise), the Company shall accept payment for the Option
Shares and shall deliver to the person or persons exercising
the Option in exchange therefor an appropriate certificate or
certificates for fully paid non-assessable Shares. In the
event of any failure to take up and pay for the number of
Shares specified in such written notice on the date set forth
therein (or on the extended date as above provided), the
right to exercise the Option shall terminate with respect to
such number of Shares, but shall continue with respect to the
remaining Shares covered by the Option and not yet acquired
pursuant thereto.
J. RIGHTS AS A STOCKHOLDER
No Participant to whom an Option has been granted shall have
rights as a stockholder with respect to any Shares covered by
such Option except as to such Shares as have been issued to
or registered in the Company's share register in the name of
such Participant upon the due exercise of the Option and
tender of the full Option price.
K. ASSIGNABILITY AND TRANSFERABILITY OF OPTION
Unless otherwise permitted by the Code and by Rule 16b-3 of
the Exchange Act, if applicable, and approved in advance by
the Committee, an Option granted to a Participant shall not
be transferable by the Participant and shall be exercisable,
during the Participant's lifetime, only by such Participant
or, in the event of the Participant's incapacity, his
guardian or legal representative. Except as otherwise
permitted herein, such Option shall not be assigned, pledged
or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment,
or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Option or
of any rights granted thereunder contrary to the provisions
of this Paragraph K, or the levy of any attachment or similar
process upon an Option or such rights, shall be null and
void.
L. OTHER PROVISIONS
The Option Agreement for an Incentive Option shall contain
such limitations and restrictions upon the exercise of the
Option as shall be necessary in order that such Option can be
an "incentive stock option" within the meaning of Section 422
of the Code. Further, the Option Agreements authorized under
the Plan shall be subject to such other terms and conditions
including, without limitation, restrictions upon the exercise
of the Option, as the Committee shall deem advisable and
which, in the case of Incentive Options, are not inconsistent
with the requirements of Section 422 of the Code.
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M. PURCHASE FOR INVESTMENT
Unless the Shares to be issued upon the particular exercise
of an Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended,
the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following
conditions have been fulfilled. In accordance with the
direction of the Committee, the persons who exercise such
Option shall warrant to the Company that, at the time of such
exercise, such persons are acquiring their Option Shares for
investment and not with a view to, or for sale in connection
with, the distribution of any such Shares, and shall make
such other representations, warranties, acknowledgments and
affirmations, if any, as the Committee may require. In such
event, the persons acquiring such Shares shall be bound by
the provisions of the following legend (or similar legend)
which shall be endorsed upon the certificate(s) evidencing
their Option Shares issued pursuant to such exercise.
"The shares represented by this certificate have been
acquired for investment and they may not be sold or
otherwise transferred by any person, including a
pledgee, in the absence of an effective registration
statement for the shares under the Securities Act of
1933 or an opinion of counsel satisfactory to the
Company that an exemption from registration is then
available."
Without limiting the generality of the foregoing, the Company
may delay issuance of the Shares until completion of any
action or obtaining any consent that the Company deems
necessary under any applicable law (including without
limitation state securities or "blue sky" laws).
VI. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; SALE OF COMPANY
In the event that the outstanding Shares of the Company are changed
into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization,
reclassification, change in par value, stock split-up, combination of
shares or dividend payable in capital stock, or the like, appropriate
adjustments to prevent dilution or enlargement of the rights granted
to, or available for, Participants shall be made in the manner and kind
of shares for the purchase of which Options may be granted under the
Plan, and, in addition, appropriate adjustment shall be made in the
number and kind of Shares and in the Option price per share subject to
outstanding Options. No such adjustment shall be made which shall,
within the meaning of Section 424 of the Code, constitute such a
modification, extension, or renewal of an Option as to cause the
adjustment to be considered as the grant of a new Option.
Notwithstanding anything herein to the contrary, the Company may, in
its sole discretion, accelerate the timing of the exercise provisions
of any Option in the event of a tender offer for the Company's Shares,
the adoption of a plan of merger or consolidation under which all
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the Shares of the Company would be eliminated, or a sale of all or
substantially all of the Company's assets. Alternatively, the Company
may, in its sole discretion, cancel any or all Options upon any of the
foregoing events and provide for the payment to Participants in cash of
an amount equal to the difference between the Option price and the
price of a Share, as determined in good faith by the Committee, at the
close of business on the date of such event, multiplied by the number
of Shares subject to Option so canceled. The preceding two sentences of
this Article VI notwithstanding, the Company shall be required to
accelerate the timing of the exercise provisions of any Option if (i)
any such business combination is to be accounted for as a
pooling-of-interests under APB Opinion 16 and (ii) the timing of such
acceleration does not prevent such pooling-of-interests treatment.
Upon a business combination by the Company or any of its Affiliates
with any corporation or other entity through the adoption of a plan of
merger or consolidation or a share exchange or through the purchase of
all or substantially all of the capital stock or assets of such other
corporation or entity, the Board or the Committee may, in its sole
discretion, grant Options pursuant hereto to all or any persons who, on
the effective date of such transaction, hold outstanding options to
purchase securities of such other corporation or entity and who, on and
after the effective date of such transaction, will become employees or
directors of, or consultants to, the Company or its Affiliates. The
number of Shares subject to such substitute Options shall be determined
in accordance with the terms of the transaction by which the business
combination is effected. Notwithstanding the other provisions of this
Plan, the other terms of such substitute Options shall be substantially
the same as or economically equivalent to the terms of the options for
which such Options are substituted, all as determined by the Board or
by the Committee, as the case may be. Upon the grant of substitute
Options pursuant hereto, the options to purchase securities of such
other corporation or entity for which such Options are substituted
shall be canceled immediately.
VII. DISSOLUTION OR LIQUIDATION OF THE COMPANY
Upon the dissolution or liquidation of the Company other than in
connection with a transaction to which the preceding Article VI is
applicable, all Options granted hereunder shall terminate and become
null and void; provided, however, that if the rights of a Participant
under the applicable Options have not otherwise terminated and expired,
the Participant shall have the right immediately prior to such
dissolution or liquidation to exercise any Option granted hereunder to
the extent that the right to purchase shares thereunder has become
exercisable as of the date immediately prior to such dissolution or
liquidation.
VIII. TERMINATION OF THE PLAN
The Plan shall terminate (10) years from the earlier of the date of its
adoption or the date of its approval by the stockholders. The Plan may
be terminated at an earlier date by vote of the stockholders or the
Board; provided, however, that any such earlier termination shall not
affect any Options granted or Option Agreements executed prior to the
effective date of
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such termination. Except as may otherwise be provided for under
Articles VI and VII, and notwithstanding the termination of the Plan,
any Options granted prior to the effective date of the Plan's
termination may be exercised until the earlier of (i) the date set
forth in the Option Agreement, or (ii) ten (10) years from the date the
Option is granted, and the provisions of the Plan with respect to the
full and final authority of the Committee under the Plan shall continue
to control.
IX. AMENDMENT OF THE PLAN
The Plan may be amended by the Board and such amendment shall become
effective upon adoption by the Board; provided, however, that any
amendment shall be subject to the approval of the stockholders of the
Company at or before the next annual meeting of the stockholders of the
Company if such stockholder approval is required by the Code, any
federal or state law or regulation, the rules of any stock exchange or
automated quotation system on which the Shares may be listed or quoted,
or if the Board, in its discretion, determines to submit such changes
to the Plan to its stockholders for approval.
X. EMPLOYMENT RELATIONSHIP
Nothing herein contained shall be deemed to prevent the Company or an
Affiliate from terminating the employment of a Participant, nor to
prevent a Participant from terminating the Participant's employment
with the Company or an Affiliate.
XI. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken by them as members of the
Committee and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding
that the Committee member is liable for gross negligence or willful
misconduct in the performance of his or her duties. To receive such
indemnification, a Committee member must first offer in writing to the
Company the opportunity, at its own expense, to defend any such action,
suit or proceeding.
XII. SAVINGS CLAUSE
This Plan is intended to comply in all respects with applicable law and
regulations, including, (i) with respect to those Participants who are
officers or directors for purposes of Section 16 of the Exchange Act,
Rule 16b-3 of the Securities and Exchange Commission, if applicable,
and (ii) with respect to executive officers, Code Section 162(m). In
case any
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one or more provisions of this Plan shall be held invalid, illegal, or
unenforceable in any respect under applicable law and regulation
(including Rule 16b-3 and Code Section 162(m)), the validity, legality,
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby and the invalid, illegal, or unenforceable
provision shall be deemed null and void; however, to the extent
permitted by law, any provision that could be deemed null and void
shall first be construed, interpreted, or revised retroactively to
permit this Plan to be construed in compliance with all applicable law
(including Rule 16b-3 and Code Section 162(m)) so as to foster the
intent of this Plan. Notwithstanding anything herein to the contrary,
with respect to Participants who are officers and directors for
purposes of Section 16 of the Exchange Act, no grant of an Option to
purchase Shares shall permit unrestricted ownership of Shares by the
Participant for at least six (6) months from the date of the grant of
such Option, unless the Board determines that the grant of such Option
to purchase Shares otherwise satisfies the then current Rule 16b-3
requirements.
XIII. WITHHOLDING
Except as otherwise provided by the Committee,
A. The Company shall have the power and right to deduct or
withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes
required by law to be withheld with respect to any grant,
exercise, or payment made under or as a result of this Plan;
and
B. In the case of any taxable event hereunder, a Participant may
elect, subject to the approval in advance by the Committee, to
satisfy the withholding requirement, if any, in whole or in
part, by having the Company withhold Shares of Common Stock
that would otherwise be transferred to the Participant having
a Fair Market Value, on the date the tax is to be determined,
equal to the minimum marginal tax that could be imposed on the
transaction. All elections shall be made in writing and signed
by the Participant.
XIV. EFFECTIVE DATE
This Plan shall become effective upon adoption by the Board, provided
that within one (1) year before or after such adoption by the Board (or
within such earlier time period as may be required by the Exchange Act,
if applicable) the Plan is approved by the stockholders of the Company.
If such approval is not obtained, then this Plan and all Options
granted hereunder shall be null and void ab initio.
B-13
<PAGE> 48
XV. GOVERNING LAW
This Plan shall be governed by the laws of the State of Illinois and construed
in accordance therewith.
Adopted this 1st day of April, 1999.
B-14
<PAGE> 49
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
I hereby appoint Howard Schickler as Proxy, with the power to appoint
his substitute, and hereby authorize 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 me on May 19, 1999, at
the Annual Meeting of Stockholders to be held on July 8, 1999, 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 (except as marked to the
contrary below) 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 OUR
INDEPENDENT PUBLIC ACCOUNTANTS THE FISCAL YEAR ENDED DECEMBER 31, 1999
(Mark only one box)
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO APPROVE THE SECURITY ASSOCIATES INTERNATIONAL, INC. EMPLOYEE
STOCK PURCHASE PLAN (Mark only one box)
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO APPROVE THE SECURITY ASSOCIATES INTERNATIONAL, INC. STOCK
OPTION PLAN (Mark only one box)
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the Annual Meeting or any
adjournment thereof.
This Proxy when properly executed will be voted in the manner directed by you.
If no direction is made, this Proxy will be voted FOR Proposals 1,2,3, and 4.
Please sign exactly as name appears below.
- ----------------------------------------
(Affix Mailing Label Here)
Date: ___________________, 1999
<PAGE> 50
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE
PROMPTLY.
When shares are held by joint tenants, both should sign. When signing
as executor, trustee, guardian or in another representative capacity, please
give your full title in that capacity. 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: ____________________________________
