<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2000
REGISTRATION STATEMENT NO.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SECURITY ASSOCIATES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7382 87-0467198
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
2101 SOUTH ARLINGTON HEIGHTS ROAD, SUITE 100,
ARLINGTON HEIGHTS, ILLINOIS 60005-4142 (847) 956-8650
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
JAMES S. BRANNEN
PRESIDENT
SECURITY ASSOCIATES INTERNATIONAL, INC.
2101 SOUTH ARLINGTON HEIGHTS ROAD, SUITE 100
ARLINGTON HEIGHTS, ILLINOIS 60005-4142
(847) 956-8650
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
COPIES TO:
JEFFERY A. SCHUMACHER
SACHNOFF & WEAVER, LTD.
30 S. WACKER DRIVE, 29TH FLOOR
CHICAGO, ILLINOIS 60606-7484
TELEPHONE NO. (312) 207-1000
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (2) SHARE (1) PRICE (1) FEE
- ----------------- -------------- --------- --------- ---
<S> <C> <C> <C> <C>
Common Stock, $0.001
par value 3,918,600 shares (3) $ 3.50 $13,715,100 $3,621(4)(5)
</TABLE>
(1) Estimated solely for purposes of computing the registration fee pursuant
to Rule 457 under the Securities Act of 1933 on the basis of the average
of the high and low prices reported in the consolidated reporting system
on March 23, 2000.
(2) Does not include 2,778,088 shares (including shares registered for resale
by certain selling stockholders) and 2,000,000 warrants were registered
pursuant to a Registration Statement on Form S-1, Registration No.
333-31775, declared effective on October 20, 1997. 1,000,000 shares were
registered for resale pursuant to a Registration Statement on Form S-1,
Registration No. 33-49897, declared effective on April 22, 1998, with the
consent of the Registrant, by certain selling stockholders who may wish to
sell such shares under circumstances requiring or making desirable the use
of the prospectus contained herein. The 2,778,088 shares registered
included 2,000,000 shares that may be issued upon the exercise of the
warrants.
(3) 3,918,600 shares that are being registered for resale, with the consent of
the Registrant, by certain selling stockholders who may wish to sell such
shares under circumstances requiring or making desirable the use of the
prospectus contained herein.
(4) The Registrant previously paid a fee of $7,079 in connection with the
registration of the shares and warrants referred to in footnote No. 2
above.
(5) Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
prospectus filed as part of this Registration Statement relates to the
securities registered hereby and also relates to 2,778,088 shares of the
Registrant's common stock (including shares registered for resale by
certain selling stockholders) and 2,000,000 Warrants to purchase such
common stock under our Registration Statement on Form S-1 (File No.
333-31775) and 1,000,000 shares of the Registrant's common stock which
were registered for resale by certain selling stockholders under our
Registration Statement on Form S-1 (File No. 33-49897).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
DATED MARCH 27, 2000
PROSPECTUS
7,696,688 SHARES
AND WARRANTS TO PURCHASE 2,000,000 SHARES
0F
[SECURITY ASSOCIATES LOGO]
SECURITY ASSOCIATES INTERNATIONAL, INC.
COMMON STOCK
Security Associates International, Inc. is offering 2,000,000 shares of its
common stock and warrants to purchase up to 2,000,000 of those shares. The
shares and warrants will not be issued for cash, but rather will be issued:
- On a continuing basis to independent security alarm dealers as an
inducement for them to enter into agreements to use the alarm
monitoring services we offer. See "Business - Dealer Partner Program"
and "Business -Dealer Financing Programs - The ValueBuilder Program."
- As all or part of the price we pay in purchasing other businesses.
The warrants have an exercise price of $6.00 per share of common stock
purchased. We will not receive any cash from the initial issuance of shares or
warrants. We will receive $6.00 for each share of common stock purchased on
exercise of the warrants.
The selling stockholders identified in this prospectus may also sell up to
5,696,688 shares of common stock. If any of the selling stockholders elect to
sell their shares they may do so from time to time privately at prices
individually negotiated with the purchasers, or publicly in transactions on the
American Stock Exchange.
Selling stockholders may pledge common stock to Bear Stearns Securities
Corp. or to another broker as collateral for margin loans. In the event of a
default by such a selling stockholder, Bear Stearns or such other broker may
offer and sell the pledged shares in the manner described above. Additionally,
the common stock may be sold from time to time by pledgees, donees, transferees
or other successors in interest, including but not limited to Bear Stearns.
Our common stock is traded on the American Stock Exchange under the symbol
"SAI." On March 23, 2000, the last reported sale price of the common stock was
$3.50.
<PAGE> 4
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK AND WARRANTS
BEING OFFERED THROUGH THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise. Any representation to the contrary is a criminal offense.
This prospectus is dated _____________, 2000
<PAGE> 5
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................... 1
SUMMARY FINANCIAL DATA....................................................... 4
RISK FACTORS................................................................. 5
THE SECURITIES THAT ARE BEING OFFERED THROUGH THIS PROSPECTUS................ 8
BUSINESS..................................................................... 9
USE OF PROCEEDS..............................................................29
PRICE RANGE OF COMMON STOCK..................................................31
STOCKHOLDER RETURN AND PERFORMANCE GRAPH.....................................31
DIVIDENDS ...................................................................32
SELECTED FINANCIAL DATA......................................................32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................33
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................41
MANAGEMENT...................................................................42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................47
PRINCIPAL AND SELLING STOCKHOLDERS...........................................51
DESCRIPTION OF CAPITAL STOCK.................................................59
LEGAL MATTERS................................................................63
EXPERTS......................................................................63
ADDITIONAL INFORMATION.......................................................63
FINANCIAL STATEMENTS........................................................F-1
Certain statements in this prospectus that are not historical facts
constitute "forward-looking statements" within the meaning of the Federal
securities laws. Discussions containing such forward-looking statements may be
found in the sections entitled, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business", as well in this
prospectus generally. In addition, when used in this prospectus the words
"anticipates," "intends," "seeks," "believes," "plan," "estimates," and
"expects" and similar expressions as they relate to us or our management are
intended to identify such forward-looking statements. Such statements are
subject to a number of risks and uncertainties. Our actual results, performance
or achievements could differ materially from the results expressed in, or
implied by, these forward-looking statements. We undertake no obligation to
revise these forward-looking statements to reflect any future events or
circumstances.
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information about our company, but does not contain
all the information that you should consider before investing in the common
stock or the warrants. You should read the entire prospectus carefully.
Security Associates International, Inc., which was founded by 30
independent alarm dealers and three members of our senior management, is the
largest wholesale alarm monitoring company in the United States. We have grown
rapidly in recent years, principally through the acquisition of central
monitoring station businesses. Over the last two years our company experienced
an approximate 76% net increase in the number of systems monitored. As of March
23, 2000 we provided security alarm monitoring to over 400,000 residential and
business consumers whose alarm systems were installed and are serviced by
members of our dealer network. We market our monitoring services to independent
alarm dealers and, as a result, do not compete directly with most of the large,
integrated alarm companies. Independent alarm dealers are those who generally
have less than 10,000 customers. We do not sell or install alarm systems, and
are committed to not compete with the independent alarm dealer community. Our
dealers represent a national group with a strong local presence. We believe we
can serve as a vehicle to aggregate these dealers into a nationwide marketing,
installation and servicing network.
We own and operate ten central monitoring stations which are strategically
located to provide services to most of the major geographic regions of the
country, including: the Southeast, Midwest, North Central, Mountain, Northwest,
West and Southwest regions. We also provide education and training in the areas
of marketing, finance and new products and services to alarm dealers through
one-on-one contact, periodic regional seminars and our annual convention. We
believe that the recruitment, training and motivation of dealers are key factors
in the success and growth of our company.
The electronic monitoring of alarm systems is characterized by high fixed
costs and incrementally lower variable costs, often referred to as economies of
scale. Since most independent alarm dealers are small, they outsource or
subcontract, the monitoring of their customer's alarm systems and focus on the
sale, installation and service aspects of their business. Despite the fact that
they subcontract the monitoring services, dealers retain the bulk of the
monitoring fees. Dealers, therefore, view monitoring as an important part of
their business and frequently look to their central monitoring company for
support and additional services.
Industry statistics suggest that substantial benefits, in the form of lower
burglary rates, accrue to consumers who protect their premises with
electronically monitored security systems. Approximately 15% of residences in
the United States have monitored alarm systems. The security alarm industry has
grown at a 6.7% average annual rate over the past three years, and we expect
that rate to continue in the foreseeable future. The industry has a relatively
small number of large, well-capitalized and integrated participants, but remains
dominated by many thousands of independent alarm dealers.
We are the largest wholesale monitoring company in the United States and
all of our central stations are Underwriters Laboratories (UL) listed. There are
approximately 250 UL listed and approximately 1,500 to 2,000 non-UL central
stations in the United States, although most are small, locally owned companies.
We anticipate that the alarm industry will gradually converge with other
industries and small central station owners will be increasingly pressured to
provide additional products and services to help dealers grow and compete. We
believe this is a significant factor creating the opportunity for us to acquire
and possibly consolidate these small central stations. There are approximately
27 million residential and commercial electronically monitored alarm systems in
1
<PAGE> 7
the United States, of which approximately half are represented by independent
alarm dealers.
Our senior management and marketing personnel have extensive relationships
with independent alarm dealers, which have been cultivated over a combined 100
years of experience in the security industry, serving or working with
independent alarm dealers. We have the largest dealer network in the United
States, with over 3,000 dealers who install and service approximately 600,000
residential and commercial security systems in nearly every major community in
the United States. Approximately 2,500 of those dealers purchase all or a
portion of their monitoring services from our regional monitoring stations and
have regular contact with us. Additionally, many of these dealers participate in
one or more of our educational or training programs.
We believe that our focused strategy of wholesale monitoring for
independent alarm dealers has advantages over an integrated sales, installation,
service and monitoring strategy. Our revenue base grows with the overall growth
in the industry, particularly with the growth of new sales and installations by
independent alarm dealers. We believe that independent alarm dealers as a group
enjoy better customer retention and relationships than the large, integrated
national companies by virtue of their local ownership and emphasis on quality
service. Additionally, independent alarm dealers install a large percentage of
"custom" alarm systems which we believe enjoy better retention rates than "low
cost" or "no money down" systems. As a result, as their customer base grows, we
anticipate an inherent growth in our wholesale monitoring business.
Historically, this growth has been accommodated with only modest, incremental
capital expenditures to increase capacity. We believe independent alarm dealers
will continue to be a dominant force in the alarm industry and we will continue
to invest in and provide programs specifically designed to assist our dealers in
achieving profitable growth.
We will continue to pursue our existing business strategy of aligning
ourselves closely with independent alarm dealers, as we believe this will
provide greater long-term value to customers, our dealers and our stockholders.
The key elements of our strategy to sustain and accelerate the growth in our
wholesale monitoring business and dealer network are as follows:
Alarm Dealer Network and Stock Incentive Plans. We believe that alarm
dealers are more productive, provide more revenue to us and remain associated
with us longer, if they are equity owners in our company. For this reason we
offer dealers common stock based incentive plans that allow them to become
owners of our company in return for agreeing to monitor their alarm systems in
one of our central stations.
Central Monitoring Stations. We will continue to pursue acquisitions of
central monitoring station businesses in order to complete a nationwide network
of strategically located regional monitoring stations. We believe that regional
wholesale monitoring services are more attractive to independent alarm dealers
and are consistent with the "local" marketing and service most independent alarm
dealers provide to their customers. We will continue, where appropriate, to
consolidate our monitoring businesses within the framework of our regional
operating structure. We expect that our acquisition and consolidation strategy
will significantly increase our operating margins, while maintaining the quality
of service our dealers and their customers expect.
Our dealer network has the technical capability to provide existing and
potential customers with a wide range of low-voltage products and services that
are security, communications, information, entertainment or recurring revenue
related. In fact, many of them already do provide some of these services. We
also believe that a nationwide network of secure, redundant central monitoring
facilities with substantial communication capability and capacity can facilitate
and support many additional products and services. As a result, we anticipate
that the combination of the collective customer base, market share,
installation, service and sales capability of our dealer
2
<PAGE> 8
network, and the technical and operational capabilities of our nationwide
network of electronic monitoring stations, will provide numerous opportunities
to profitably grow and diversify the recurring revenue of our dealers and our
company. We believe we are uniquely positioned to respond to these challenges
and opportunities.
Our Executive Offices are located at 2101 South Arlington Heights Road,
Suite 100, Arlington Heights, Illinois 60005. Our telephone number is (847)
956-8650.
3
<PAGE> 9
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data for the fiscal years ended 1997
through 1999 is derived from our consolidated financial statements which have
been audited by Arthur Andersen LLP, independent public accountants. The
following summary financial data for the fiscal years ended 1995 and 1996 is
derived from audited financial statements. The summary financial data set forth
below should be read in conjunction with our consolidated financial statements
and related notes and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
Years Ended December 31,
Pro Forma Pro Forma
1995 1996 1997 1998 1998(1) 1999 1999(2)
---------- ----------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $2,733 $3,782 $10,814 $20,203 $17,146 $22,689 $18,969
Operating (loss) $(389) $(591) $(2,662) $(3,406) $(2,130) $(2,931) $(2,592)
Net (loss) available to
common stockholders $(947) $(1,718) $(4,938) $(6,798) $(3,904) $(4,047) $(4,631)
Net loss per share $(.26) $(.47) $(1.16) $(1.06) $(.61) $(.59) $(.66)
Shares used in computing net
loss per share 3,665,642 3,669,343 4,266,151 6,394,048 6,429,048 6,897,200 6,980,533
</TABLE>
(1) The pro forma data for the year ended December 31, 1998, gives effect to
all acquisitions made during fiscal year 1998 and the sale of our owned
subscriber accounts as if they had occurred January 1, 1998.
(2) The pro forma data for the year ended December 31, 1999, gives effect to
the sale of our owned subscriber accounts as if it had occurred on January
1, 1999.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1996 1997 1998 1999
--------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $54 $632 $5,522 $1,481 $631
Working capital (deficit) $(2,699) $(4,518) $1,625 $(4,450) $(3,849)
Total assets $6,030 $16,533 $36,009 $47,526 $33,341
Total debt $6,862 $12,790 $22,919 $35,981 $14,287
Total stockholders' equity
(deficit) $(2,043) $1,269 $7,231 $3,869 $14,166
</TABLE>
4
<PAGE> 10
RISK FACTORS
You should carefully consider the following factors and the other
information contained in this prospectus before deciding to invest in shares of
our common stock or in the warrants.
Potential indebtedness. We have a $45 million credit facility which, if
drawn on in its entirety, would result in a large amount of indebtedness
relative to our equity. At March 22, 2000, our total indebtedness under our
credit facility with FINOVA Capital Corporation and Citizens Bank of
Massachusetts was approximately $12.8 million. This debt bears interest at a
floating rate, therefore, our financial results might be affected by changes in
prevailing interest rates. The terms of our credit facility limit, but do not
prohibit, the incurrence of additional indebtedness without their consent. We
expect to incur additional indebtedness in the future primarily to fund
acquisitions of central monitoring station businesses as part of our business
strategy.
A large amount of indebtedness could have negative consequences, including,
without limitation:
- our ability to obtain additional financing in the future for working
capital, acquisitions, capital expenditures, general corporate and
other purposes may be impaired,
- vulnerability of our company to a downturn in our business or the
economy generally, and
- our ability to compete against less leveraged companies may be
adversely affected.
Our credit facility contains restrictive covenants, including covenants
that require the lenders' consent to certain actions by us and which require us
to maintain certain financial ratios to undertake significant acquisitions, all
of which may impose limitations on our ability to execute our business strategy.
The failure to comply with these covenants could be an event of default and
could accelerate our payment obligations.
Our ability to satisfy our payment obligations will depend, in large part,
on our financial performance, which will ultimately be affected by general
economic and business factors, many of which will be outside management's
control. We believe that the cash flow from operations combined with
availability under our credit facility and other available sources of financing
will be enough to meet our expenses and interest obligations. However, if these
payment obligations can't be satisfied, it will be necessary to find alternative
sources of funds by selling assets, restructuring, refinancing debt or seeking
additional equity capital. There can be no assurance that any of these
alternative sources would be available on satisfactory terms or at all.
Uncertainties associated with acquisitions. Acquisitions of central
monitoring station businesses involve a number of uncertainties. Sellers
typically do not have audited historical financial information with respect to
the acquired business. Therefore, in making acquisition decisions, we have
generally relied on our management's knowledge of the industry, due diligence
procedures and representations and warranties of the sellers. There can be no
assurance that such representations and warranties are or will be true and
complete or, if such representations and warranties are inaccurate, that we will
be able to uncover such inaccuracies in the course of our due diligence or
recover damages from the seller in an amount sufficient to fully compensate us
for any resulting losses. Risks
5
<PAGE> 11
associated with these uncertainties include, but are not limited to, the
following:
- the possibility of unanticipated problems not discovered prior to the
acquisition,
- possible loss of customers or possible dealer cancellations, and
- for acquisitions that are structured as stock purchases of other
companies, the assumption of unexpected liabilities and the
disposition of unnecessary or undesirable assets of the acquired
companies.
History of net losses. We incurred net losses of $4.0 million for fiscal
1999, $ 6.8 million for fiscal 1998, $4.0 million for fiscal 1997 and $1.7
million for fiscal 1996. These losses reflect, among other factors, the
substantial non-cash charges for amortization of purchased subscriber accounts
and goodwill associated with acquired central monitoring station businesses and
the interest on our indebtedness.
We expect these charges to increase as we acquire additional central
monitoring station businesses, increase our indebtedness or if interest rates
increase.
Need for additional capital. Historically, our cash needs for acquisitions
and capital expenditures have exceeded the cash provided by our operations. We
intend to continue to pursue growth through the acquisition of central
monitoring station businesses and to make additional capital expenditures. This
will require us to seek additional funding under our existing credit facility,
through new loans or from the sale of additional securities. These fundraising
activities could result in higher levels of indebtedness or dilution to our
common stock. There can be no assurance that funding will be available to us on
attractive terms or at all.
Dealer cancellation. The dealers for which we provide monitoring services
may cancel or terminate their contracts with us for many reasons, including
adverse financial and economic conditions generally, competition from other
alarm monitoring companies or if we do not provide satisfactory monitoring and
customer service. As a result of our rapid growth through acquisitions, we must
successfully assimilate large numbers of subscriber accounts and develop good
working relationships with new dealers. If we fail in this endeavor it could
result in dealers canceling their contracts with us. A significant increase in
account cancellation could have a material adverse effect on our financial
performance.
Possible adverse effects of false alarm ordinances. Many municipalities
have expressed concerns about the perceived high incidence of false alarms and
the cost of responding to them. This may lead to reluctance on the part of
police to respond to alarm signals or slower police responses. If either of
these were to occur the demand for new alarm systems or monitoring services
could decline.
A number of local governments have adopted, or are considering, measures
aimed at reducing the cost of responding to false alarms and, if enacted, could
adversely affect our financial performance. Such measures include:
- subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms,
- licensing individual alarm systems and the revocation of licenses
following an excessive number of false alarms,
6
<PAGE> 12
- imposing fines on subscribers for false alarms,
- imposing limitations on the number of times the police will respond to
alarms after an excessive number of false alarms, and
- requiring further verification of an alarm signal before the police
will respond.
Risks of litigation. Providing fire and burglary alarm monitoring services
may expose us to risks of liability for employee acts or omissions or system
failure. Most of our alarm monitoring agreements contain provisions limiting our
potential liability in an attempt to reduce this risk. However, in the event of
litigation there can be no assurance that these limitations will be enforced,
and the costs and results of such litigation could have an adverse effect on us.
We carry insurance of various types, including general liability and errors
and omissions insurance. Our loss experience specifically, and the loss
experience of other security service companies generally, may affect the
availability and cost of our insurance. Certain of our insurance policies and
the laws of some states may limit or prohibit insurance coverage for punitive or
certain other types of damages, or liability arising from gross negligence.
Competition. The security alarm industry is highly competitive and highly
fragmented. While we do not compete directly with many of the large new entrants
or participants into the industry because we do not sell and install security
systems, we are nonetheless impacted by the competitive challenge these entrants
present to independent alarm dealers.
Our monitoring services compete with those offered by an estimated 1,800 to
2,300 companies. Of those companies an estimated 250 firms offer monitoring
services from Underwriters Laboratories listed facilities. Most of the companies
providing monitoring services are small, local operations.
Other companies have adopted a strategy similar to ours that includes the
acquisition of central monitoring station businesses. Some of these competitors
have greater financial resources than we do or may be willing to offer higher
prices than we are prepared to offer to acquire monitoring stations. The effect
of such competition may be to reduce our rate of growth or increase the price we
pay, which could have an adverse effect on our business. There can be no
assurance that we will be able to find acceptable acquisitions.
Dependence upon Senior Management. The success of our business is dependent
upon the collective efforts of our executive officers, several of whom have
decades of experience in the alarm industry. The loss of one or more of these
people could have an adverse effect on our business.
Stock ownership is very concentrated. Our largest stockholder owns
approximately 65.45% of our issued and outstanding voting stock, as well as the
right to designate two members of our board of directors. As a result, this
investor currently has the ability to significantly influence the outcome of
matters submitted for approval to our stockholders and directors (including the
election of directors and any merger, consolidation or sale of all or
substantially all of our assets) and our affairs generally. Additionally, our
directors and management own or control approximately 16,474,344 shares of
common stock on a fully diluted basis, the substantial majority of which are
currently subject to restrictions on transfer under Rule 144, but which may
become available for sale and could result in
7
<PAGE> 13
downward pressure on our stock price. See "Principal and Selling Stockholders."
Restrictions on transfer and possible forfeiture of common stock and
warrants. Alarm dealers receiving common stock or warrants under our Dealer
Partner Program or the ValueBuilder program will be assuming several risks
related to the securities they receive, including:
- entering into a multi-year agreement to monitor the subscriber
accounts covered by the program in one of our central monitoring
stations,
- granting us rights of first refusal to purchase the dealer's
subscriber accounts and make loans secured by subscriber accounts
during the term of the agreement,
- restrictions on the right to transfer, pledge or exercise the
securities, generally 25% of which will vest at closing, with the
balance vesting in three equal annual installments,
- if the alarm dealer defaults on its obligations to us, the dealer will
forfeit all of the securities as to which the rights to transfer or
pledge have not yet vested.
Registration of common shares underlying warrants. Warrantholders will
receive freely tradable shares of common stock when they exercise the warrants
if: (i) a registration statement under the Securities Act of 1933, as amended,
relating to the common stock is then in effect, or (ii) the common stock is
qualified for sale or exempt from qualification under the applicable securities
laws of the states in which the various holders of warrants reside. Although we
will use our best efforts to maintain the effectiveness of a current
registration statement covering the common stock underlying the warrants, there
can be no assurance that we will be able to do so. Because our common stock is
traded on the American Stock Exchange our common stock is exempt from any state
registration requirements. If, in the future, our common stock is not traded on
an exchange that exempts state registration requirements, there can be no
assurance that exemptions from the registration or qualification requirements
will be available at the time a warrantholder wishes to exercise his or her
warrant or that our shares will be registered or qualified.
THE SECURITIES THAT ARE BEING OFFERED THROUGH THIS PROSPECTUS
SAI is offering 2,000,000 shares of its common stock and warrants to
purchase up to 2,000,000 of those shares. The shares and warrants are intended
to be used primarily for the purpose of inducing security alarm dealers to enter
into agreements to purchase monitoring services from central monitoring stations
owned by our company or our subsidiaries and to align our company closely with
its alarm dealer/customer. See "Business - Dealer Partner Program and Business -
Dealer Financing Programs - The ValueBuilder Program." The securities to be
issued to alarm dealers under this program are part of our continuous effort to
increase our dealer network and the number of homes and businesses to which we
provide monitoring services. We believe that our dealer network is more
productive and will remain associated with us longer when they own our common
stock. We will continue to offer the shares and warrants for this until all the
available securities are exhausted.
We will not receive any cash payments for issuing either the shares or the
warrants to alarm dealers. What we will get in return for the securities is a
contractual commitment to purchase monitoring services from us at
8
<PAGE> 14
competitive prices. Any dealer that receives warrants and wishes to exercise
those warrants to purchase shares of common stock will be required to pay us
$6.00 for each share of common stock that it elects to purchase. See "Business -
Dealer Partner Program and Business- Dealer Financing Programs - The
ValueBuilder Program."
We may also issue shares as all or part of the purchase price of businesses
that we acquire. Those businesses may be acquired by our company or one of our
subsidiaries. The legal form that any such transaction takes will be determined
by negotiation and could take the form of a merger, a purchase of the stock of
the target company or a purchase of the assets that constitute the business we
are acquiring. We expect that the value ascribed to the securities we issue in
any transaction will be reasonably related to their market value at the time we
agree on the terms or at the time of delivery of the securities.
5,696,688 of the shares of common stock also covered by this prospectus are
owned by stockholders or may be issued to them if they exercise options and
warrants. Those shares have been registered for resale and the owners of those
shares are identified in this prospectus under the caption "Principal and
Selling Stockholders."
The selling stockholders may sell their shares from time to time privately
at prices negotiated with the purchasers, or publicly through transactions on
the American Stock Exchange.
BUSINESS
OVERVIEW
We provide security alarm monitoring services for both residences and
businesses through contracts with independent alarm dealers for subscribers who
have entered into monitoring contracts with them. Independent alarm dealers are
primarily owner-operated companies that have less than 10,000 customers. Our
ability to attract new monitoring business is enhanced and supported by a
network of over 3,000 independent alarm dealers, to whom we also provide
industry-related education in the areas of technology, finance, management and
marketing.
We were incorporated in 1990 as an Illinois corporation and, through a
merger in 1992, we became a Delaware corporation. Our original stockholders were
thirty independent alarm dealers, in addition to our four founders. Three of our
four founders are still active in our management: Ronald I. Davis, Chairman of
the Board of Directors, James S. Brannen, President, and Stephen Rubin, Senior
Vice President. We conduct our operations directly through central monitoring
stations we own and through three wholly owned operating subsidiaries which
operate central monitoring stations (which are the locations where the actual
monitoring of the subscriber's alarms is conducted).
[MAP OF USA WITH SAI OWNED CENTRAL STATIONS INDICATED]
- SAI directly owns and operates central monitoring stations located in
Pompano Beach, Florida (SAI Southeast Command Center); Des Plaines,
Illinois (SAI Midwest Command Center); Ogden, Utah (SAI Mountain
Command Center); Portland, Oregon (SAI Northwest Command Centers -
Portland); and Chino, California (SAI West Command Center).
- SAI Command Centers Northwest-Seattle, Inc., a wholly owned
subsidiary, owns and operates a central monitoring station located
in Seattle, Washington.
9
<PAGE> 15
- SAI Southwest Command Centers, Inc., a wholly owned subsidiary, owns
and operates central monitoring stations located in Dallas, Texas,
Houston, Texas and Metairie, Louisiana (Monark Central Dispatch).
- SAI North Central Command Center, Inc., a wholly owned subsidiary,
owns and operates a central monitoring station located in Euclid,
Ohio.
We intend to continue to merge our wholly owned subsidiaries into SAI in an
effort to reduce costs and realize economies of scale.
Prior to June 30, 1999, we also provided monitoring services directly to
residences and businesses. On June 30, 1999, we sold our portfolio of
approximately 27,000 owned (retail) subscriber accounts to Security Alarm
Financing Enterprises, Inc. (SAFE). SAI continues to monitor these accounts
under contract with SAFE and is SAFE's preferred provider of alarm monitoring
services.
The sale of our retail accounts to SAFE represented a major turning point
in our progress. As a result of that transaction we disposed of a non-core asset
and re-focused our efforts on our core wholesale monitoring business and on our
dealer network.
Most of the proceeds of the sale of the retail accounts went to pay down
our line of credit with FINOVA Capital Corporation. Following the retail account
sale, we entered into a new $45,000,000 line of credit with FINOVA and Citizens
Bank of Massachusetts, a wholly owned subsidiary of the Royal Bank of Scotland.
At the same time, our principal outside investor, TJS Partners, L.P., agreed to
restructure its investment in our company, further improving our balance sheet
and our ability to expand our core wholesale monitoring business.
Our revenues consist of recurring monthly revenue ("RMR") payments under
written contracts with independent alarm dealers to provide monitoring services
to their subscribers. Total revenues increased from $2,733,253 for the fiscal
year ended December 31, 1995 to $22,689,132 for the fiscal year ended December
31, 1999. Operating cash flow increased from $251,073 for the fiscal year ended
December 31, 1995 to $3,105,173 for the fiscal year ended December 31, 1999.
Operating cash flow is defined as earnings before depreciation, amortization,
interest expense, income taxes and certain other expenses that are paid for with
common stock or warrants. Our loss per share of common stock for the fiscal year
ended December 31, 1999, was $0.59 per share. As a result of the sale of our
retail account portfolio on June 30, 1999, and our new focus on the wholesale
monitoring business, our results for the current fiscal year are not completely
comparable to our results for prior periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
As of December 31, 1999, we monitored over 400,000 residences and
businesses from our national network of regional central monitoring stations.
All of these locations were monitored under contracts with approximately 2,500
alarm dealers for subscriber accounts owned by them. From January 1, 1995
through December 31, 1999, the number of subscriber accounts we monitored
increased from approximately 51,471 to 401,000. On December 31, 1999, we
provided monitoring services to 84,768 more subscriber accounts than at year-end
1998.
We estimate that our central monitoring stations are currently capable of
monitoring at least 750,000 subscriber accounts. We gained additional capacity
when we acquired our Chino, California and Seattle, Washington facilities. We
expect to be able to monitor 1,000,000 subscriber accounts by the end of
10
<PAGE> 16
2000, before taking into account any future acquisitions.
Our network of independent alarm dealers consists of over 3,000 dealers
nationwide that are estimated to own approximately 600,000 subscriber accounts,
some of which are presently monitored at central stations owned by our
competitors. In order to attract new alarm dealers, and to continue to develop
our relationships with those dealers already using our central monitoring
stations, we host an annual convention for independent alarm dealers. At this
meeting, developments in the security industry are discussed and industry
experts make numerous presentations. This meeting is designed to keep the alarm
dealers abreast of new developments in technology, marketing and management as
well as new business opportunities.
We also distribute an "audio magazine" to our network of dealers on a
quarterly basis and conduct numerous smaller meetings throughout the year. Our
relationships with independent alarm dealers are important because dealers are
the source of our revenues. We intend to continue to increase the number of
subscriber accounts we monitor. In pursuing this goal, we anticipate acquiring
additional central monitoring station businesses and adding additional
subscriber accounts as the businesses of our existing alarm dealers grow and
through new dealers that join our Dealer Partner Program. Through this program,
we offer selected alarm dealers the opportunity to own equity in our company as
part of their ongoing relationship with us. See "Business - Dealer Partner
Program."
In the future, we believe that we can develop future business opportunities
based on our network of over 3,000 independent alarm dealers representing over
15,000 trained installation and service personnel, expert in low voltage
technology. We have also created through our dealers a network of over 400,000
consumers electronically connected to our regional, secure, redundant, UL listed
central monitoring stations. We believe that these networks uniquely position us
to become key participants in the delivery of in-home services as technologies
converge.
INDUSTRY OVERVIEW
General
The electronic security alarm industry is characterized by a large number
of small individually owned companies involved in security alarm system
installation and monitoring. According to Barnes Associates, a well known
investment banking and consulting firm in the industry, the top five companies
account for approximately 45% of the market, with an estimated 10,000 to 12,000
dealers sharing the remainder of the market. Taken together, however, these
10,000 to 12,000 alarm dealers represent a nationwide presence with expertise in
the installation and servicing of low voltage electronic systems. It is the
needs of this nationwide market of alarm dealers and the opportunities that they
represent that we seek to address.
We believe that another characteristic of the security alarm industry is
its continuing growth. Industry statistics published by Security Sales in the
2000 Security Sales Fact Book, an industry publication, indicate that revenues
for the electronic security alarm segment of the security industry grew from
$9.7 billion in 1991 to $15.8 billion in 1999. The Central Station Alarm
Association, in the summer of 1998 issue of Dispatch, reported that the security
services market in the United States is expected to grow at a rate of 6.4%
annually between 1998 and 2004.
The growth in the security alarm industry has been fueled by several
factors. We believe the aging of the population and the increase in two career
families have both contributed to an increased focus on the security of the
11
<PAGE> 17
home. Security Sales reported in January 1999 that residences without alarm
systems are more than twice as likely to be burglarized as those with systems
(14.8% vs. 6.6%) and that commercial sites without alarm systems are 4.5 times
more likely to be burglarized than those with systems (7.59% vs. 1.66%). Many
insurance companies also offer discounts to home and business owners that
install alarm systems.
Several large well-capitalized companies are active in the security alarm
industry directly or through subsidiaries, including Western Resources, Inc. and
Tyco International, Inc. We believe that these companies were attracted by the
fragmented nature of the industry and its growth potential. Additionally,
utility and telephone companies are attracted by the similarity between the
services provided in the security alarm industry and the services they already
perform, which also involve providing services via wire connections in return
for monthly fees.
As larger participants have entered the security alarm industry, they have
introduced mass marketing techniques which have included heavy advertising and
low cost system installations tied to multi-year monitoring contracts. These
long-term contracts typically have one to five year initial terms and one year
automatic renewals, if not canceled. The monthly cash flow generated by the
monitoring contracts subsidizes the cost of installations. Large,
well-capitalized companies can afford to initially subsidize the costs of
installing alarm systems. As competition has driven the average price of
installed alarm systems down, independent alarm dealers, who have more
restricted access to capital, continue to search for an appropriate competitive
response.
THE NEEDS OF THE INDEPENDENT DEALER COMMUNITY
Among the major issues confronting independent alarm dealers are:
Retaining Customer Accounts
Independent dealers sell and install alarm systems in homes and businesses
and, at the same time, enter into contracts to provide monitoring services,
typically with one to five year terms. The dealer generally subcontracts with a
third party central station to provide the actual monitoring. The dealer retains
as profit the difference between what it charges the subscriber as a monitoring
fee and the cost of buying monitoring services from the third party central
station plus general and administrative expenses. This recurring monthly
monitoring revenue is an important component of a dealer's total revenue stream.
According to SDM Magazine's Insider Report for 2000, approximately 33% of
dealers' revenues consist of monitoring and service fees.
Financing
For most independent dealers, their subscriber accounts represent their
most substantial asset. Banks and other commercial lenders, which are a very
important source of financing for most small businesses, have historically been
unwilling to lend against subscriber accounts as collateral or to provide
financing for customer purchases of alarm systems. Because of their more limited
access to financing, independent dealers have a difficult task competing with
the larger companies who have greater access to capital. This issue has become
more pronounced as the market has forced dealers to subsidize the cost of alarm
system installations. The limited ability to turn subscriber accounts into the
cash needed to support other aspects of their businesses and to be able to offer
financing to purchasers of alarm systems is a very important concern of
independent dealers.
12
<PAGE> 18
Training and Support
Dealers must not only be financially sophisticated, they must also be able
to run their businesses economically and with a relatively small amount of
resources, both human and financial. In addition, independent dealers must be
able to choose effectively between competing new technologies. Dealers need the
tools that will allow them to identify and exploit new opportunities both within
the alarm industry and in related fields. Dealers must also be aware of
regulatory changes affecting the industry. There are limited resources available
to help the independent dealer meet these needs.
New Business Opportunities
The skills needed to install security alarm systems can also be applied to
the installation of other low-voltage systems such as: closed circuit
television, home automation, audio and home entertainment centers and satellite
dishes. Many alarm dealers currently provide these services to their
subscribers. We believe that application of these same skills can generate other
new business opportunities. We are seeking new opportunities for ourselves and
our dealers through alliances with providers of services that are complementary
with the services that our dealers and we already provide. We believe that
potential partners that embrace this vision will desire to offer a broad range
of related services without incurring the expense or experiencing the
uncertainties of entering unfamiliar product markets or developing a nationwide
network of servicing and installing dealers. Independent dealers must be aware
of and learn how to respond to new market opportunities if they are to survive
and prosper in the future.
ALARM MONITORING
Our Relationships with Independent Alarm Dealers
Our response to the challenges and opportunities presented by the security
alarm industry has been significantly influenced by the personal and business
experience of two of our founders. Both Ron Davis, the Chairman of the Board of
Directors and Steve Rubin, a Senior Vice President, were principals of the Davis
Marketing Group, an organization formed in the mid-1970s to provide consulting
services to alarm dealers. Davis Marketing evolved into a franchiser of alarm
installation businesses, which later became a network of dealers, initially made
up of the former franchisees. The network provided its members with group
buying, training and education services. In 1990, our company was formed to
purchase subscriber accounts from independent alarm dealers for our own
portfolio and to acquire an interest in a central monitoring station located in
Grand Rapids, Michigan. The initial stockholders (other than the founders) were
almost all independent alarm dealers. The relationship with our dealer network
remains a key part of our growth strategy. It is this history that has made us
keenly aware of, and uniquely able to address the needs of independent alarm
dealers and of the opportunities that those needs represent.
One of the unique aspects of our position in the security alarm industry is
what we do not do - we do not sell and install security systems. As a result, we
are not viewed as a competitor in the alarm dealer community. Several of our
competitors in the monitoring business also sell and install security systems,
and some are even leading mass-marketers of low cost system installations.
Another service we provide our dealers who wish to sell subscriber
accounts, or obtain loans using subscriber accounts as collateral, is referral
to Security Alarm Financing Enterprises, Inc. (SAFE), with whom we
13
<PAGE> 19
have formed an alliance. This alliance involves SAFE using our central stations
to monitor accounts we refer to them which they purchase, paying us commissions
for the referrals on accounts they purchase over agreed upon thresholds and
making us their preferred provider of monitoring services. SAFE is an alarm
industry specialized financing company that does not sell or install security
systems. SAFE's policy is to contract with the selling alarm dealer to continue
servicing the underlying alarm system. SAFE also refers all inquiries relating
to system enhancements to the servicing alarm dealer. This allows dealers to
further enhance their businesses. By working with our company and SAFE, dealers
can purchase monitoring and obtain financing from companies they view as allies
rather than competitors.
In a market where the competition for providing monitoring service is high,
we believe that the depth of our relationships with alarm dealers gives us a
competitive edge.
Provide High Quality Monitoring Services to Independent Dealers
A subscriber account represents a stream of income that may continue for
many years if the monitoring contracts are extended for additional renewal
terms. An enterprising dealer can even increase the value of a subscriber
account by selling add-on services such as:
- alarm system maintenance and servicing;
- two-way voice communications between the subscriber and the central
monitoring station; and
- cellular telephone or long-range radio backup to the normal land line
telephone links to the central monitoring station.
Subscriber accounts are subject to attrition (cancellation) for many
reasons that are beyond the dealer's control, such as nonpayment by the
subscriber, the sale of a home or business or, to some extent, lower cost
service offerings by competitors. One element that the dealer can control,
however, is attrition due to poor monitoring services provided by the central
station from which it purchases those services. Dealers address this problem by
contracting with companies that have a demonstrated record of providing high
quality service.
We strive to own and operate superior central monitoring stations with
highly efficient equipment and a well-trained staff to deliver high quality
monitoring services. All of our central stations are Underwriters Laboratory
(UL) listed. To obtain and maintain a UL listing, a central station must be
located in a building meeting UL's structural requirements, have a backup and
uninterruptible power supply and have secure telephone lines and redundant
computer systems that meet UL criteria. Access to the facility must also be
strictly controlled. Our central stations are also capable of supporting a full
range of add-on services such as two-way voice communications, cellular
transmission and long-range radio access.
Another of our objectives is to substantially increase the number of
subscriber accounts to which we provide monitoring services and to increase the
profitability of the services we provide. We are adding additional monitoring
capacity and continuing the consolidation of our monitoring operations to
realize additional economies of scale. We will continue to maintain and further
enhance the quality of the services we provide and market to the alarm dealer
community. Ron Carr our Senior Vice President for Central Station Operations
leads this effort. Mr. Carr was formerly Director of Telecommunications and
Central Station Operations for SecurityLink and, prior to that, Director of
Telecommunications for ADT, Inc.
14
<PAGE> 20
Increase Monitoring Capacity on a Regional Basis
Our strategy is to complete a network of central stations, with at least
one central station located in each of the major geographic regions of the
United States. Our recent central station acquisitions were undertaken to
increase our monitoring capacity, to expand our monitored subscriber account
base and to build our regional network.
The following acquisitions were undertaken primarily to build our regional
network:
- Southeast: In December 1996, we purchased the assets of AMJ Central
Station Corporation which owned and operated a central station
located in the Fort Lauderdale/Pompano Beach, Florida area.
- Midwest: In July 1995, we purchased All Security Monitoring Services
L.L.C. which owned and operated a central monitoring station located
in Des Plaines, Illinois, a suburb of Chicago. In November 1997, we
purchased Telecommunication Associates Group, Inc. which owned and
operated central monitoring stations located in Euclid, Ohio, a
suburb of Cleveland and Austin, Texas. The Austin central station
has been consolidated into our Houston central station.
- Southwest: In June 1998, we purchased Texas Security Central, Inc.
which owned and operated central monitoring stations located in
Dallas, Texas; San Antonio, Texas and Houston, Texas. The San
Antonio central station has been consolidated into our Houston
central station. In December 1999, we purchased the assets of Monark
Central Dispatch, Inc. which owned and operated a central station
located in Metairie, Louisiana (which is in the New Orleans area).
- West: In May 1998, we purchased the third party monitoring business of
Fire Protection Service Corporation which owned and operated a
central monitoring station located in Ogden, Utah (which is in the
Salt Lake City area). In November 1999, we purchased the assets of
Total Electronic Alarm Monitoring, L.L.C. that owned and operated a
central station located in Chino, California (which is in the Los
Angeles area).
- Pacific Northwest: In October 1998, we purchased the assets of World
Security Services Corporation which owned and operated a central
monitoring station located in Portland, Oregon. In November 1999, we
purchased Alarm Monitoring Service, Inc. which owned and operated a
central monitoring station located in Seattle, Washington.
In order to emphasize both our nationwide identity and our regional
presence, we have renamed our central stations: SAI Midwest Command Center (Des
Plaines, Illinois), SAI Mountain Command Center (Ogden, Utah), SAI North Central
Command Center, Inc. (Euclid, Ohio), SAI Northwest Command Centers - Portland
(Portland, Oregon), SAI Northwest Command Centers - Seattle, Inc. (Seattle,
Washington), SAI Southeast Command Center (Pompano Beach, Florida), SAI
Southwest Command Centers, Inc. (Dallas, Texas, Houston, Texas and Metairie,
Louisiana) and SAI West Command Center (Chino, California).
We have substantially completed our capital investment project that
expanded the capacity of our central monitoring stations to 750,000 monitored
alarm systems. We intend to continue our program of expansion. This expansion
will principally involve hiring additional personnel, purchasing additional
computers
15
<PAGE> 21
and monitoring equipment and leasing additional phone lines. We will then have
the opportunity, and challenge, of bringing in additional subscriber accounts to
absorb the increased monitoring capacity.
Integrate Central Station Operations and Realize Economies of Scale
Historically, our central monitoring stations were separately owned and
operated as independent business units by the original owners. Our acquisition
and consolidation of the formerly independent monitoring companies has presented
us with opportunities to increase the profitability of each of these operations.
We seek to exploit these opportunities by eliminating duplicative efforts. Under
this program:
- We have implemented a single centralized accounting system.
- We have created a centralized billing, customer service and
collections department to service all of our central monitoring
stations.
- We will continue the consolidation of monitoring operations into
regional central monitoring stations.
Utilizing the additional monitoring capacity in our central stations means
that the incremental cost of servicing additional subscriber accounts should be
substantially reduced. This can be illustrated by the acquisition in August 1998
of Reliance Protection Services, Ltd., a central monitoring station located in
Schaumburg, Illinois. In that transaction, the physical facility located in
Schaumburg was not purchased. Instead, all of the subscriber accounts monitored
there were transferred in bulk, along with certain equipment and software, to
our central station located in Des Plaines, Illinois. Only five additional
personnel were necessary to accommodate the additional 11,500 subscriber
accounts. By contrast, the old Reliance operation required twelve full-time
employees plus a leased facility and associated expenses.
We have also realized economies of scale through the consolidation of the
subscriber account bases of the following central monitoring stations:
- Security Associates Command Center II, L.L.C. (located in Grand
Rapids, Michigan) and Guardian Security, Inc. (located in Columbus,
Ohio) into the Euclid, Ohio central monitoring station.
- Northern Central Station, Inc. (located in Little Falls, New Jersey)
into the Des Plaines, Illinois central monitoring station.
- Telecommunication Associates Group, Inc.'s central station in Austin,
Texas, and Alarm Central Monitoring, Inc. (located in Dallas, Texas)
into SAI Southwest Command Centers, Inc. central monitoring stations
located in Houston and Dallas, Texas, respectively. The San Antonio
facility of SAI Southwest Command Centers, Inc. was also
consolidated into the Houston central station.
Further consolidations will take place, as we deem appropriate.
Maintain and Enhance the Quality of Monitoring Services
16
<PAGE> 22
In the normal course of our business, we sometimes experience cancellation
of accounts for various reasons, some of which are beyond our control. Accounts
may be lost because, for example, dealers go out of business or subscribers
relocate. Accounts may also be lost because of problems with service. Among our
initiatives are the implementation of a statistical quality control system and a
formal training and advancement program. We also conduct continuous reviews of
the operations of each of our central monitoring stations to improve the
functionality and profitability of our monitoring services.
Previously, each of our central monitoring stations used slightly different
event monitoring software and hardware. However, we have recently conformed and
upgraded the computer systems used in all of our central stations, except for
our Louisiana central station, which we are in the process of changing. We
expect this process to be completed in the second quarter of 2000. The
system-wide upgrade is designed to:
- Standardize the central station information systems to allow better
information flow between the central stations.
- Allow more efficient information exchange between the central stations
and the home office.
- Create fully redundant systems in case of system failure in one or
more of the central stations.
- Increase the efficiency of our customer service department.
We believe that these improvements will allow us to conduct our operations
in a more efficient and cost effective manner. Furthermore, we anticipate that
the new systems will provide a platform from which we can offer a wider
selection of value-added services to our alarm dealers. These services include
providing dealers with after-hours answering services, Internet or direct access
to end-user information for a dealer's subscriber accounts and automated
interactive alarm system testing services.
Implement Central Station Based Regional Marketing Program
We have reorganized and changed the focus of our sales force. In the past,
we relied on the existing subscriber account base of the acquired central
monitoring station businesses and the "natural increase" in subscriber accounts
that occurs as alarm dealers who are already customers install additional alarm
systems for our growth. Additionally, our sales force was centrally located and
approached alarm dealers on a national basis. We have redirected our sales
effort by organizing a decentralized sales force based in our central monitoring
stations. The design of our marketing programs has remained a home
office function.
The salespeople in each of our central stations are responsible for selling
our services in the region where the station is located. It is our belief that
we will be more successful in selling monitoring services to alarm dealers if
our facilities, salespeople and operations managers are geographically close to
the dealers. We intend to control the growth of each central station so that no
station becomes too large for its management and salespeople to maintain
personal relationships with, and responsiveness to the needs of, each of our
dealers.
As part of our relationship oriented strategy, we have implemented a
program (the "Dealer Partner
17
<PAGE> 23
Program", formerly known as the Strategic Partner Program) that allows dealers
to become equity owners of our company. See "Business-Dealer Partner Program."
DEALER FINANCING PROGRAMS
General
Alarm dealers, like many other small businesses, from time to time need
financing in order to operate and grow their businesses. The reasons a dealer
might need access to cash are extremely varied and include the need to manage
cash shortfalls, to finance expansion or inventory and to subsidize the costs of
system installations. In addition, many dealers would like to be able to offer
financing for potential purchasers of alarm systems. As is common with small
businesses, access to capital is limited. Access to bank financing is also
limited for both the dealers and for their customers who may wish to finance the
purchase of the alarm system.
For many dealers, the most significant assets they own are the contract
rights for monitoring the subscriber accounts. Unfortunately, such contract
rights are generally not treated as tangible assets against which banks, or
other traditional lending institutions, will lend on a secured basis. This
situation creates a dilemma for dealers, and an opportunity for us to strengthen
our relationship with our alarm dealers because we are able to accurately assess
the value of these assets and assist dealers in obtaining financing.
Steve Rubin heads our dealer financing programs. Mr. Rubin has over
twenty-eight years of experience counseling alarm dealers as to their financing
options and assisting them with their financing needs.
Sale of Subscriber Accounts
One method of financing that has developed in the security alarm industry
is the sale of subscriber accounts to third parties. While we no longer purchase
subscriber accounts, we do offer a referral program for our dealers through
Security Alarm Financing Enterprises, Inc. (SAFE). In a typical transaction, the
alarm dealer will sell subscriber contracts for a price that is a multiple of
the current monthly payment amount generated by that subscriber account. This
monthly payment amount is commonly called RMR in the industry, which stands for
recurring monthly revenue. For example, if a single contract provided for
monthly payments of $25 per month it might sell for $750, or thirty times RMR.
Assisting Dealers in Obtaining Loans
Because high quality subscriber accounts represent a reliable future stream
of revenue with little incremental costs, some dealers prefer to borrow using
their subscriber accounts as collateral. As previously mentioned, banks have
historically been reluctant to lend against subscriber accounts as collateral.
We believe that only three sizable finance companies exist with active lending
programs in the industry and their lending capacity is relatively small compared
to what we believe is the potential demand for loans secured by accounts.
Because of our familiarity with the security industry, our strategic
alliance with SAFE and our knowledge of other potential lenders, we believe we
are well prepared to assist alarm dealers in obtaining loans.
18
<PAGE> 24
The SAFE Loan Program
In November of 1999, SAFE introduced its loan program. Under this program,
SAFE will lend to qualified dealers for periods of up to 60 months, secured by
dealer owned monitoring accounts. We refer qualified dealers to SAFE and attempt
to facilitate the loan approval process. Because the SAFE program is presently
only available for loan transactions in excess of $500,000 we also refer dealers
to other lenders under our ValueBuilder Program.
The ValueBuilder Program
The ValueBuilder program was developed to assist alarm dealers in obtaining
customer financing for installed alarm systems, to allow alarm dealers to obtain
substantial discounts on alarm equipment and to compete in the "low" or "no"
money down market.
Under this program, dealers are able to obtain financing for their
customers, which is repaid in 36 to 60 months. From the customer's point of
view, only a small down payment is required to purchase the system. The
subscriber account and its revenue stream secure the loan. In the event the
account cancels during the first year of the program, the dealer is required to
provide another account and its revenue stream to secure payment to the finance
company that advanced the funds. At the end of the repayment period, the dealer
retains all rights to the subscriber account and the revenue stream it
generates.
As an additional incentive for participating in the ValueBuilder program,
we issue shares of common stock to participants based on the number of
ValueBuilder accounts monitored at our central monitoring stations.
Dealers participating in ValueBuilder build equity in two ways. They retain
the equity represented by their ownership of the subscriber monitoring accounts
and they gain an ownership interest in our company as well.
All dealers participating in the ValueBuilder program must agree that any
new subscriber account that uses the program must be monitored at one of our
central monitoring stations for a negotiated period, usually three to five
years.
DEALER PARTNER PROGRAM
Under the Dealer Partner Program, dealers enter into contractual
relationships with us whereby they agree to transfer or retain some or all of
their subscriber accounts at one of our central stations. The dealer must agree
that during the term of the contractual relationship with us it will not
transfer the subscriber accounts monitored by us to a competitor's central
monitoring station. In return, we issue the dealer a negotiated amount of common
stock. This stock is issued solely for entering into the contractual
relationship with us and without any cash payment by the dealer.
The stock may be issued alone, or together with other inducements that we
may offer from time to time. We believe that this program is attractive to many
alarm dealers, especially in light of the fact that we will also be providing
them with high quality monitoring services at competitive rates.
Generally, 25% of the stock issued to a dealer under the Dealer
Partner Program will be freely tradable upon issuance. The remaining 75% will
have restrictions on transfer that will be removed in three
19
<PAGE> 25
equal annual increments. If the dealer defaults on its obligations under the
Dealer Partner Program, the dealer will forfeit all of the stock as to which the
restrictions have not yet been removed, but will retain the balance of the
stock.
A dealer will be deemed to be in default on its obligations under the
Dealer Partner Program if the dealer (or any party he sells his subscriber
accounts to) transfers the covered subscriber accounts to a competitor's central
station or fails to comply with our rights of first refusal, unless waived by
us, during the term of the contractual relationship. The right of first refusal
is the right we retain to meet or beat the terms of any offer by another company
to purchase, or make loans secured by, the dealer's subscriber accounts. Since
we no longer purchase subscriber accounts or make loans to dealers, we refer
purchase and loan opportunities to Security Alarm Financing Enterprises, Inc. or
other lenders.
The Dealer Partner Program is a central component of our business plan.
DEALER SUPPORT STRATEGY
Offer High Quality Support Programs
The marketplace in which the independent alarm dealer competes is
undergoing rapid change. The presence of large, well-capitalized companies
creates a much more competitive environment. It is in this context that we
believe our ongoing educational and management development program is not only
valuable to our network of alarm dealers, but also can add depth and permanence
to our relationships with independent dealers. Our efforts are headed by Ron
Davis, Chairman of the Board, with more than twenty-eight years of experience as
a speaker and author on a broad range of subjects concerning the security alarm
industry, independent alarm dealers and the changes in the marketplace that have
and will continue to impact them.
We conduct numerous meetings each year at locations around the country at
which issues and opportunities facing the industry are presented. We also host
an annual three day educational conference attended by alarm dealers, where
presentations are made by both our personnel and other professionals from within
the industry, as well as specialists in such fields as finance and marketing and
motivational speakers.
Our Audio Insight program supplements these activities. Audio Insight is an
audio magazine that is distributed quarterly. Each edition of Audio Insight,
hosted by Mr. Davis, is a cassette of about one-hour in length, which contains
ideas, interviews and insights relating to the alarm industry. We also
distribute camera-ready consumer newsletters that can be customized by alarm
dealers for mailing to their own customer base as a marketing tool. The Audio
Insight cassette and the consumer newsletter program are only available to
members of our dealer network.
20
<PAGE> 26
Assist Dealers in Exploiting Future Opportunities
We anticipate that new business opportunities for alarm dealers will
continue to develop as a result of "bundling". Bundling involves providing a
range of complementary or similar services, such as local and long distance
telephone services, cable television programming and alarm monitoring all billed
monthly on a single invoice. We anticipate that at least some bundlers will
include alarm monitoring in the services they provide and may wish to
"outsource" much of the installation, service and monitoring functions. We
expect the technologies by which such services as telecommunications,
entertainment and security are delivered to converge with the Internet. Because
of the size and geographic diversity of our dealer network, we intend to present
our company to the bundlers and service providers as an easy and cost-effective
way of approaching independent installers and their customers. We believe that
the collective strength of our independent dealer network enables us to more
effectively exploit these and other emerging market opportunities.
Build a Deeper Relationship with Independent Dealers
We view our overall marketing strategy as an attempt to build a broad range
of relationships with independent alarm dealers through which we can develop and
market a range of services designed to address alarm dealer needs and build
recurring revenue for our dealers and us. Our strategy is built around the
premise that dealers are best served when our regional central monitoring
station personnel develop a personal relationship with them. To implement this
strategy we have developed a force of regional dealer liaison personnel based in
each of our central stations. These dealer liaisons provide personalized one
stop service to alarm dealers to address their individual needs as they arise.
Meetings of central station based user groups and a national advisory council
supplement their efforts.
We implemented our user group and national council programs to gain dealer
insight into the quality of the services that we provide. Each of our central
stations has a user group of alarm dealer customers in its service area. These
user groups meet periodically and serve as a regular source of feedback for both
the central stations and for our company as a whole. We also utilize the user
groups as forums at which we can test the attractiveness and demand for proposed
new services before making major commitments of time and money to new programs.
In addition, we have formed a national advisory council made up of
representatives of our regional dealer user groups. We meet with the members of
our national council twice a year. One of these meetings occurs at our annual
conference.
We believe that these initiatives will greatly enhance the quality of our
monitoring services, and, therefore, their attractiveness to alarm dealers. We
also believe our access to, and knowledge of, the alarm industry and independent
alarm dealers is of value to outsiders who may wish to use the services of, or
sell products to, or through, our network of alarm dealers and their customers.
SALE OF RETAIL PORTFOLIO TO SAFE
Sale of Retail Portfolio
On June 30, 1999, we sold our portfolio of approximately 27,000 retail
subscriber accounts to Security Alarm Financing Enterprises, Inc. (SAFE), a
leading finance company serving independent alarm dealers. We will continue to
monitor these accounts and we are SAFE's preferred provider of alarm monitoring
services.
The total transaction value was $22,800,000, of which $1,800,000 was a loan
extended by SAFE to SAI. The loan is due in one year and bears interest at the
rate of 8% per year. The loan will be considered paid in full if during the term
of the loan we refer to SAFE $230,000 in recurring monthly revenue ("RMR") from
alarm dealers
21
<PAGE> 27
for purchase or for collateral for loans, which SAFE then closes, under SAFE's
financing programs. There can be no assurance that we will be able to refer, or
that SAFE will purchase, $230,000 in RMR during the term of the loan. If we
refer $230,000 or more in RMR during the term of the loan, we will receive
commissions that are calculated from the first dollar of RMR referred and
purchased. We have the opportunity to earn additional commissions in the second
and third year of our referral agreement if we refer and SAFE closes on $460,000
and $690,000 in RMR, respectively. As of March 23, 2000, SAFE has closed on
transactions representing a total of $41,518 in RMR.
The sale of our retail accounts to SAFE allows us to fully concentrate our
resources on our primary business of providing wholesale monitoring services to
independent alarm dealers.
Financial Restructuring
New Line of Credit for Acquisitions and Capital Expenditures
On September 30, 1999, we refinanced our previous $30,000,000 line of
credit with FINOVA Capital Corporation. This previous line of credit had a
principal balance outstanding of approximately $6,600,000 on the closing date.
The refinancing with FINOVA and Citizens Bank of Massachusetts, a wholly owned
subsidiary of the Royal Bank of Scotland, consists of a term loan and an
acquisition line of credit. The term loan is in the principal amount of
$7,000,000, which covered our existing indebtedness to FINOVA (approximately
$6,600,000) as well as transaction costs for the refinancing (approximately
$390,000) and working capital. The acquisition line of credit of up to
$38,000,000 is solely for acquisitions of central monitoring station businesses.
We may draw on this line of credit through March 31, 2001. On March 10, 2000, we
entered into a second amendment to loan instruments which created a $1,000,000
capital expenditure line and a line of credit up to $2,000,000 to cover
contingent obligations related to the SAFE attrition guarantee and referral
obligation. This combined $3,000,000 was taken out of, and thereby reduced, the
acquisition portion of the $45,000,000 facility discussed above.
Both the term loan and the acquisition line of credit bear initial interest
at a variable rate of prime plus 0.75% or the LIBOR rate plus 3.5%, at SAI's
discretion. The interest rate is, however subject to an upward adjustment
depending on the loan to recurring monthly revenue ratio. These obligations
mature in five years.
Restructuring of TJS Partners' Investment
On September 30, 1999, we entered into the Second Amendment to Security
Associates International, Inc. Common Stock Subscription and Purchase Agreement
with TJS Partners, L.P., our principal stockholder. Pursuant to this agreement:
(i) $10,000,000 of subordinated debt and accrued interest owed by us to TJS
Partners, L.P., (ii) 66,910 shares of Convertible Preferred Stock; and, (iii)
500,000 shares of 12% Redeemable Preferred Stock, together with all accrued
dividends, which were held by TJS Partners, L.P., were exchanged for 135,709
shares of newly designated Series A Convertible Preferred Stock.
Each share of Series A Convertible Preferred Stock has a $10 par value, a
liquidation preference of $350 per share and is convertible into 100 shares of
our common stock. The Series A Convertible Preferred Stock is also entitled to
receive dividends equal to those that would have been received if the holder had
converted into common stock.
The holder of Series A Convertible Preferred Stock is entitled to vote on
all matters on which holders of our
22
<PAGE> 28
common stock are entitled to vote, on an as-converted basis. However, the total
voting power of all securities owned by the holder of Series A Convertible
Preferred Stock is limited to a maximum of 45% of the total number of votes
eligible to vote on a matter submitted to our stockholders.
In connection with the restructuring, our By-laws were amended to increase
the percentage of votes required to approve matters presented to the
stockholders from a simple majority to requiring greater than sixty percent
(60%). This super-majority provision will be in effect for as long as TJS
Partners, L.P. owns at least thirty percent (30%) of our common stock on an
as-converted basis. Additionally, for so long as TJS Partners, L.P. owns at
least fifteen percent (15%) of our common stock on an as-converted basis, our
board of directors will consist of five directors, two of which may be
designated by TJS.
RECENT CENTRAL STATION ACQUISITIONS
Acquisition of Telecommunications Associates Group, Inc.
On November 24, 1997, we purchased all of the outstanding capital stock of
Telecommunications Associates Group, Inc., an Ohio corporation ("TAG") from an
unaffiliated party.
The purchase price was $5,000,000, which was paid in cash at closing, plus
the assumption of TAG's liabilities of approximately $1,500,000. $4,800,000 of
the purchase price was financed from our general corporate funds and the balance
were either liabilities assumed by us or financed by drawing on our existing
credit facility with FINOVA Capital Corporation. The acquisition was accounted
for under the purchase method for financial reporting purposes.
TAG was a third-party alarm monitoring company that served approximately
98,000 subscriber accounts (which included approximately 48,000 two-way voice
accounts which were scheduled to be, and were, returned to the owner's central
monitoring station by December 31, 1998) and 350 independent alarm dealers from
central monitoring stations located in Euclid, Ohio and Austin, Texas. The
Austin central station was subsequently consolidated into our Houston central
station.
Acquisition of Texas Security Central, Inc.
On June 17, 1998, we purchased all of the outstanding capital stock of
Texas Security Central, Inc., a Texas corporation ("TSC") from unaffiliated
parties.
The purchase price was $6,846,000, which was paid in cash at closing.
$2,396,000 of the purchase price was financed from our general corporate funds
and the balance was financed by drawing on our existing credit facility with
FINOVA Capital Corporation. The acquisition was accounted for under the purchase
method for financial reporting purposes. The acquisition was accounted for under
the purchase method for financial reporting purposes.
TSC was a third-party alarm monitoring company that served approximately
65,000 alarm monitoring subscribers and approximately 300 independent alarm
dealers from central monitoring stations located in Dallas, Texas; Houston,
Texas and San Antonio, Texas. The San Antonio central station was consolidated
with
23
<PAGE> 29
the Houston central station in the third quarter of 1999.
Acquisition of Alarm Monitoring Services, Inc.
On November 5, 1999, we purchased all of the outstanding capital stock of
Alarm Monitoring Services, Inc., a Washington corporation ("AMS") from
unaffiliated parties.
The purchase price was $4,000,000, which was paid in cash at closing. The
purchase price was financed by drawing on our existing credit facility with
FINOVA Capital Corporation and Citizens Bank of Massachusetts. The acquisition
was accounted for under the purchase method for financial reporting purposes.
The acquisition was accounted for under the purchase method for financial
reporting purposes.
AMS was a third-party alarm monitoring company serving approximately 20,000
alarm monitoring subscribers and approximately 150 independent alarm dealers
from a central monitoring station located in Seattle, Washington.
OTHER CENTRAL STATION ACQUISITIONS
- Alert Answering Service
On March 2, 1998, we purchased all of the operating assets of Camak,
Inc., d/b/a Alert Communications d/b/a Alert Answering Service, an
Ohio corporation ("Alert") from an unaffiliated party.
Alert was a third-party alarm monitoring company that served
approximately 1,966 subscriber accounts and ten independent alarm
dealers and also is a telephone answering service business serving
approximately 250 subscribers. In March 1998 and June 1998, the
monitoring business and the answering service business, respectively,
were moved to our central monitoring station located in Euclid, Ohio.
This acquisition allows us to provide expanded telephone answering
services for our alarm dealers nationwide.
- Guardian Security Systems, Inc.
On March 8, 1998, we purchased all of the outstanding capital stock of
Guardian Security Systems, Inc., an Ohio corporation ("Guardian") from
an unaffiliated party.
Guardian was a third-party alarm monitoring company that served
approximately 3,270 subscriber accounts and fifteen alarm dealers and
1,349 subscriber accounts owned by Guardian from a central monitoring
station located in Columbus, Ohio. In the first quarter of 1998, all
of the assets and operations of Guardian were transferred to our
central station located in Euclid, Ohio.
- Monitoring Business of Fire Protection Services Corporation d/b/a
Mountain Alarm
On May 8, 1998, we purchased the monitoring business of Fire
Protection Service Corporation, a Utah corporation, d/b/a Mountain
Alarm ("Mountain") from an unaffiliated party.
24
<PAGE> 30
Mountain was a third-party alarm monitoring company that served
approximately 7,800 alarm monitoring subscribers and approximately
eight independent alarm dealers from a central monitoring station
located in Ogden, Utah.
- Reliance Protection Services, Ltd.
On July 17, 1998, we purchased all of the outstanding capital stock of
Reliance Protection Services, Ltd., an Illinois corporation
("Reliance") from unaffiliated parties.
Reliance was a third-party alarm monitoring company that served
approximately 12,000 alarm monitoring subscribers and approximately
100 independent alarm dealers from a central monitoring station
located in Schaumburg, Illinois. All of the subscriber accounts
monitored by Reliance were moved into our Des Plaines central station.
- World Security Services Corp.
On October 13, 1998, we purchased all of the assets of World Security
Services Corp., an Oregon corporation ("World") from an unaffiliated
party.
World was a third-party alarm monitoring company that served
approximately 20,000 alarm monitoring subscribers and approximately
180 independent alarm dealers from a central monitoring station
located in Portland, Oregon.
- Alarm Central Monitoring, Inc.
On October 23, 1998, we purchased all of the outstanding capital stock
of Alarm Central Monitoring, Inc., a Texas corporation ("ACM") from
unaffiliated parties.
ACM was a third-party alarm monitoring company that served
approximately 13,000 alarm monitoring subscribers and approximately 50
independent alarm dealers from a central monitoring station located in
Dallas, Texas. All of the subscriber accounts monitored by ACM were
moved into the central station located in Dallas, Texas.
- Total Electronic Alarm Monitoring, L.L.C.
On November 5, 1999, we purchased all of the assets of Total
Electronic Alarm Monitoring, L.L.C., a California limited liability
company ("TEAM") from an unaffiliated third party.
TEAM is a third-party alarm monitoring company serving approximately
5,000 alarm monitoring subscribers and approximately ten independent
alarm dealers from a central monitoring station located in Chino,
California.
- Monark Central Dispatch, Inc.
25
<PAGE> 31
On December 8, 1999, we purchased all of the assets of Monark Central
Dispatch, Inc., a Louisiana corporation ("Monark") from an
unaffiliated third party.
Monark is a third-party alarm monitoring company serving approximately
35,000 alarm monitoring subscribers and approximately 400 independent
alarm dealers from a central monitoring station located in Metairie,
Louisiana.
The aggregate purchase price for all of these smaller central station
acquisitions was approximately $6,656,960 plus 218,741 shares of our common
stock which was valued at $802,740 on the dates of the acquisitions.
RISK MANAGEMENT
The nature of the services we provide potentially exposes us to liability
for employee acts or omissions or system failures. Generally, our monitoring
agreements contain provisions limiting our liability to subscribers in an
attempt to reduce this risk.
We carry insurance of various types, including general liability and errors
and omissions insurance. We believe the amount of our insurance coverage is
adequate for a company of our type and size. Our loss experience, and that of
other companies in the security industry, may affect the cost and availability
of such insurance. Certain of our insurance policies, and the laws of some
states, may limit or prohibit insurance coverage for punitive or other types of
damages, or for liability arising from gross negligence or wanton behavior.
COMPETITION
The security alarm industry is highly competitive and highly fragmented.
While we do not compete directly with many of the large new entrants into the
industry, because we do not sell and install security systems, we are
nonetheless impacted by the competitive challenge these entrants present to
independent alarm dealers.
Our monitoring services compete with those offered by an estimated 250
companies which offer wholesale monitoring services from UL listed facilities.
Most of these companies are small, local operations, however, several are larger
and better financed than we are. In addition, we believe there are approximately
1,500 to 2,000 non-UL listed facilities.
Our competitive strategy has these basic components: provide the alarm
dealer community with high quality monitoring, provide access to financial
services at competitive prices and provide dealers with the support and access
to new business opportunities that will help them compete more effectively and
add recurring revenue. We plan to further develop our dealer network which, we
believe, will result in additional marketing opportunities for our dealers with
those companies that desire access to our dealers and their customers.
REGULATORY MATTERS
A number of local governmental authorities have adopted or are considering
various measures aimed at reducing the number of false alarms. Such measures
include:
- subjecting alarm monitoring companies and/or subscribers to fines or
penalties for transmitting false
26
<PAGE> 32
alarms,
- requiring permits for individual alarm systems and revoking such
permits following a specified number of false alarms,
- imposing fines on alarm subscribers for false alarms,
- imposing limitations on the number of times the police will respond to
alarms at a particular location after a specified number of false
alarms, and
- requiring further verification of an alarm signal before the police
will respond.
Our operations are subject to a variety of other laws, regulations and
licensing requirements of federal, state and local authorities. In certain
jurisdictions, we are required to obtain licenses or permits, to comply with
standards governing employee selection and training, and to meet certain
standards in the conduct of our business. Many jurisdictions also require
certain of our employees to obtain licenses or permits.
The alarm industry is also subject to requirements imposed by various
insurance, approval and standards organizations. Depending upon the type of
subscriber served, the type of service provided and the requirements of the
relevant local governmental jurisdiction, adherence to the requirements and
standards of such organizations is mandatory in some instances and voluntary in
others.
Our alarm monitoring business utilizes telephone lines and radio
frequencies to transmit alarm signals. The cost of telephone lines and the type
of equipment that may be utilized in telephone line transmissions are currently
regulated by both federal and state governments. The Federal Communications
Commission and state public utilities commissions regulate the operation and
utilization of radio frequencies.
EMPLOYEES
At March 17, 2000, we employed 412 individuals. Currently, none of our
employees are represented by a labor union or covered by a collective bargaining
agreement. We believe that relationships with our employees are good.
PROPERTIES
Our executive offices are located at 2101 South Arlington Heights Road,
Arlington Heights, Illinois and our central monitoring stations are located at:
- 2116 South Wolf Road, Des Plaines, Illinois;
- 1471 S.W. 12th Avenue, Pompano Beach, Florida;
- 1514 East 191 Street, Euclid, Ohio;
- 9750 Brockbank, Dallas, Texas;
27
<PAGE> 33
- 12610 Richmond Avenue, Houston, Texas;
- 3320 North Woodlawn Avenue, Metairie, LA;
- 4507 North Channel Avenue, Portland, Oregon;
- 1249 N.E. 145th , Seattle, WA;
- 2178 Washington Boulevard, Ogden, Utah; and
- 13937 Magnolia Ave., Chino, California.
All of our facilities are leased. The following is a summary of the term for
each of our leases:
- The Arlington Heights lease expires December 31, 2002, but can be
renewed by us at our option for one additional five year term;
- The Des Plaines lease expires December 31, 2000;
- The Pompano Beach lease expires December 31, 2003, but can be renewed
by us at our option for one additional five year term;
- The Euclid lease expires December 31, 2004, but can be renewed by us
at our option for one additional five year term;
- The Dallas lease expires June 16, 2003, but can be renewed by us at
our option for one additional five year term;
- The Houston lease expires June 16, 2003, but can be renewed by us at
our option for one additional five year term;
- The Metairie lease is a month-to-month lease;
- The Portland lease expires May 31, 2003, but can be renewed by us at
our option for one additional three year term;
- The Seattle lease expires May 31, 2002, but can be renewed by us at
our option for two additional five year terms;
- The Ogden lease expires May 8, 2003, with no option to renew; and
- The Chino lease expires November 30, 2003, with no option to renew.
28
<PAGE> 34
Legal Proceedings
From time to time we experience routine litigation in the normal course
of our business. We do not believe that any pending litigation will have a
material adverse affect on our financial condition or results of operations.
USE OF PROCEEDS
On October 20, 1997, our first Registration Statement on Form S-1
(Registration No. 333-31775 under the Securities Act was declared effective. A
subsequent Registration Statement on Form S-1 (Registration No. 33-49897)
pursuant to Rule 429 of the Securities Act was declared effective on April 22,
1998. The Registration Statements cover 2,000,000 shares of our common stock and
warrants to purchase up to 2,000,000 shares of such common stock, to be issued
by us: (i) in connection with offerings to alarm dealers under Rule
415(a)(1)(ix) of Regulation C promulgated under the Securities Act; (ii) in
connection with the acquisition of other business, real or personal properties,
or securities in business combination transactions in accordance with Rule
415(a)(1)(viii); and (iii) otherwise under Rule 415. The Registration Statements
also cover 1,778,088 shares of common stock that may be offered for sale by
certain selling stockholders under Rule 415(a)(1)(i) and 415(a)(1)(iii). This
prospectus also covers 3,918,600 shares of common stock that may be offered for
sale by certain selling stockholders under Rule 415(a)(1)(i) and 415(a)(1)(iii).
The offering by us commenced on October 20, 1997 and is continuing. We will not
receive any proceeds from the securities issued by us pursuant to the Dealer
Partner Program. However, the exercise of the warrants will require the
exercising warrantholder to pay us $6.00 per share of common stock purchased
upon exercise which will be used for general corporate purposes.
No underwriter has been engaged in connection with the offering. The
aggregate offering price of the common stock and warrants registered on our
behalf was $12,000,000 and the aggregate offering price of the common stock
registered on behalf of the selling stockholders was $24,381,348. No separate
offering price was assigned to the warrants.
1999 sales of registered securities were as follows:
On March 5, 1999, we issued an aggregate of 22,048 shares of common stock
to alarm dealers in connection with our Dealer Partner Program.
On March 12, 1999, we issued 4,052 shares of common stock to an alarm
dealer as partial payment for substantially all of its alarm monitoring assets.
On March 31, 1999, we issued an aggregate of 42,720 shares of common stock
to alarm dealers in connection with our Dealer Partner Program.
On June 25, 1999, we issued 1,343 shares of common stock to an alarm dealer
as partial payment for substantially all of its alarm monitoring assets.
On June 25, 1999, we issued 4,880 shares of common stock to an alarm dealer
as partial payment for substantially all of its alarm monitoring assets.
On July 21, 1999, we issued an aggregate of 22,900 shares of common stock
to alarm dealers in connection with our Dealer Partner Program.
29
<PAGE> 35
On August 18, 1999, we issued 29,741 shares of common stock to an alarm
monitoring company as partial payment for substantially all of its alarm
monitoring assets.
On October 21, 1999, we issued 7,410 shares of common stock to an alarm
dealer in connection with our Dealer Partner Program.
On October 27, 1999, we issued 100,000 shares of common stock to an alarm
monitoring company as partial payment for substantially all of its alarm
monitoring assets.
On December 30, 1999, we issued an aggregate of 58,796 shares of common
stock to alarm dealers in connection with our Dealer Partner Program.
If any shares were sold by the Selling stockholders they were sold in
independent transactions arranged by those Stockholders individually, and we are
unable to determine the number of shares sold or the amounts realized in those
sales.
We estimate that from October 20, 1997 through March 27, 2000, we incurred
a total of $290,425 in expenses in connection with the offering. Those expenses
are estimated to be as follows: legal $140,000; accounting $65,500; printing
$74,225 and registration fees $10,700. All of these expenses represent payments
to unrelated third parties and there were no direct or indirect payments to our
directors or officers or their associates, or to any party owning ten percent or
more of any class of our equity securities or any of our members. To date we
have issued 427,698 shares of common stock and warrants to purchase 121,104
shares of common stock in connection with the offering.
30
<PAGE> 36
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the American Stock Exchange under the
symbol "SAI" since January 25, 1999. Our common stock was previously traded on
the American Stock Exchange under the symbol "IDL" beginning on March 4, 1998.
Prior to that, the common stock was traded on the OTC Bulletin Board. The
following table sets forth, for the periods indicated, the range of high and low
bid quotations for our common stock as reported on the OTC Bulletin Board and
the high and low sales prices as reported on the American Stock Exchange. The
OTC Bulletin Board quotations reflect inter-dealer quotations, without retail
mark-up, mark-down or commission and may not represent actual transactions.
HIGH BID LOW BID
-------- -------
1998
First Quarter (through March 3, 1998) $5.625 $4.50
LAST REPORTED SALES
-------------------
HIGH LOW
---- ---
1998
First Quarter (March 4, 1998 to March 31, $8.50 $5.25
1998)
Second Quarter $7.06 $5.25
Third Quarter $5.75 $4.44
Fourth Quarter $4.50 $3.94
1999
First Quarter $5.00 $2.50
Second Quarter $3.44 $2.50
Third Quarter $3.38 $2.50
Fourth Quarter $3.94 $1.50
2000
First Quarter (through March 24, 2000) $4.00 $2.00
On March 24, 2000, the last reported sale price of our common stock was
$4.00 per share. At March 24, we had approximately 237 stockholders of record,
not including beneficial owners whose stock is held in street name.
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, 1995, in our common stock and each of the
Russell 2000 Index and the Mallon Global Security Index, and that all dividends
were reinvested.
TOTAL STOCKHOLDER RETURNS
PERFORMANCE GRAPH FOR SECURITY ASSOCIATES INTERNATIONAL, INC.
Prepared by Buttonwood Advisory Group
Produced on February 17, 2000 including data to
December 31, 1999.
$100 invested January 1, 1995
(assumes all dividends reinvested)
FISCAL YEAR ENDED DECEMBER 31, 1999
[GRAPH OF INFORMATION IN THE FOLLOWING TABLE]
ASSUMES $100 INVESTED ON JANUARY 1, 1995
ASSUMES DIVIDENDS REINVESTED THROUGH DECEMBER 31, 1999
Mallon Global
Measurement Period Russell 2000 Index Security Index SAI
- ------------------ ------------------ -------------- ---
January 1, 1995(1) $ 100.00 $ 100.00 $ 100.00
FYE 1995 $ 127.79 $ 148.70 $ 160.00
FYE 1996 $ 145.04 $ 210.41 $1,125.00
FYE 1997 $ 178.80 $ 253.13 $2,125.00
FYE 1998 $ 168.78 $ 256.45 $1,575.00
FYE 1999 $ 201.90 $ 205.16 $1,550.00
1) The price of our common stock was $0.25 on this date.
31
<PAGE> 37
DIVIDENDS
We have not paid dividends on our common stock in the past. We currently
anticipate that we will retain all of our earnings for development of our
business, and do not anticipate paying any cash dividends on our common stock in
the foreseeable future. Future cash dividends, if any, on our common stock will
be at the discretion of the Board of Directors and will depend upon, among other
things, our future operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions, loan covenants and such
other factors as the Board of Directors may deem relevant. Payment of dividends
is subject to satisfaction of covenants contained in our loan agreement with
FINOVA and Citizens Bank of Massachusetts.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data for the fiscal years ended 1997
through 1999 is derived from our consolidated financial statements which have
been audited by Arthur Andersen LLP, independent public accountants. The
following selected financial data for the fiscal years ended 1995 and 1996 are
derived from audited financial statements. The selected financial data set forth
below should be read in conjunction with our consolidated financial statements
and related notes and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
Years Ended December 31,
Pro Forma Pro Forma
1995 1996 1997 1998 1998(1) 1999 1999(2)
---------- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues...................... $ 2,733 $ 3,782 $ 10,814 $ 20,203 $ 17,146 $ 22,689 $ 18,969
Operating (loss).............. $ (389) $ (591) $ (2,662) $ (3,406) $ (2,130) $ (2,931) $ (2,592)
Net (loss) available to
common stockholders......... $ (947) $ (1,718) $ (4,938) $ (6,798) $ (3,904) $ (4,047) $ (4,631)
Net loss per share............ $ (.26) $ (.47) $ (1.16) $ (1.06) $ (.61) $ (.59) $ (.66)
Shares used in computing net
loss per share.............. 3,665,642 3,669,343 4,266,151 6,394,048 6,429,048 6,897,200 6,980,533
</TABLE>
(1) The pro forma data for the year ended December 31, 1998, gives effect to
all acquisitions made during fiscal year 1998 and the sale of our owned
subscriber accounts as if they had occurred January 1, 1998.
(2) The pro forma data for the year ended December 31, 1999, gives effect to
the sale of our owned subscriber accounts as if it had occurred on January
1, 1999.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1996 1997 1998 1999
--------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..... $ 54 $ 632 $ 5,522 $ 1,481 $ 631
Working capital (deficit)..... $(2,699) $(4,518) $ 1,625 $(4,450) $(3,849)
Total assets.................. $ 6,030 $16,533 $36,009 $47,526 $33,341
</TABLE>
32
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Total debt.................... $ 6,862 $12,790 $22,919 $35,981 $14,287
Total stockholders' equity
(deficit)................... $(2,043) $ 1,269 $ 7,231 $ 3,869 $14,166
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Our revenues are derived from recurring payments for monitoring services
provided to subscribers and alarm dealers pursuant to agreements. Monitoring
contracts have initial terms typically ranging from one to five years usually
with provisions for automatic renewal for periods of one year. Monitoring
contracts entered into with alarm dealers generally permit cancellation with
notice of 30-60 days before the end of the original or any renewal term.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of operations data:
<TABLE>
<CAPTION>
Years Ending December 31,
(In thousands, except per share data)
1997 1998 1999
------------- ------------ -------------
<S> <C> <C> <C>
Net Revenue $10,814 $20,203 $22,689
Operating Unit Expense 7,018 12,610 14,900
--------- --------- ---------
Operating Unit Margin 3,796 7,593 7,789
Operating Expenses:
Amortization & depreciation 3,704 6,288 5,714
General & administrative 1,595 2,488 2,546
Selling, marketing & business development 297 1,614 2,460
Deferred compensation expense 862 609 --
--------- --------- ---------
Loss From Operations (2,662) (3,406) (2,931)
Gain On Sale Of Owned Subscriber Accounts -- -- 1,899
Interest Expense (1,863) (2,870) (2,565)
--------- --------- ---------
Net Loss (4,525) (6,276) (3,597)
Dividends Accrued On Preferred Stock 413 522 450
--------- --------- ---------
Net Loss To Common Stockholders $(4,938) $(6,798) $(4,047)
Net Loss Per Share $(1.16) $(1.06) $(.59)
Total Weighted Average Number Of Common Shares
Outstanding 4,266,151 6,394,048 6,897,200
</TABLE>
33
<PAGE> 39
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:
<TABLE>
<CAPTION>
Years Ending December 31,
1997 1998 1999
------------------------------------------
<S> <C> <C> <C>
Net Revenue 100% 100% 100%
Operating Unit Expense 65% 63% 66%
Operating Unit Margin 35% 37% 34%
Operating Expenses:
Amortization & depreciation 34% 31% 25%
General & administrative 14% 12% 11%
Selling, marketing & business development 3% 8% 11%
Deferred compensation expense 8% 3% --
Loss From Operations (24%) (17%) (13%)
Gain On Sale Of Owned Subscriber Accounts -- -- 8%
Interest Expense (17%) (14%) (11%)
Net Loss (41%) (31%) (16%)
</TABLE>
1999 COMPARED TO 1998
REVENUE. Revenue for fiscal 1999 increased by $2,485,282, or 12.3%, to
$22,689,132 from $20,203,850 for fiscal 1998. The change in revenue is
attributable to an increase in revenue in our central station operations of
$5,707,149 and a decrease in revenue from our owned account portfolio of
$3,221,867. The increase in revenue related to central station operations is due
to acquisitions completed during 1998 and 1999, from revenue related to the
monitoring of the accounts sold to SAFE and from an increase of approximately
33,000 monitored accounts in our existing central stations. The increase in
revenue consists of the following approximate amounts: acquisitions, $4,423,150;
monitoring of our previously owned accounts, $477,000; monitored accounts added
to our existing central stations, $807,000. The decrease in revenue related to
our owned account portfolio is attributable to the sale of the owned accounts on
June 30, 1999.
OPERATING UNIT EXPENSE AND MARGIN. Operating Unit Expense includes all
costs directly attributable to each operating unit rendering monitoring
services. During 1998 and until June 30, 1999, these expenses also include the
customer service function related to our owned account portfolio. These expenses
increased from $12,610,489 in 1998 to $14,899,687 in 1999 or 18.2%. Expenses
related to the central station operation increased
34
<PAGE> 40
from $10,291,901 in 1998 to $13,952,037 in 1999 or 35.6%. This increase is
primarily attributable to acquisitions of central stations in 1998 and 1999 and
additional personnel devoted to quality assurance and training. The margin
attributable to the central station operations decreased from 29.8% in 1998 to
29.4% in 1999. Expenses related to our owned account portfolio decreased from
$3,723,986 in 1998 to $1,746,967 in 1999 due to the sale of our owned account
portfolio on June 30,1999. The margin attributable to our owned account
portfolio was 46.4% in 1998 and 53.2% in 1999. The increase is due to the
greater number of owned accounts in 1999, which allowed us to increase
efficiency. Intercompany revenue and costs decreased from $1,405,398 in 1998 to
$799,318 in 1999 due to the sale of our owned accounts on June 30, 1999.
OPERATING EXPENSES. Amortization and depreciation decreased by $574,599, or
9.1%, from $6,288,489 to $5,713,890. The change in amortization and depreciation
is due to a decrease in amortization related to our owned account portfolio of
$1,972,988 offset by an increase in the amortization of goodwill of $1,398,389.
The decrease is related to the sale of the owned accounts, the increase is
related to central station acquisitions in 1998 and 1999.
General and administrative expenses increased by $58,877 or 2.4% from
$2,488,058 to $2,546,935 due to central station acquisitions.
Selling, marketing and business development expenses increased by $845,838
or 52.4% from $1,614,007 to $2,459,845. We decentralized our sales efforts in
1999 to better serve our customers. We added six salespeople to cover our
regional sales areas. We also increased our marketing initiatives to focus on
growth in existing central stations. Included in these expenses are $255,282 of
non-cash expense related to our stock based dealer incentive plan. Dealer
incentive expenses increased by $184,880 in 1999.
Our deferred compensation plan was terminated in 1999. As a result, there
is no expense to record. Deferred compensation expense in 1998 was $609,103
GAIN ON SALE OF OWNED SUBSCRIBER ACCOUNTS. As a result of the sale of our
owned account portfolio to SAFE, which occurred on June 30, 1999, we recorded a
gain of $1,899,155. The gain reflects the total cash proceeds of $22,800,000
less the net book value of the account portfolio and the net book value of
goodwill related to acquisitions made in connection with the owned accounts.
Additionally, the note payable to SAFE of $1,800,000 and accrued expenses
related to the attrition guarantee, account reprogramming and severance expenses
of $3,097,278 were charged against the gain on the sale. Included in the
$3,097,278 are additional accruals of approximately $750,000 which were recorded
in the fourth quarter based on our projected obligations under the attrition
guarantee and additional expenses we expect to incur to reprogram a portion of
the accounts sold to phone lines owned by SAFE.
INTEREST EXPENSE. Interest expense decreased by $305,028 or 10.6% from
$2,869,593 in 1998 to $2,564,565 in 1999. Total debt decreased from $35,980,500
at the end of 1998 to $14,287,812 at the end of 1999. The decrease in debt was
attributable to a payment of $20,000,000 made to FINOVA on June 30, 1999 and the
exchange of $10,000,000 of subordinated debt, plus accrued interest, for Series
A Convertible Preferred Stock on September 30, 1999. The interest rate on the
subordinated debt was 12%. The interest rate on the FINOVA debt decreased from
9.75% to 9.25% on September 30, 1999 and subsequently increased to 9.5% in
November when the prime rate was raised.
35
<PAGE> 41
BUSINESS SEGMENT OPERATING RESULTS.
The following is a discussion of our industry segment operating results. We
define operating earnings as income or loss before interest and income taxes. We
do not allocate corporate general and administrative or corporate payroll
expenses to our operating segments.
CENTRAL STATION OPERATIONS. Operating income from our central station
segment decreased from $1,684,500 to $1,063,340 or a decrease of 36.9%. Revenue
related to this segment increased from $14,667,212 to $19,768,281 or an increase
of 34.8%. The decrease in operating income was caused by an increase in sales
and marketing expenses of $851,125 related to the decentralization of our sales
force, new marketing initiatives including an increase in non-cash expenses
related to our stock based dealer incentive plan of $184,880. Amortization and
depreciation increased by $1,334,935 or 66.9% related to acquisitions. Cash
flow, defined as operating income plus depreciation and amortization and stock
based dealer incentive expense, related to central station operations increased
from $3,680,818 to $4,649,875 or 26.3%
OWNED SUBSCRIBER ACCOUNTS. Operating loss related to our owned subscriber
accounts segment decreased from ($1,074,121) to ($338,779) or a decrease of
68.5%. Revenue decreased from $6,942,036 to $3,720,169 or 46.4%. Cash flow,
defined as operating income plus depreciation and amortization, decreased from
$3,218,050 to $1,980,404 or 38.5%. The changes in the results from this segment
are primarily related to the sale of the owned accounts on June 30, 1999.
CORPORATE EXPENSES. Corporate expenses decreased from $4,016,675 to
$3,655,786 or 9.0%. The decrease is due primarily to the elimination of $609,103
of deferred compensation expense offset by an increase in depreciation expense
and non-salary related general and administrative expense associated with the
overall growth of the business in 1999.
1998 COMPARED TO 1997
REVENUE. Revenues for fiscal 1998 increased by $9,389,763, or 86.8%, to
$20,203,850 from $10,814,087 for fiscal 1997. The increase in revenues is
primarily related to acquisitions completed at the end of 1997 which resulted in
a full year's revenue generated in 1998 as opposed to a partial year in 1997,
and to acquisitions completed during 1998. The increase in revenues related to
Telecommunications Associates Group, Inc. ("TAG") was approximately $3,878,000.
The acquisition of TAG was completed on November 24, 1997. The increase in
revenues related to the acquisition of Texas Security Central, Inc. ("TSC") and
Alarm Central Monitoring, Inc. ("ACM") was approximately $2,237,000. The
acquisitions of TSC and ACM were completed in June and October 1998,
respectively. The acquisitions of the monitoring business of Fire Protection
Services Corporation d/b/a Mountain Alarm (acquired in May, 1998), the assets of
World Security Services Corp. (acquired in October, 1998) and Reliance
Protection Services, Ltd. (acquired in July, 1998) increased revenue by
approximately $1,040,000. The balance of the increase in revenue between the
years 1998 and 1997, of approximately $1,902,000, is the result of a net
increase in the number of subscriber accounts owned during the year and
internally generated revenue growth related to the central stations.
OPERATING UNIT EXPENSE AND MARGIN. Operating Unit Expense includes all
costs directly attributable to each operating unit rendering monitoring
services. In 1998 and 1997 these expenses include direct expenses related to the
central station operations and the customer service function related to the
owned account portfolio. These expenses increased from $7,018,392 in 1997 to
$12,610,489 in 1998 or 79.7%. Expenses related to the central station operation
increased from $5,102,119 in 1997 to $10,291,901 in 1998 or 101.72%. This
increase is primarily attributable to acquisitions of central stations in 1997
and 1998. The margin attributable to the central
36
<PAGE> 42
station operations increased from 23.6% in 1997 to 29.8% in 1998. The increase
in margin is related to an increase in the number of accounts monitored and the
consolidation of the Michigan central station to Ohio. Expenses related to the
owned account portfolio increased from $2,801,302 in 1997 to $3,723,986 in 1998.
The margin attributable to the owned account portfolio was 44.2% in 1997 and
46.4% in 1998. The increase is due to the larger number of accounts owned in
1998. Intercompany revenue and costs increased from $885,029 in 1997 to
$1,405,398 in 1998 due an increase in the number owned accounts monitored in
1998.
OPERATING EXPENSES. Amortization and depreciation increased by $2,584,946,
or 69.8%, from $3,703,543 to $6,288,489 due to an increase in the amortization
of goodwill related to acquisitions and an increase in amortization of contract
rights of $1,326,000.
General and administrative expenses increased from $1,595,181 in 1997 to
$2,488,058 in 1998 or 56.0% due to increased payroll costs related to hiring
four additional management personnel in the fourth quarter of 1997 and an
increase in support staff to manage the growth in the business. Non payroll
expenses including state franchise taxes and professional fees also increased
significantly in 1998.
Selling, marketing and business development expenses increased from
$296,977 in 1997 to $1,614,007 or 443.48% in 1998. The increase in these
expenses is related to the addition of two employees devoted to marketing
initiatives, three employees devoted to a national sales effort and two
employees devoted to business development efforts primarily related to central
station acquisitions. The total increase in payroll and related costs is
approximately $525,000. Approximately $575,000 in additional costs related to
marketing the dealer incentive program and overall advertising and marketing
efforts, including $70,400 of expense related to the stock based dealer
incentive program were incurred in 1998. There was also an increase in travel
expenses and professional fees related to acquisitions and sales efforts of
approximately $200,000.
Deferred compensation expense decreased from $862,034 in 1997 to $609,130
in 1998. The decrease is related primarily to the decrease in the common stock
value from $5.00 per share at the end of 1997 to $3.93 at the end of 1998, as
this plan is a variably priced plan. Awards under this plan are approved
annually by the Board of Directors. No future awards will be made under this
plan for any period after December 31, 1998.
INTEREST EXPENSE. Interest expense increased $1,006,987 from $1,862,606 in
1997 to $2,869,593 in 1998, an increase of 54.1%. This increase was caused
primarily by an increase in borrowings under our credit facility with FINOVA
Capital Corporation from $16,521,813 at the end of 1997 to $26,609,730 at the
end of 1998. In addition, we incurred interest expense of $733,055 in 1998
compared to $585,000 in 1997 related to outstanding debt on subordinated
borrowings from our principal stockholder. We had $8,500,000 of debt outstanding
under those subordinated notes at the end of 1998, compared to $5,500,000
outstanding at the end of 1997.
BUSINESS SEGMENT OPERATING RESULTS.
The following is a discussion of our industry segment operating results. We
define operating earnings as income or loss before interest and income taxes. We
do not allocate corporate general and administrative or corporate payroll
expenses to our operating segments.
CENTRAL STATION OPERATIONS. Operating income from our central station
segment increased from $816,678 to $1,684,500 or an increase of 106.2%. Revenue
related to this segment increased from $6,680,882 to $14,667,212 or an increase
of 119.5%. The increase in both operating income and revenue are the result of
37
<PAGE> 43
acquiring seven central station operations in 1998 and internal revenue growth
from various programs of approximately 10%.
OWNED SUBSCRIBER ACCOUNTS. Operating loss related to the owned subscriber
accounts segment increased from ($724,526) to ($1,074,121) or an increase of
48.3%. Revenue increased from $5,018,234 to $6,942,036 or 38.3%. Cash flow,
defined as operating income plus depreciation and amortization, increased from
$2,216,932 to $3,218,050 or 45.2%. The increase in the operating loss in this
segment was caused by an increase in amortization and depreciation. The increase
in revenue and cash flow is directly related to accounts acquired during the
year.
CORPORATE EXPENSES. Corporate expenses increased from $2,754,192 to
$4,016,675 or 145.8%. The increase is due primarily to increased payroll costs
related to additional executive and supervisory level personnel added in 1998.
The addition of these people was required to enable us to effectively manage the
growth that occurred during 1998 and that is anticipated in the future.
CAPITAL EXPENDITURES
We made capital expenditures during 1999 and 1998 totaling $1,629,484 and
$1,752,860, respectively. Of these capital expenditures in 1999 and 1998,
approximately $1,000,000 and $1,130,000, respectively relates to the
installation of new financial and operating systems. The remaining expenditures
in both years relate primarily to new phone systems in the central stations and
the purchase of computer equipment.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Since January 1994, we have financed our operations and growth
from a combination of internally generated cash flow, borrowings under our
credit facilities and sales of equity securities. Our principal uses of cash are
for capital expenditures to support internal growth, the acquisition of central
monitoring station businesses and operating expenses. We intend to continue to
pursue growth through the acquisition of additional central monitoring station
businesses.
We are continuing to implement our strategy to attract new dealers to our
wholesale central station monitoring facilities. We intend to continue issuing
shares of common stock throughout the remainder of the year under our Dealer
Partner and ValueBuilder programs. The number of shares of common stock to be
issued can not be estimated at this time, but may not exceed 2,000,000 shares,
including those that may be issued upon exercise of warrants previously issued
to alarm dealers under these programs.
1999 COMPARED TO 1998
During the year ended December 31, 1999, contract rights to monitor
security systems were purchased for $1,517,537 in cash. During the same period
goodwill, net of accumulated amortization, increased from $23,123,820 to
$25,911,332 due to the acquisition of central stations during the year. Cash
expenditures for acquisitions were $5,232,197 in 1999.
Our owned account portfolio was sold to SAFE on June 30, 1999 for
$22,800,000 in cash. We signed a note for $1,800,000, which was part of the
$22,800,000 purchase price, payable within a year from the sale. This note is
extinguished if SAFE purchases contracts from alarm dealers referred by SAI with
total recurring monthly
38
<PAGE> 44
revenue of $230,000 during the term of the loan. Management cannot predict
whether we will be able to meet this requirement. As of December 31, 1999, SAFE
has purchased contracts with $34,263 of recurring monthly revenue. Additionally,
as of December 31, 1999, dealers we have referred have signed letters of intent
with SAFE for the sale of contracts with $53,024 of recurring monthly revenue
and there are dealers with contracts with recurring monthly revenue totaling
over $71,858 that have not yet responded to the letters of intent sent to them.
There can be no assurance that the SAFE will purchase all or any of the
contracts referred even if letters of intent are signed.
Of the proceeds from the sale of our owned account portfolio, $20 million
was used to pay down debt on our previous line of credit with FINOVA Capital
Corporation which left a principal balance outstanding of approximately
$6,600,000. The remaining cash from the sale was used for the completion of
capital projects, payment of holdback notes and to pay for transition
obligations related to the sale of the owned account portfolio.
On September 30, 1999, we refinanced our previous $30 million line of
credit with FINOVA Capital Corporation. The refinancing with FINOVA and Citizens
Bank of Massachusetts, a wholly owned subsidiary of the Royal Bank of Scotland,
consists of a term loan and an acquisition line of credit. The term loan was in
the principal amount of $7 million, which covered our existing indebtedness to
FINOVA and working capital. The acquisition line of credit of up to $38,000,000
is solely for acquisitions of central monitoring station businesses. We may draw
on this line of credit through March 31, 2001. On March 10, 2000, we entered
into a second amendment to loan instruments which created a $1 million capital
expenditure line and a line of credit up to $2 million to cover contingent
obligations related to the SAFE attrition guarantee and referral obligation.
This combined $3 million was taken out of, and thereby reduced, the acquisition
portion of the $45 million facility discussed above. Both the term loan and the
acquisition line of credit bear initial interest at a variable rate of prime
plus 0.75%. The interest rate is, however subject to an upward adjustment
depending on the loan to recurring monthly revenue ratio. These obligations
mature in five years.
As of December 31, 1999, we had approximately $32,686,000 available for
acquisitions on our existing line of credit with FINOVA Capital Corporation and
Citizens National Bank of Massachusetts.
On September 30, 1999, we entered into the Second Amendment to Security
Associates International, Inc. Common Stock Subscription and Purchase Agreement
with TJS Partners, L.P., our principal stockholder. Pursuant to this agreement:
(i) $10,000,000 of subordinated debt and accrued interest we owed to TJS
Partners, L.P.; (ii) 66,910 shares of Convertible Preferred Stock; and, (iii)
500,000 shares of 12% Redeemable Preferred Stock, together with all accrued
dividends were exchanged for 135,709 shares of newly designated Series A
Convertible Preferred Stock.
The Series A Convertible Preferred Stock has a $10 par value, a liquidation
preference of $350 per share and each share is convertible into 100 shares of
our common stock. The Series A Convertible Preferred Stock is also entitled to
receive dividends equal to those that would have been received if the holder had
converted into common stock.
In November 1999, we purchased central stations in Seattle, Washington and
Chino, California. The total purchase price for these acquisitions was
approximately $4,300,000 in cash, 100,000 shares of our common stock and certain
assumed liabilities. We also purchased an additional central station in
Metairie, Louisiana and a central station monitoring business in Idaho in
December 1999. The total purchase for these two acquisitions approximated
$1,000,000 plus the assumption of liabilities.
39
<PAGE> 45
Current liabilities decreased during the year ended December 31, 1999
compared to 1998 from $9,850,442 to $6,859,791. Unearned revenue decreased by
$3,209,921 due to the sale of our owned account portfolio and a concerted effort
to convert our customers from quarterly, semi-annual and annual billing cycles
to monthly. This was done to smooth cash flow and expedite the collection of
receivables. Accrued expenses increased by $471,523 due to the exchange of
$3,576,166 of accrued interest and dividends by TJS Partners for Series A
Convertible Preferred Stock, offset by additional accruals related to the sale
of the owned accounts of $3,097,278. Additional increases in accruals in 1999
are approximately $950,000. Accruals of approximately $460,000 are related to
acquisitions in the fourth quarter of 1999 including an accrual of $250,000 for
expenses related to moving the Metairie, Louisiana facility. Additionally,
accrued payroll increased approximately $400,000 in 1999 and an accrual of
$90,000 related to the Employee Stock Purchase Plan is recorded in 1999. Current
maturities decreased by $200,956 during the year. In 1998, current maturities
were comprised of the short-term portion of the FINOVA debt ($1,330,000) and
other short-term debt of $844,038. In 1999, current maturities are comprised of
a short-term note of $1,800,000 due to SAFE and other short-term debt of
$173,352. Senior debt borrowings decreased by approximately $14,322,002 and
subordinated borrowing decreased by $8,500,000. Net capital of $192,500 was
raised during the year through warrant and option exercises for the purchase of
common and preferred stock. These proceeds were used to fund central station
acquisitions, the purchase of fixed assets and for general corporate purposes.
1998 COMPARED TO 1997
During the year ended December 31, 1998, contract rights to monitor
security systems, net of accumulated amortization, increased $1,344,336 to
$15,252,814 due to a net increase of 3,883 subscriber accounts. During the same
period goodwill, net of accumulated amortization, increased from $11,933,074 to
$23,123,820 due to the acquisition of seven central stations during the year.
Cash expenditures for acquisitions were $12,431,112 in 1998. Cash paid for 7,032
subscriber accounts purchased was $3,897,659 in 1998.
Current liabilities increased during the year ended December 31, 1998
compared to 1997 from $6,756,199 to $9,850,442. Unearned revenue increased by
$662,402 due to acquisitions and our overall growth. Accrued liabilities
increased by $1,316,541 primarily due to an increase in accrued interest and
dividends due to TJS Partners, L.P. and our overall growth. Current maturities
increased by $1,276,585 during the year. Senior debt borrowings increased by
approximately $10,088,000 and subordinated borrowing increased by $3,000,000.
Net capital of $2,048,351 was raised during the year through warrant and option
exercises for the purchase of common and preferred stock. These proceeds were
used to fund central station acquisitions and the acquisition of subscriber
accounts from alarm dealers, the purchase of fixed assets and for general
corporate purposes.
TJS PARTNERS L.P.'S INVESTMENT.
During the first three quarters of 1999, TJS exercised options to purchase
250 shares of Convertible Preferred Stock for an aggregate purchase price of
$25,000. On September 30, 1999 TJS exchanged its subordinated debt, Convertible
Preferred Stock and Redeemable Preferred Stock for Series A Convertible
Preferred Stock on the terms discussed above. Subsequently, TJS purchased 650
shares of Series A Convertible Preferred Stock for an aggregate purchase price
of $71,250. On February 9, 2000 and February 25, 2000, TJS advanced to us
$125,000 in anticipation of the exercise of standby options to purchase 500
shares of Series A Convertible Preferred Stock and $79,093 in anticipation of
the exercise of standby options to purchase 827 shares of Series A Convertible
Preferred Stock, respectively.
40
<PAGE> 46
LOAN AGREEMENT WITH FINOVA CAPITAL CORPORATION.
On December 31, 1996, we entered into a loan agreement with FINOVA. The
maximum amount available under the FINOVA loan agreement was originally $15
million. On December 2, 1997, our loan agreement with FINOVA was amended. Under
the amended loan agreement, our credit facility was increased to $30 million. On
September 30, 1999, the loan agreement was renegotiated to increase the facility
to $45 million. Certain financial covenants were changed and Citizens Bank now
participates in the facility with FINOVA. Our new loan agreement allows us to
draw on the acquisition portion through March 31, 2001 and matures on December
31, 2004, subject to earlier termination. On March 10, 2000, we entered into a
second amendment to loan instruments which created a $1 million capital
expenditure line and a line of credit up to $2 million to cover contingent
obligations related to the SAFE attrition guarantee and referral obligation.
This combined $3 million was taken out of, and thereby reduced, the acquisition
portion of the $45 million facility discussed above.
The interest rate on borrowings under the new loan agreement is the base
rate in effect from time to time plus the applicable margin. At December 31,
1999, the applicable margin was .75% and the interest rate was 9.50%. We paid a
loan fee of $262,500 on the original closing in December 1996, and an additional
$222,000 on the effective date of the increase in December 1997. We paid a loan
fee of $337,500 on the new loan agreement on September 30, 1999. We are
obligated to pay a commitment fee of .5% on the unused portion of the facility
during the period we are able to draw on the facility.
The loan agreement with FINOVA and Citizens Bank of Massachusetts contains
customary covenants. The most important covenants can be summarized as follows:
until all obligations under the FINOVA loan agreement are paid or performed in
full, neither we nor our covered subsidiaries may, except as specifically
permitted: (i) incur indebtedness; (ii) encumber our properties; (iii) merge
with or acquire other companies; (iv) incur contingent liabilities; (v) make
distributions on or redeem equity securities; (vi) prepay debt; (vii) enter into
operating leases (in excess of scheduled amounts); (viii) make investments in or
loans to other companies; (ix) make fundamental changes in our businesses; (x)
change the locations of our facilities; (xi) dispose of assets; (xii) amend our
organizational documents; (xiii) issue additional membership interests in
certain subsidiaries; (xiv) enter into contracts with members; (xv) permit the
occurrence of any violations of ERISA; or (xvi) pay management compensation in
excess of permitted amounts; (xvii) the ratio of total debt to operating cash
flow (as defined) may not exceed 3.50; (xviii) the total debt may not exceed 15
times RMR for subscriber accounts we monitor for alarm dealers; (xix) the ratio
of operating cash flow (as defined) to interest expense must be at least 1 to 1;
(xx) the fixed charge coverage ratio (as defined) must be at least 1.05 to 1;
and (xxi) mandatory prepayments from excess cash flow as defined in the loan
agreement. We are in compliance with the covenants stated above.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently do not invest excess funds in derivative financial instruments
or other market rate sensitive instruments for the purpose of managing interest
rate risk or for any other purpose.
We incur debt from three sources: dealers from whom we acquire subscriber
accounts, senior debt from FINOVA and a note payable to SAFE related to the sale
of our owned account portfolio. Debt owed to dealers is in the form of a
"holdback note" which guarantees the aggregate revenue produced by subscriber
accounts purchased from the dealer for a period of time. These notes are
non-interest bearing and comprise less than 1.5% of our total debt. As of March
22, 2000 we had approximately $12.8 million in senior debt due to FINOVA and
Citizens Bank Of Massachusetts at an interest rate of prime plus .75% and a note
due June 30, 2000 at an 8% annual rate related to the owned account portfolio.
The prime rate applicable to this debt was 8.50% at December 31, 1999. We do not
have exposure to foreign currency fluctuations and do not use derivatives for
trading purposes.
41
<PAGE> 47
Interest Rate Risk - The table below provides information about our debt
obligations that are sensitive to changes in interest rates. For these debt
obligations, the table presents principal cash flows and related average
interest rates by expected maturity dates.
- --------------------------------------------------------------------------------
(dollars in millions) Maturity Date
- --------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Total Fair Value
- --------------------------------------------------------------------------------
Fixed Rate Debt $1.800 $1.800 $1.800
- --------------------------------------------------------------------------------
Average Interest Rate 8.0% 8.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Variable Rate Debt $.677 $1.447 1.939 8.251 $12.314 $12.314
- --------------------------------------------------------------------------------
Average Interest Rate 9.50% 9.50% 9.50% 9.50% 9.50%
- --------------------------------------------------------------------------------
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<S> <C> <C>
NAME AGE POSITION
Ronald I. Davis 61 Chairman of the Board and Director
James S. Brannen 61 President, Chief Executive Officer and Director
Thomas J. Salvatore 32 Director
Michael B. Jones 48 Director
Douglas Oberlander 50 Director
Ronald J. Carr 48 Senior Vice President
Stephen Rubin 53 Senior Vice President
Howard Schickler 52 General Counsel, Senior Vice President, Secretary
Daniel S. Zittnan 45 Senior Vice President, Treasurer, Chief Financial
Officer
Karen Daniels 44 Vice President
James N. Jennings 32 Vice President, Corporate Counsel and Assistant
Secretary
Glenn D. Seaburg 40 Vice President
</TABLE>
RONALD I. DAVIS is one of our founders and has been our Chairman of the
Board since October 1990. Prior to our incorporation, he had many years of
experience in the security alarm industry. He was the founder, and from 1987 to
1990, the chairman and principal stockholder 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 dealer network. Mr. Davis earned a
B.A. from Roosevelt University.
42
<PAGE> 48
JAMES S. BRANNEN 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 others, 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 workout lending activity. Mr. Brannen
earned a A.B. degree from Dartmouth College and a MBA degree from Northwestern
University.
THOMAS J. SALVATORE was elected as one of our directors in December 1996.
Since 1991, Mr. Salvatore has been the Managing General Partner of TJS
Management, L.P. which is the General Partner of TJS Partners, L.P. ("TJS"), 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 other
director has not been designated as of the date of this prospectus. Mr.
Salvatore earned a Bachelors Degree in Business Administration from Fordham
University.
MICHAEL B. JONES was elected as one of our directors in January 1998. He
has been president of ProFinance Associates, Inc. since he co-founded it in
1985. ProFinance has been a Broker-Dealer firm since 1990. Mr. Jones was with
Marine Midland Bank from 1977 until 1985. He was responsible for starting a
communications/electronics lending group in 1991 and, in his last position as
group executive, for leading that group. That group was one of the first
institutional lenders to the alarm 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.
DOUGLAS OBERLANDER was elected as one of our directors in January 1994.
Since 1989, Mr. Oberlander has been president of Lease I, Inc. a commercial
lease and finance company. From 1965 to 1988, Mr. Oberlander was employed by
Oberlander Security, a security alarm dealer. Since 1991, Mr. Oberlander has
served as a director of Oberlander Alarms, a security alarm dealer.
RONALD J. CARR has been one of our Vice Presidents since March 1997, and a
Senior Vice President and Chief Operating Officer for the Central Station
Division since August 12, 1998. Mr. Carr is also the President of
Telecommunications Associates Group, Inc., Texas Security Central, Inc., Alarm
Central Monitoring, Inc., Guardian Protection Services, Ltd., and AMJ Central
Station Corporation, Inc., all wholly owned subsidiaries of Security Associates
International, Inc., 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 Ameritech's
SecurityLink subsidiary. 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, has been a Senior Vice President
since October 1990. From 1987 to 1990, he was a senior vice president of SAI
Partners, Inc. From 1978 to 1986, Mr. Rubin was an officer of Davis Marketing
Group and Security Alliance Corporation. Mr. Rubin earned a B.S. degree from
Northern Michigan University and MBA degree from Loyola University. Mr. Rubin
has the principal responsibility for the design and implementation of our
marketing program.
HOWARD SCHICKLER has served as General Counsel of our company since January
3, 1997, was
43
<PAGE> 49
appointed Secretary on October 7, 1997, Vice President on April 13,
1998 and Senior Vice President on July 8, 1999. Before joining us, Mr. Schickler
spent eight years with Sachnoff & Weaver, Ltd., a Chicago law firm. He became a
member of that firm in 1994. Before embarking on his legal career, Mr. Schickler
was employed in the investment field as an institutional fixed income sales
representative for The First Boston Corporation, Morgan Stanley & Co., Blunt,
Ellis and Loewi and E. F. Hutton & Co. and as a portfolio manager at MGIC
Investment Corporation. Mr. Schickler earned a B.A. degree from Brooklyn
College, M.A., M.B.A. degrees from The University of Wisconsin at Milwaukee and
a J.D. degree from Northwestern University.
DANIEL S. ZITTNAN was named our Senior Vice President for Finance on August
12, 1998, and has served as our Chief Financial Officer and Treasurer since
October 7, 1997. Mr. Zittnan spent over thirteen years with Arthur Andersen LLP,
most recently as a senior manager. Mr. Zittnan earned a BA in accounting from
DePaul University and is a member of the AICPA and ICPA societies.
KAREN B. DANIELS has served as a Vice President since October 7, 1997.
Prior to becoming a Vice President, Ms. Daniels acted as a consultant for the
Company starting in March 1997, and prior to that for Ameritech AIIS, since
1995. From March 1990 to June 1995, Ms. Daniels was vice president/controller
for Editel-Chicago, a division of Unitel Video, Inc., a video post-production
company. Ms. Daniels earned a Bachelor's Degree in Industrial
Administration-Finance from Iowa State University. Ms. Daniels is also a
Certified Public Accountant.
JAMES N. JENNINGS has served as Corporate Counsel of our company since
January 1998, was appointed Assistant Secretary in February 1998 and Vice
President in February 2000. Prior to joining us, Mr. Jennings spent a combined
three years with Shefsky & Froelich, Ltd. and McCarthy Duffy Neidhart & Snakard,
both Chicago law firms. Prior to entering private practice, Mr. Jennings was an
independent investment banker for three years. Mr. Jennings earned a Bachelors
Degree from the University of Texas at Austin and a J.D. from California Western
School of Law.
GLENN D. SEABURG has served as Director of Information Technology since
September of 1998 and was appointed Vice President in February 2000. Prior to
joining us, Mr. Seaburg was the Director of I.S./Telecommunications for the
Signature Security Group from October 1998 to October 1999. From November 1987
to September 1998, Mr. Seaburg was employed by SecurityLink by Ameritech as its
Manager System Development Project Manager. Prior to Ameritech's purchase of
SecurityLink, Mr. Seaburg was Director of Information Systems for SecurityLink
for three years.
Our executive officers are appointed annually by, and serve at the
discretion of, the board of directors. Each executive officer is a full-time
employee. All directors hold office until the next annual meeting of
stockholders or until their successors are duly elected and qualified. The board
of directors currently consists of five members. Ronald I. Davis and Stephen
Rubin are brothers-in-law. There are no other family relationships between any
of our directors or executive officers.
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.
44
<PAGE> 50
On July 8, 1999, the board extended the expiration date of Mr. Jones' options to
July 8, 2005. On March 10, 1999, directors Jones and Oberlander were awarded
options to purchase 25,000 shares of common stock each under our Stock Option
Plan. These options are exercisable for a period of six years. Half of these
options are exercisable at $4.50 per share, and the other half at $6.00 per
share. On January 11, 2000, directors Salvatore, Jones and Oberlander were
awarded options to purchase 25,000 shares of common stock each under our Stock
Option Plan, subject to stockholder approval. These options are exercisable for
a period of six years at $2.75 per share.
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:
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS/ LTIP COMPENSA-
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS(#) PAYOUTS(4) TION(5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James S. Brannen 1999 $175,000 $72,417 210,000 -- $3,433
President and Chief 1998 $175,000 $55,000 $29,100(1) -- -- $108,888 $2,019
Executive Officer 1997 $125,000 $11,635 -- -- $154,103 $ 837
$32,215(1)
$23,835(1)
Ronald I. Davis 1999 $175,000 $78,500 210,000 -- $3,433
Chairman of the 1998 $175,000 $55,000 $28,050(2) -- -- $108,888 $ 676
Board(6) 1997 $125,858 $11,635 $31,889(2) -- -- $154,103 $ 843
$22,949(2)
Stephen Rubin 1999 $140,000 $43,156 210,000 -- $2,746
Senior Vice President 1998 $127,400 $40,000 $15,350(3) -- -- $ 67,568 $ 697
1997 $104,999 $ 8,462 $16,456(3) -- -- $ 95,625 $ 694
$11,586(3)
Ronald J. Carr 1999 $140,000 -- $12,000(7) 300,000 -- $1,703
Senior Vice 1998 $126,538 -- $10,750(7) -- -- $ 67,568 $ 646
President(6)
Daniel S. Zittnan(8) 1999 $140,000 -- $12,000(9) 300,000 -- $1,696
Senior Vice President 1998 $139,615 -- $ 4,000(9) -- -- $ 67,568 --
</TABLE>
- ------------------------------
1) Includes $22,871, $24,965 and $24,000 for automobile allowances for 1997,
1998 and 1999, respectively.
2) Includes $22,319, $25,439 and $24,000 for automobile allowances for 1997,
1998 and 1999, respectively.
3) Includes $10,750, $11,856 and $12,000 for automobile allowances for 1997,
1998 and 1999, respectively.
4) Earned awards under our 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 1997.
7) Includes $10,750 and $12,000 for automobile allowance in 1998 and 1999,
respectively.
8) Annual salary and bonus did not exceed $100,000 in 1997.
9) Includes $4,000 and $12,000 for automobile allowance in 1998 and 1999,
respectively.
45
<PAGE> 51
Option Grants Table
The following table contains information concerning options granted to the
Named Executive Officers in 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION TERM
NAME NUMBER OF PERCENT OF EXERCISE OR EXPIRATION 5% 10%
SECURITIES TOTAL BASE PRICE DATE
UNDERLYING OPTIONS ($/SH) (1)
OPTIONS GRANTED TO
GRANTED EMPLOYEES
IN FISCAL
YEAR
<S> <C> <C> <C> <C> <C> <C>
James S. Brannen 210,000 13% 50% @ $4.50 March 10, 2005 $0 $85,542
50% @ $6.00
Ronald I. Davis 210,000 13% 50% @ $4.50 March 10, 2005 $0 $85,542
50% @ $6.00
Stephen Rubin 210,000 13% 50% @ $4.50 March 10, 2005 $0 $85,542
50% @ $6.00
Ronald J. Carr 300,000 19% 50% @ $4.50 March 10, 2005 $0 $122,203
50% @ $6.00
Daniel S. Zittnan 300,000 19% 50% @ $4.50 March 10, 2005 $0 $122,203
50% @ $6.00
</TABLE>
1) The options become exercisable over a three-year period beginning
March 10, 1999 (one third per year with the $4.50 options vesting
first).
Fiscal Year-End Option Value Table
The following table contains information concerning the value of stock
options held by the Named Executive Officers at fiscal year-end 1999.
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
FISCAL YEAR-END YEAR-END
SHARES ACQUIRED
NAME ON EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C>
James S. Brannen -- -- 0 / 210,000 --/--
Ronald I. Davis --- -- 0 / 210,000 --/--
Stephen Rubin -- -- 0 / 210,000 --/--
Ronald J. Carr -- -- 0 / 300,000 --/--
Daniel S. Zittnan -- -- 0 / 300,000 --/--
</TABLE>
46
<PAGE> 52
STOCK OPTION 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. These employment agreements were amended in July 1999.
Pursuant thereto, Mr. Brannen and Mr. Davis currently receive an annual salary
of $175,000, and Mr. Rubin receives an annual salary of $145,000. These amounts
may be increased following annual salary reviews. The employment agreements
provide that these executives will be entitled to severance pay equal to 2.99
times their annual salary 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 current position; (b) a
requirement that they serve from a location other than the greater Chicago
metropolitan area; (c) breach of the employment agreement by SAI; or (d) a
change of control of SAI. In addition, Messrs. Brannen, Davis and Rubin will
participate in such other benefits as are offered to other executive employees
of our company. These agreements automatically renew for successive one-year
periods.
We have entered into Confidentiality Agreements with all of our other
executive officers. These agreements 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, as defined in the
Confidentiality Agreements, the 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.
STOCK OPTION PLAN
Under our Stock Option Plan, certain executive officers were 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, half of the options are exercisable at $4.50 per share and half are
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30, 1999, we entered into the Second Amendment to Security
Associates International, Inc. Common Stock Subscription and Purchase Agreement
with TJS Partners, L.P., our principal stockholder. Pursuant to this agreement:
(i) $10,000,000 of subordinated debt and accrued interest owed by us to TJS
Partners, L.P.; (ii) 66,910 shares of Convertible Preferred Stock; and, (iii)
500,000 shares of 12% Redeemable Preferred Stock, together with all accrued
dividends, which were held by TJS Partners, L.P., were exchanged for 135,709
shares of newly designated Series A Convertible Preferred Stock.
The Series A Convertible Preferred Stock has a $10 par value, a liquidation
preference of $350 per share and is convertible into 13,570,900 shares of our
common stock. The Series A Convertible Preferred Stock is also entitled to
receive dividends equal to those that would have been received if the holder had
converted into common stock.
The holder of Series A Convertible Preferred Stock is entitled to vote on
all matters on which holders of our common stock are entitled to vote, on an
as-converted basis. However, the total voting power of all securities
47
<PAGE> 53
owned by the holder of Series A Convertible Preferred Stock is limited to a
maximum of 45% of the total number of votes eligible to vote on a matter
submitted to our stockholders.
In connection with the Second Amendment, our By-laws were amended to
increase the percentage of votes required to approve matters presented to the
stockholders from a simple majority to greater than sixty (60) percent. This
super-majority provision will be in effect for as long as TJS Partners, L.P.
owns 30% of our common stock on an as-converted basis. Additionally, for so long
as TJS Partners, L.P. owns at least fifteen percent (15%) of our common stock on
an as-converted basis, our Board of Directors will consist of five Directors.
TJS has the right to nominate two directors.
During 1999, TJS exercised options to purchase 250 shares of Convertible
Preferred Stock for an aggregate purchase price of $25,000.
During 1999, TJS exercised options to purchase 650 shares of Series A
Convertible Preferred Stock for an aggregate purchase price of $71,250.
On February 9, 2000, TJS advanced to us $125,000 in anticipation of the
exercise of standby options to purchase 500 shares of Series A Convertible
Preferred Stock.
On February 25, 2000, TJS advanced to us $79,093 in anticipation of the
exercise of standby options to purchase 827 shares of Series A Convertible
Preferred Stock.
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. These options were to expire on December 31, 2002. On
July 8, 1999, the Board extended the expiration date of Mr. Jones' options to
July 8, 2005.
On January 6, 1998, ProFinance Associates, Inc. was issued options to
purchase 25,000 shares of common stock at a price of $6.00 per share. These
options were to expire on December 31, 2002, and were issued in partial
consideration of brokerage services rendered to us. Michael B. Jones, currently
one of our directors, is a principal of ProFinance Associates, Inc. On July 8,
1999, the Board extended the expiration date of these options to July 8, 2005.
These options were subsequently transferred into a family trust.
On March 10, 1999, Directors Jones and Oberlander were awarded options to
purchase 25,000 shares of commons stock each under our Stock Option Plan. These
options are exercisable for a period of six years. Half of these options are
exercisable at $4.50 per share, and the other half at $6.00 per share.
On March 31, 1999, we issued 35,160 shares of common stock to a former
employee as a distribution from our Supplemental Employees' Retirement Plan upon
his termination as an employee. These shares were registered on Form S-8 on May
6, 1999.
On May 24, 1999, we issued 23,440 shares of common stock to a former
employee as a distribution from our Supplemental Employees' Retirement Plan upon
his termination as an employee. These shares were registered on Form S-8 on May
6, 1999.
On June 21, 1999, we issued the following shares of common stock to the
following employees, as terminating distributions from our Supplemental
Employees' Retirement Plan:
48
<PAGE> 54
James S. Brannen 56,662 shares
Ronald I. Davis 56,662 shares
Stephen Rubin 35,160 shares
Daniel S. Zittnan 35,160 shares
Ronald J. Carr 35,160 shares
Howard Schickler 17,580 shares
Karen B. Daniels 25,975 shares
These shares were registered on Form S-8 on May 6, 1999.
On July 8, 1999, we issued stock options to the following individuals to
purchase the following numbers of shares of common stock, as awards under our
Stock Option Plan:
Options to Purchase
--------------------------
Michael B. Jones 25,000 shares
Douglas J. Oberlander 25,000 shares
James S. Brannen 210,000 shares
Ronald I. Davis 210,000 shares
Stephen Rubin 210,000 shares
Daniel S. Zittnan 300,000 shares
Ronald J. Carr 300,000 shares
Howard Schickler 150,000 shares
Karen B. Daniels 150,000 shares
One-half of each of the foregoing persons' options are exercisable at $4.50
per share with the other one-half being exercisable at $6.00 per share. The
options of the officers vest over three years and expire six years from the date
of grant. The directors' options vest immediately and expire six years from the
date of grant.
On June 21, 1999, Beverly Davis, wife of Ronald I. Davis, exercised options
to purchase 5,000 shares of common stock for an aggregate exercise price of
$5,000.
49
<PAGE> 55
On January 11, 2000, the board of directors approved the issuance of stock
options to the following individuals to purchase the following numbers of shares
of common stock, as awards under our Stock Option Plan, subject to stockholder
approval:
Options to Purchase
--------------------------
Thomas J. Salvatore 25,000 shares
Michael B. Jones 25,000 shares
Douglas J. Oberlander 25,000 shares
James S. Brannen 105,000 shares
Ronald I. Davis 105,000 shares
Stephen Rubin 105,000 shares
Daniel S. Zittnan 150,000 shares
Ronald J. Carr 150,000 shares
Howard Schickler 75,000 shares
Karen B. Daniels 75,000 shares
The options are exercisable at $2.75 per share. The options of the officers
vest over two years (50% each year) and expire six years from the date of grant.
The directors' options vest immediately and expire six years from the date of
grant.
On February 14, 2000, the Board of Directors approved the issuance of stock
options to the following individuals to purchase the following numbers of shares
of common stock, as awards under our Stock Option Plan, subject to stockholder
approval:
Options to Purchase
--------------------------
James N. Jennings 50,000 shares
Glenn D. Seaburg 50,000 shares
The options are exercisable at $2.875 per share. The options of these
officers vest over three years (one third each year) and expire six years from
the date of grant.
50
<PAGE> 56
PRINCIPAL AND SELLING STOCKHOLDERS
The following table lists certain information regarding the beneficial
owners of our common stock as of March 23, 2000, which includes: (i) each person
known to us to beneficially own more than five percent of the outstanding shares
of our common stock; (ii) each of our company's directors; (iii) the Named
Executive Officers; (iv) each selling stockholder; and (v) all of our company's
directors and executive officers as a group. We believe that except as noted
each person or entity named below has sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by each
holder, subject to community property laws where applicable. Some of the listed
holders of common stock who hold their shares in street name may have already
sold their shares as of the effective date of this prospectus.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering Number After Offering
------------------ of Shares --------------
Number Being Number
Name of Shares Percent(1) Offered of Shares Percent(2)
---- --------- ---------- ------- --------- ----------
Number
<S> <C> <C> <C> <C> <C>
TJS Partners, L.P.(3)
115 East Putnam Avenue
Greenwich, CT 06830 13,635,900 65.45% 3,768,600(4) 10,000,000 44.12%
Ronald I. Davis(5)
c/o Security Associates
International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005 1,014,695 4.85% 0 1,014,695 4.46%
James S. Brannen(6)
c/o Security Associates
International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005 643,278 3.08% 0 643,278 2.83%
Stephen Rubin(7)
c/o Security Associates
International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005 501,198 2.40% 0 501,198 2.20%
Daniel S. Zittnan(8)
c/o Security Associates
International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005 138,349 * 0 138,349 *
Ronald J. Carr(9)
c/o Security Associates
International, Inc.
2101 S. Arlington Heights Road
Arlington Heights, Illinois 60005 135,160 * 0 135,160 *
</TABLE>
51
<PAGE> 57
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering Number After Offering
------------------ of Shares --------------
Number Being Number
Name of Shares Percent(1) Offered of Shares Percent(2)
---- --------- ---------- ------- --------- ----------
Number
<S> <C> <C> <C> <C> <C>
Thomas J. Salvatore(10)
c/o TJS Partners, L.P.
155 E. Putnam Avenue
Greenwich, CT 06830 13,660,900 65.49% 3,768,600(4) 10,025,000 44.18%
Douglas Oberlander(11)
10225 N. Knoxville Avenue
Peoria, Illinois 61615 144,474 * 0 144,474 *
Michael B. Jones(12)
c/o ProFinance Associates, Inc.
6540 Lusk Boulevard, Suite C-240
San Diego, CA 92121 91,000 * 0 91,000 *
Allen Investments II, LLC
711 Fifth Ave 9th FL
New York, New York 10019 80,000 * 80,000 0 0
Alternative Strategies
880 Third Ave. 3rd FL
New York, New York 10022 60,000 * 60,000 0 0
Ask Company
David Broser
1700 Broadway 14th FL
New York, New York 10000 50,000 * 50,000 0 0
Douglas A. Brown
1 Dogwood Ln.
Tenafly, New Jersey 07670 4,000 * 4,000 0 0
Robert Brown
IRA Account
3605 N. Robinwood Drive
Muncie, Indiana 47304 25,000 * 25,000 0 0
Bohemond Corp.
Holding Capital
104 Crandon Blvd #419
Biscayne, Florida 33149 25,000 * 25,000 0 0
Bohemond Corp.
Holding Capital
104 Crandon Blvd #419
Biscayne, Florida 33149 4,000 * 4,000 0 0
Buttonwood Advisory Group, Inc.(13)
15705 Framingham Lane
Huntersville, NC 28078 75,000 * 75,000 0 0
</TABLE>
52
<PAGE> 58
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering Number After Offering
------------------ of Shares --------------
Number Being Number
Name of Shares Percent(1) Offered of Shares Percent(2)
---- --------- ---------- ------- --------- ----------
Number
<S> <C> <C> <C> <C> <C>
John S. Coates
28638 11th Ave South
Federal Way, Washington 98003 52,000 * 52,000 0 0
William R. Colaianni
Holding Capital
685 Fifth Ave.
New York, New York 10019 4,000 * 4,000 0 0
Bobbie Conrad
383 Adams Street
Glencoe, Illinois 60022 20,000 * 20,000 0 0
Sidney Dechter
7406 Princeton Drive
Hanover Park, Illinois 60103 25,000 * 25,000 0 0
Anita M. Dalmar
2324 North East Regents Drive
Portland, Oregon 97212 20,000 * 20,000 0 0
Karl D. Dillon
1325 Fifth Ave.
Seattle, Washington 98101 10,000 * 10,000 0 0
Robert H. Dilworth
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078 50,000 * 50,000 0 0
Fred Figge
221 S. Blackstone
LaGrange, Illinois 60525 98,500 * 98,500 0 0
Dianne G. Freeman
P.O. Box 143
Sand Lake, New York 12153 25,000 * 25,000 0 0
Gamelam Capital Fund
Hauptman
1661 Highway One
Fairfield, Iowa 52556 10,000 * 10,000 0 0
GEM Management, Ltd.
P.O. Box 860
11 Bath Street
St. Helier Jersey, Channel Islands 10,000 * 10,000 0 0
</TABLE>
53
<PAGE> 59
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
------------------ Number --------------
of Shares
Number Being Number
Name of Shares Percent(1) Offered of Shares Percent(2)
---- --------- ---------- ------- --------- ----------
Number
<S> <C> <C> <C> <C> <C>
Phyllis Greinwald
14238 N. 2nd Street
Phoenix, Arizona 85023 77,000 * 77,000 0 0
Cheryl L. Grolle
W 564 Pell Lake Drive
Genoa City, Wisconsin 53128 250 * 250 0 0
Holding Capital Management, LLC
7 Ridgewood Drive
Bridgewater, CT 06752 100,000 * 100,000 0 0
Raymond C. Hoven(14)
3251 Midlane Drivet
Wadsworth, Illinois 60083 225,539 1.08% 40,000 185,539 *
Infinity Partnership II
4075 N. Victoria Drive
Hoffman Estates, Illinois 60195 10,000 * 10,000 0 0
Inversiones Alanje, C.A.
c/o Carlos Delgado
Apartado Postal 1286
Caracas, Venezuela 1010-A 62,500 * 62,500 0 0
Inversiones Aparicio, C.A.
c/o Modesto Aparicio
Jet Cargo (M-571)
P.O. Box 020010
Miami, Florida 33102-0010 120,000 * 120,000 0 0
Inversiones Erlanger, C.A.
c/o Malcolm Caplan
M-287 Jet Cargo International
P.O. Box 020010
Miami, Florida 33102-0010 100,000 * 100,000 0 0
Irwin Jacobson(15)
1035 Carlyle Terrace
Highland Park, Illinois 60035 123,000 * 12,500 110,500 *
Jessand Corp Profit Sharing Plan
and Trust
7 Ridgewood Drive
Bridgewater, CT 06752 5,000 * 5,000 0 0
</TABLE>
54
<PAGE> 60
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
------------------ Number --------------
of Shares
Number Being Number
Name of Shares Percent(1) Offered of Shares Percent(2)
---- --------- ---------- ------- --------- ----------
Number
<S> <C> <C> <C> <C> <C>
Lee Jones
c/o Support Services Group
63 Calle de Industrias
Suite 550
San Clemente, California 92672 22,088 * 22,088 0 0
Martin & Associates Management
Consultants, Inc.
8056 Steeplechase Dr
Palm Beach Gardens, Florida 33418 4,000 * 4,000 0 0
Metronet Protection Services(16)
67 East Madison Street, Suite 265
Chicago, IL 60603 25,000 * 25,000 0 0
John M. McMahon
West Lake Road
Tuxedo Park, New York 10987 20,000 * 20,000 0 0
Peter T. Joeseph
Rosecliff, Inc.
712 Fifth Ave. 34th FL
New York, New York 10019 80,000 * 80,000 0 0
Jack Schultz(17)
c/o Metronet Protection Services
67 East Madison Street, Suite 265
Chicago, IL 60603 25,000 * 25,000 0 0
Kaplan Choate Special Situations
880 Third Ave. 3rd FL
New York, New York 10022 40,000 * 40,000 0 0
Mark Scharmann(18)
1661 Lakeview Circle
Ogden, Utah 84403 144,800 * 32,500 112,300 *
Bernard and Samuel Sered(19)
4023 Suffield Court
Skokie, Illinois 60076 30,301 * 25,000 5,301 *
Lorraine R. Small
453 Raintree Drive
Glen Ellyn, Illinois 60137 250 * 250 0 0
Star Security Systems, Inc.(20)
2324 S. Elmhurst Road
Mt. Prospect, IL 60005 25,000 * 25,000 0 0
Jan Sussman
9 Sterling Ln.
Sands Point, New York 11050 30,000 * 30,000 0 0
</TABLE>
55
<PAGE> 61
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
------------------ Number --------------
of Shares
Number Being Number
Name of Shares Percent(1) Offered of Shares Percent(2)
---- --------- ---------- ------- --------- ----------
Number
<S> <C> <C> <C> <C> <C>
Tall Oaks Group, LP
L. Hite
40 Beckman Terrace
Summit, New Jersey 07901 20,000 * 20,000 0 0
Alfred Robert Taylor Tustee
387 Spring Cove Road
Waynesville, North Carolina 28786 10,000 * 10,000 0 0
TPR Investment Associates, Inc.
9 West 57th Street #3900
New York, New York 10019 52,000 * 52,000 0 0
Brady E. Turner(21)
P.O. Box 840
Brunswick, Georgia 31521 56,676 * 12,500 44,176 *
UMB Bank, NA
Evergreen National, LP
200 East Highway 32 Box 129
Lebanon, Missouri 65536 300,000 1.44% 300,000 0 0
Harold Wit
Allen & Company
711 Fifth Ave 9th Fl
New York, New York 10019 30,000 * 30,000 0 0
All Executive Officers and Directors
as a group (12 persons)(22) 16,474,344 79.07% 3,768,600 12,838,444 56.65%
</TABLE>
(1) Applicable percentage of ownership as of March 23, 2000, is based upon
20,833,942 shares of common stock outstanding (including 13,635,900
shares issuable upon conversion of outstanding shares of convertible
preferred stock). Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and unless
otherwise noted includes voting and investment power with respect to
the shares shown as beneficially owned.
(2) Applicable percentages of ownership are based on 22,663,967 shares of
common stock outstanding. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission,
and unless otherwise noted includes voting and investment power with
respect to the shares shown as beneficially owned. Assumes all shares
being registered for resale are sold.
(3) Consists of 136,359 shares of Series A Convertible Preferred Stock.
Each share of Series A 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.
56
<PAGE> 62
(4) Includes 132,700 shares of common stock which may be acquired upon the
exercise of contingent options. These shares are not beneficially
owned as the options are not currently exercisable within sixty days.
However, the shares are included in this table because they are being
registered for resale.
(5) Includes 944,695 shares owned by Mr. Davis and J, S & R Ltd., L.P.
Also includes 70,000 shares that may be acquired within sixty days
upon exercise of options. Excludes 5,337 shares owned by Beverly
Davis, Mr. Davis' wife, 5,200 shares owned by Scott Davis, Mr. Davis'
son, 5,000 shares owned by Deborah Davis, Scott's wife, 10,000 shares
owned by Ethan Davis, Mr. Davis' grandson, 10,000 shares owned by
Benjamin Davis, Mr. Davis' grandson, 2,500 shares owned by Emma Davis,
Mr. Davis' granddaughter, and 16,801 shares owned by Ann Davis, Mr.
Davis' sister, as to which Mr. Davis disclaims beneficial ownership.
(6) Includes 573,278 shares owned by Mr. Brannen and a family limited
partnership, and 70,000 shares that may be acquired within sixty days
upon exercise of options 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.
(7) Includes 431,198 shares owned by Mr. Rubin, and 70,000 shares that may
be acquired within sixty days upon exercise of options. Excludes 5,600
shares owned by Jamie Rubin, Mr. Rubin's son, as to which Mr. Rubin
disclaims beneficial ownership.
(8) Includes 38,349 shares owned by Mr. Zittnan, and 100,000 shares that
may be acquired within sixty days upon exercise of options.
(9) Includes 35,160 shares owned by Mr. Carr, and 100,000 shares that may
be acquired within sixty days upon exercise of options.
(10) Consists of 136,359 shares of convertible preferred stock owned by
TJS. Mr. Salvatore controls voting and disposition of these shares as
the Managing Partner of TJS. Also includes 25,000 shares that may be
purchased personally by Mr. Salvatore within sixty days upon exercise
of options. This option is subject to stockholder approval at our
Annual Meeting.
(11) Includes 94,474 shares owned by Mr. Oberlander, and 50,000 shares that
may be acquired within sixty days upon exercise of options. Of these
options, options to purchase 25,000 shares are subject to stockholder
approval at our Annual Meeting.
(12) Includes 6,000 shares owned by Mr. Jones; and 85,000 shares of common
stock that may be acquired within sixty days upon exercise of options.
Of these options, options to purchase 25,000 shares are held by a
family trust and options to purchase 25,000 shares are subject to
stockholder approval at our Annual Meeting.
57
<PAGE> 63
(13) Includes 25,000 shares of common stock, and 50,000 shares that may be
acquired within sixty days upon the exercise of options.
(14) Includes 225,539 shares owned by Mr. Hoven of which 40,000 shares are
being registered for resale hereby.
(15) Includes 123,500 shares owned by pension plans controlled by Mr.
Jacobson of which 12,500 shares are being registered for resale
hereby.
(16) Includes 25,000 shares which may be acquired within sixty days upon
the exercise of options.
(17) Includes 25,000 shares which may be acquired within sixty days upon
the exercise of options.
(18) Includes 144,800 shares owned by Mr. Scharmann of which 32,500 are
being registered for resale hereby.
(19) Includes 30,301 shares owned by Messrs. Sered of which 25,000 shares
are being registered for resale hereby.
(20) Includes 25,000 shares which may be acquired within sixty days upon
the exercise of options.
(21) Includes 56,676 shares owned by Mr. Turner of which 12,500 shares are
being registered for resale hereby.
(22) Includes 670,000 shares which may be acquired within sixty days upon
the exercise of options.
The following table presents certain information regarding the beneficial
ownership of Series A Convertible Preferred Stock as of March 23, 2000 by: (a)
each person known by us to beneficially own more than five percent of the
outstanding shares of Series A 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 Series A Convertible Preferred
Stock shown as beneficially owned by them, subject to community property laws
where applicable. TJS Partners, L.P. and Thomas J. Salvatore are the only
beneficial owners of Series A Convertible Preferred Stock.
BENEFICIAL OWNERSHIP
------------------------------------
NAME NUMBER OF SHARES PERCENT(1)
---- ---------------- ----------
TJS Partners, L.P.(2)
115 East Putnam Avenue
Greenwich, CT 06830 136,359 100%
Thomas J. Salvatore(3)
c/o TJS Partners, L.P.
115 East Putnam Avenue
Greenwich, CT 06830 136,359 100%
All Executive Officers and
Directors as a group (10 persons)
136,359 100%
58
<PAGE> 64
1) Applicable percentage of ownership as of March 23, 2000 is based upon
136,359 shares of Series A 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 136,359 shares of Series A Convertible Preferred Stock. Each
share of convertible preferred stock is convertible into and has the voting
rights of 100 shares of common stock. The total voting power of all
securities owned by a holder of Series A Convertible Preferred Stock is
limited to a maximum of 45% of the total number of votes eligible to vote
on a matter submitted to our stockholders. TJS is the only holder of Series
A Convertible Preferred Stock.
3) Consists of 136,359 shares of Series A Convertible Preferred Stock owned by
TJS, Mr. Salvatore controls voting and disposition of these shares as the
Managing General Partner of TJS.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our company is authorized to issue up to 50,000,000 shares of common stock
and 1,000,000 shares of preferred stock. As of March 24, 2000, there were
7,198,242 shares of common stock and 136,359 shares of convertible preferred
stock actually issued and outstanding. As of March 24, 2000, there were
approximately 237 holders of our common stock and one holder of record for the
convertible preferred stock appearing on our stock ledger.
COMMON STOCK
Each share of our common stock is entitled to one vote in elections for
directors and all other matters submitted for stockholder vote. Our company does
not have cumulative voting. Therefore, holders of shares representing a majority
of the votes can elect all of the directors if they choose to do so. The holders
of common stock are only entitled to dividends if our board of directors
declares dividends. We have never paid dividends on our common stock and do not
anticipate paying any in the foreseeable future. See "Dividend Policy." If our
company were to be liquidated or dissolved, the holders of common stock would
share any assets that remain after payments to creditors are made and after
priority payments to the holders of our preferred stock have been made. The
priority payments that would be to the holders of our preferred stock are
described below.
Our common stock is traded on the American Stock Exchange under the
symbol "SAI."
PREFERRED STOCK
Our Board of Directors is authorized to issue up to 1,000,000 shares of
preferred stock without stockholder approval. The terms of any preferred stock,
such as dividend rights, conversion prices, voting rights, redemption prices and
terms can also be set by the board of directors. Because of the broad discretion
that the board has,
59
<PAGE> 65
future issuances of preferred stock could have voting, dividend, liquidation and
other rights superior to those of our common stock or other classes of preferred
stock.
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock has a $10 par value, a liquidation
preference of $350 per share and each share is convertible into 100 shares of
our common stock. The Series A Convertible Preferred Stock is also entitled to
receive dividends equal to those that would have been received if the holder had
converted into common stock.
The holder of Series A Convertible Preferred Stock is entitled to vote on
all matters on which holders of our common stock are entitled to vote, on an
as-converted basis. However, the total voting power of all securities owned by
the holder of Series A Convertible Preferred Stock is limited to a maximum of
45% of the total number of votes eligible to vote on a matter submitted to our
stockholders.
The convertible preferred stock is convertible into common stock at the
option of the holder at any time. The shares automatically convert if SAI makes
an initial public offering of its common stock.
WARRANTS
Under this prospectus, we may issue warrants to purchase up to a maximum of
2,000,000 shares of common stock. Because we can only issue a total of 2,000,000
shares of common stock under this prospectus, including those that would be
issued upon exercise of warrants, the total number of warrants we can actually
issue will be reduced to the extent that we issue common stock under this
prospectus. Each warrant entitles the holder to purchase shares of common stock
by paying $6.00 per share. The right to exercise the warrants is subject to
certain restrictions described elsewhere in this prospectus. See "Business -
Dealer Partner Program."
Under certain circumstance we have the right to redeem those warrants that
are no longer subject to restrictions on exercise. Those warrants are redeemable
at our option after no less than two years from the date they were originally
issued at a redemption price of $.10 per share. This redemption may only take
place if the market price of the common stock at that time equals or exceeds
150% of the exercise price for 15 out of 20 consecutive trading days ending
within 30 days of the date on which the notice of redemption is given.
The exercise price of the warrants will be adjusted in the event of share
splits, share consolidations and certain rights offerings and share dividends
involving common stock. Warrants not exercised within four years of their
issuance will expire. The warrants do not give the holder any rights as a
stockholder of our company.
ANTITAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION,
BY-LAWS AND DELAWARE LAW
Certificate of Incorporation and By-Laws. Our certificate of incorporation
provides that the Board of Directors may issue preferred stock with such voting
rights, preferences and designations as the Board of Directors determines in its
sole discretion without stockholder approval. Our certificate of incorporation
also provides that the Board of Directors has the power to make, adopt, amend or
repeal our By-Laws. The By-Laws provide that our
60
<PAGE> 66
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 25% of our capital stock.
Our By-laws were amended to increase the percentage of votes required to
approve matters presented to the stockholders from a simple majority to
requiring greater than sixty percent (60%). This super-majority provision will
be in effect for as long as TJS Partners, L.P. owns at least 30% of our common
stock on an as-converted basis. Additionally, for so long as TJS owns at least
fifteen percent (15%) of our common stock on an as-converted basis, our board of
directors will consist of five directors.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control of our company. While these provisions may
increase the likelihood of continuity and stability in the policies formulated
by the serving Board of Directors they could also discourage certain types of
transactions that may involve an actual or threatened change of control.
Delaware Takeover Statute. We are a Delaware corporation and subject to
Section 203 of the Delaware General Corporation Law ("DGCL"). Generally, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with any "interested stockholder" for a period of three years after
the time such stockholder became an interested stockholder, unless:
- Prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; or
- Upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced; or
- At or subsequent to such time, the business combination is approved by
the board of directors and authorized by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Under Section 203 of the DGCL, a "business combination" includes:
- any merger or consolidation of the corporation with the interested
stockholder;
- any sale, lease, exchange or other disposition, except proportionately
as a stockholder of such corporation, to or with the interested
stockholder of assets of the corporation having an aggregate market
value equal to 10% or more of either the aggregate market value of all
the assets of the corporation or the aggregate market value of all the
outstanding stock of the corporation;
- certain transactions resulting in the issuance or transfer by the
corporation of stock of the corporation to the interested stockholder;
- certain transactions involving the corporation which have the effect
of increasing the proportionate share of the stock of any class or
series of the corporation which is owned by the interested
stockholder; or
61
<PAGE> 67
- certain transactions in which the interested stockholder receives
financial benefits provided by the corporation.
Under Section 203 of the DGCL, an "interested stockholder" generally is:
- any person that owns 15% or more of the outstanding voting stock of
the corporation; or
- any person that is an affiliate or associate of the corporation and
was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period prior to the date
on which it is sought to be determined whether such person is an
interested stockholder; and
- the members or associates of any such persons.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitation of Liability. As permitted by the Delaware General Corporation
Law, our certificate of incorporation provides that our directors will not be
personally liable for monetary damages to our company for certain breaches of
their fiduciary duty as directors, unless they violate their duty of loyalty to
our company, act in bad faith, knowingly or intentionally violate the law,
authorize illegal dividends or redemptions, or derive improper personal benefits
from their actions as directors. This provision has no effect on the
availability of remedies such as an injunction or rescission of improper
transactions. This provision applies only to claims against a director arising
out of his or her role as a director and not in any other capacity (such as an
officer or employee). Liability of a director for violations of the federal
securities laws is not limited by this provision. Directors, however, will not
be liable for monetary damages arising from decisions involving violations of
the duty of care even if the decisions are grossly negligent.
Indemnification. Under our Certificate of Incorporation, our directors and
officers are to be indemnified by our company to the fullest extent allowed by
Delaware law, against all expenses and liabilities reasonably incurred in
connection with their service for or on behalf of our company. Our company is
also authorized to enter into indemnification agreements that provide for
indemnification greater or different from that provided in the certificate of
incorporation.
We have been advised that in the opinion of the Securities and Commission
indemnification for liabilities arising under the Securities Act of 1933 is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is LaSalle National
Bank, located at 135 South LaSalle Street, Chicago, Illinois 60628.
62
<PAGE> 68
LEGAL MATTERS
Sachnoff & Weaver, Chicago, Illinois has reviewed and will issue an opinion
about the legality of the shares of common stock and the warrants we are
offering by virtue of this prospectus.
EXPERTS
The financial statements and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act
with the Security and Exchange Commission. The registration statement covers the
common stock and warrants being offered by our company and the selling
stockholders. This prospectus is a part of that registration statement. This
prospectus does not contain all of the information included in the registration
statement and its exhibits and schedules. If you would like further information
concerning our company and the common stock and warrants we are offering, please
review the complete registration statement. This prospectus contains statements
concerning contracts or other documents which are not necessarily complete.
Copies of those contracts or documents have been filed as exhibits to our
registration statement.
Our registration statement, including the exhibits and schedules, as well
as other reports, proxy statements and other information we file with the
Securities and Exchange Commission; may be viewed without charge at the
Securities and Exchange Commission's offices located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 in the Public Reference Room and at the regional offices
of the Securities and Exchange Commission located at 500 West Madison Street,
Fourteenth Floor, Chicago, Illinois 60661 or 75 Park Place, Suite 1400, New
York, New York 10007. Copies of all or any part of the registration statement
may be obtained from these offices after payment of fees set by the Securities
and Exchange Commission. The Securities and Exchange Commission also maintains a
site on the World Wide Web at http://www.sec.gov that contains reports,
prospectus statements and other information regarding registrants.
63
<PAGE> 69
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1998 and
1999 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
F-1
<PAGE> 70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Security Associates International, Inc.:
We have audited the accompanying consolidated balance sheets of SECURITY
ASSOCIATES INTERNATIONAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1997, 1998 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Associates
International, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the years ended December
31, 1997, 1998 and 1999, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14 (a) (2) of this form 10-K is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 2, 2000
F-2
<PAGE> 71
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
ASSETS 1998 1999
- -------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,480,869 $ 631,521
Accounts receivable, net 3,633,352 1,828,895
Other current assets 286,033 550,009
----------- ----------
Total current assets 5,400,254 3,010,425
----------- ----------
FURNITURE AND EQUIPMENT, net 2,974,346 4,045,524
----------- ----------
OTHER ASSETS:
Contract rights to monitor security systems, net 15,252,814 -
Goodwill, net 23,123,820 25,911,332
Other assets, net 774,516 373,369
----------- ----------
Total other assets 39,151,150 26,284,701
----------- ----------
Total assets $47,525,750 33,340,650
=========== ==========
</TABLE>
F-3
<PAGE> 72
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999
- -------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 514,877 $ 463,310
Current maturities of long-term notes payable 2,174,038 1,973,352
Accrued expenses 3,452,199 3,923,722
Unearned revenues 3,709,328 499,407
----------- ------------
Total current liabilities 9,850,442 6,859,791
NOTES PAYABLE, net of current maturities 25,306,462 12,314,460
NOTES PAYABLE, related party 8,500,000 -
----------- ------------
Total liabilities 43,656,904 19,174,251
----------- ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock, $10 par value; 66,660
shares outstanding on December 31, 1998
(liquidation value of $16,665,000 at December
1998 666,596 -
12% redeemable/convertible preferred stock, $10
par value; 500,000 shares outstanding on
December 31, 1998 5,000,000 -
Series A convertible preferred stock, $10 par value,
137,686 shares authorized, 136,359 shares
outstanding on December 31, 1999, liquidation
preference $350 per share - 1,363,590
Common stock, $.001 par value; 50,000,000 shares
authorized; 6,771,807 and 7,145,287 shares
outstanding on December 31, 1998 and 1999,
respectively 6,771 7,145
Warrants, net 60,748 111,689
Additional paid-in capital 16,360,092 34,955,971
Accumulated deficit (18,225,361) (22,271,996)
----------- ------------
Total stockholders' equity 3,868,846 14,166,399
----------- ------------
Total liabilities and stockholders' equity $47,525,750 33,340,650
=========== ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
F-4
<PAGE> 73
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------------
1997 1998 1999
------------- --------------- --------------
<S> <C> <C> <C>
NET REVENUE $10,814,087 $20,203,850 $22,689,132
OPERATING UNIT EXPENSE 7,018,392 12,610,489 14,899,687
----------- ----------- -----------
OPERATING UNIT MARGIN 3,795,695 7,593,361 7,789,445
OPERATING EXPENSES:
Amortization and depreciation 3,703,543 6,288,489 5,713,890
General and administrative 1,595,181 2,488,058 2,546,935
Selling, marketing and business development 296,977 1,614,007 2,459,845
Deferred compensation expense 862,034 609,103 -
----------- ----------- -----------
Total operating expenses 6,457,735 10,999,657 10,720,670
----------- ----------- -----------
Loss from operations (2,662,040) (3,406,296) (2,931,225)
GAIN ON SALE OF OWNED SUBSCRIBER
ACCOUNTS - - 1,899,155
INTEREST EXPENSE (1,862,606) (2,869,593) (2,564,565)
----------- ----------- -----------
Loss before income taxes (4,524,646) (6,275,889) (3,596,635)
PROVISION FOR INCOME TAXES - - -
----------- ----------- -----------
Net loss (4,524,646) (6,275,889) (3,596,635)
DIVIDENDS ACCRUED ON PREFERRED
STOCK (412,997) (522,084) (450,000)
----------- ----------- -----------
Net loss available to
common stockholders $(4,937,643) $(6,797,973) (4,046,635)
=========== =========== ===========
NET LOSS PER SHARE $ (1.16) $ (1.06) $ (.59)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,266,151 6,394,048 6,897,200
=========== =========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 74
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE 12% REDEEMABLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 3,699,375 $ 3,699 35,478 $ 354,780 344,165 $3,441,650
Issuance of preferred stock -- -- 29,107 291,066 -- --
Issuance of common stock related to
deferred compensation plan 162,265 162 -- -- -- --
Issuance of common stock 2,410,655 2,411 -- -- -- --
Accrued dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ---------- ------- --------- -------- ----------
BALANCE, December 31, 1997 6,272,295 6,272 64,585 645,846 344,165 3,441,650
Issuance of preferred stock -- -- 2,075 20,750 155,835 1,558,350
Issuance of common stock related to
deferred compensation plan 154,693 154 -- -- -- --
Issuance of common stock 344,819 345 -- -- -- --
Warrants -- -- -- -- -- --
Accrued dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- --------- ------- --------- --------- ----------
BALANCE, December 31, 1998 6,771,807 6,771 66,660 666,596 500,000 5,000,000
Issuance of Series A Convertible preferred
stock -- -- (66,660) (666,596) (500,000) (5,000,000)
Issuance of common stock 373,480 374 -- -- -- --
Warrants -- -- -- -- -- --
Accrued dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ---------- ------- --------- --------- ----------
BALANCE, December 31, 1999 7,145,287 7,145 -- -- -- --
=========== ========== ======= ========= ========= ==========
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK ADDITIONAL TOTAL
----------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT WARRANTS CAPITAL DEFICIT EQUITY
-------------------- ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 -- -- $ -- $ 3,958,080 $ (6,489,745) $ 1,268,464
Issuance of preferred stock -- -- -- 4,267,793 -- 4,558,859
Issuance of common stock related to
deferred compensation plan
Issuance of common stock -- -- -- 5,476,566 -- 5,478,977
Accrued dividends -- -- -- -- (412,997) (412,997)
Net loss -- -- -- -- (4,524,646) (4,524,646)
-------- --------- -------- ----------- ------------ ------------
BALANCE, December 31, 1997 -- -- -- 14,564,311 (11,427,388) 7,230,691
Issuance of preferred stock -- -- -- 224,250 -- 1,803,350
Issuance of common stock related to
deferred compensation plan -- -- -- 608,949 -- 609,103
Warrants -- -- 60,748 -- -- 60,748
Accrued dividends -- -- -- -- (522,084) (522,084)
Net loss -- -- -- -- (6,275,889) (6,275,889)
-------- --------- -------- ----------- ------------ ------------
BALANCE, December 31, 1998 -- -- 60,748 16,360,092 (18,225,361) 3,868,846
Issuance of Series A Convertible preferred
stock 136,359 1,363,590 -- 17,972,922 -- 13,669,916
Issuance of common stock -- -- -- 622,957 -- 623,331
Warrants -- -- 50,941 -- -- 50,941
Accrued dividends -- -- -- -- (450,000) (450,000)
Net loss -- -- -- -- (3,596,635) (3,596,635)
-------- --------- -------- ----------- ------------ ------------
BALANCE, December 31, 1999 136,359 1,363,590 111,689 34,955,971 (22,271,996) 14,166,399
======== ========= ======== =========== ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-6
<PAGE> 75
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------
1997 1998 1999
-------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,524,646) $ (6,275,889) $ (3,596,635)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities-
Gain on sale of owned subscriber accounts -- -- (1,899,155)
Issuance of common stock for services -- 16,502 67,226
Amortization and depreciation 3,703,543 6,288,489 5,713,890
Deferred compensation expense 862,034 609,103 --
Warrants and stock issued under dealer stock incentive
plan -- 70,402 255,282
Changes in assets and liabilities-
Accounts receivable, net (1,047,691) (304,071) 2,156,519
Other current assets 46,147 97,990 (209,187)
Other long-term assets (63,598) (22,952) 92,322
Accounts payable (36,503) (235,706) (176,567)
Accrued expenses 1,481,086 174,850 424,136
Unearned revenue 279,937 (55,703) (3,139,285)
------------- ------------ -------------
Net cash provided by (used for) operating
activities 700,309 363,015 (311,454)
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contract rights to monitor security systems, net (8,056,738) (3,897,659) (1,517,537)
Proceeds from sale of owned subscriber accounts -- -- 22,195,906
Purchase of fixed assets (311,612) (1,752,860) (1,629,484)
Cash paid for acquisition, net (5,818,484) (12,431,112) (5,232,197)
------------- ------------ -------------
Net cash provided by (used for) investing
activities (14,186,834) (18,081,631) 13,816,688
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock 9,987,836 2,048,351 192,500
Dividends accrued on preferred stock (412,997) (522,084) (450,000)
Deferred financing costs (385,400) -- (393,020)
Proceeds from stockholders receivable 25,180 50,000 --
Repayment of notes payable to related parties (136,000) -- --
Proceeds from notes payable to related parties 5,000,000 3,000,000 1,500,000
Repayment of notes payable (4,358,280) (578,588) (20,856,438)
Proceeds from notes payable 8,655,464 9,680,173 5,652,376
------------- ------------ -------------
Net cash provided by (used for) financing
activities 18,375,803 13,677,852 (14,354,582)
------------- ------------ -------------
INCREASE (DECREASE) IN CASH 4,889,278 (4,040,764) (849,348)
CASH AND CASH EQUIVALENTS, beginning of year 632,355 5,521,633 1,480,869
------------- ------------ -------------
CASH AND CASH EQUIVALENTS, end of year $ 5,521,633 $ 1,480,869 631,521
============= ============ =============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-7
<PAGE> 76
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
1. DESCRIPTION OF THE BUSINESS
COMPANY BACKGROUND
Security Associates International, Inc. ("SAI" or "the Company") provides
monitoring services to independent alarm dealers on a subcontract basis.
Revenues are composed primarily of fees for monitoring services.
2. SUMMARY OF MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements consolidate the accounts of SAI, and its wholly
owned subsidiaries. All intercompany items and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Monitoring fee revenue is recognized as earned over the related contract
period. Services may be billed in advance on a monthly, quarterly or
annual basis and amounts not earned are included as unearned revenues.
ACCOUNTS RECEIVABLE
The Company grants unsecured trade credit to customers in the normal
course of business. Receivables in the accompanying consolidated balance
sheets are net of reserves for doubtful accounts of approximately $737,000
and $499,000 as of December 31, 1998 and 1999, respectively.
GOODWILL
Goodwill is recorded as the cost of purchased businesses in excess of the
fair value of the net assets acquired and is amortized on a straight-line
basis over a period of
F-8
<PAGE> 77
three to fifteen years. The Company regularly reviews the performance of
acquired businesses to evaluate the realizability of the underlying
goodwill. Goodwill in the accompanying consolidated balance sheets is net
of accumulated amortization of approximately $2,724,000 and $4,861,000 as
of December 31, 1998 and 1999, respectively.
OTHER LONG-TERM ASSETS
Other long-term assets consist primarily of deferred financing costs. The
deferred financing costs are being amortized over the life of the related
loan. Other long-term assets in the accompanying consolidated balance
sheets are net of accumulated amortization of approximately $301,000 and
$20,000 as of December 31, 1998 and 1999, respectively.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is calculated
using straight-line methods for both financial statement and income tax
purposes over an estimated useful life of three to seven years.
Depreciation expense for 1999 was $1,028,000.
The following is a summary of furniture and equipment by major class of
assets:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1999
---------- ---------
<S> <C> <C>
Equipment $3,388,570 5,310,710
Automobiles/trucks 20,188 20,188
Leasehold improvements 121,054 282,365
Work in process 113,202 -
---------- ---------
3,643,014 5,613,263
Less- Accumulated depreciation 668,668 1,567,739
---------- ---------
$2,974,346 4,045,524
========== =========
</TABLE>
RENT EXPENSE
The Company leases its office building and the facilities from which their
central stations operate for various periods and amounts through the year
2004. Rent expense was approximately $511,000, $830,000 and $920,000 for
the years ended December 31, 1997, 1998 and 1999, respectively.
F-9
<PAGE> 78
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
As of December 31-
<S> <C>
2000 974,225
2001 827,000
2002 789,000
2003 497,000
2004 and thereafter 374,400
========
</TABLE>
ACCRUED EXPENSES
Accrued expenses are composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1999
---------- ----------
<S> <C> <C>
Accrued interest $1,569,920 188,741
Accrued dividends 935,081 -
Accrued payroll and vacation 377,840 775,558
Accruals related to sale of owned
subscriber accounts - 2,260,289
Accrued telephone 104,900 148,675
Other 464,458 550,459
---------- ----------
$3,452,199 $3,923,722
========== ==========
</TABLE>
INCOME TAXES
SAI accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement
109"). As of December 31, 1998 and 1999, SAI had net operating loss
carryforwards of approximately $16.0 million and $16.9 million,
respectively. The tax net operating losses begin to expire in 2005. As of
December 31, 1998 and 1999, no tax benefit has been recognized for these
loss carryforwards.
F-10
<PAGE> 79
The components of the Company's deferred tax assets at December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Net operating loss carryforwards $6,181,000 6,491,000
Temporary timing differences 606,000 1,324,000
---------- ----------
Total deferred tax assets 6,787,000 7,815,000
Valuation allowance (6,787,000) (7,815,000)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
</TABLE>
NET LOSS PER SHARE
Net loss per share is computed based upon the weighted number of common
shares outstanding during the periods presented. Stock options and Series
A Convertible Preferred Stock have not been included in the calculation of
net loss per share as their effect would be antidilutive.
F-11
<PAGE> 80
STATEMENT OF CASH FLOWS
SAI considers investments purchased with an original maturity of three
months or less to be cash equivalents. Supplemental cash flow information
includes the following:
<TABLE>
<CAPTION>
-------------------------------------------------
December 31
-------------------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental schedule of cash flow information-
Cash paid during the year for interest $1,141,493 $2,177,909 $1,861,887
Supplemental schedule of noncash activities-
Issuance of stock for subscription receivable 50,000 - -
Issuance of stock for central station and
contract rights acquisitions - 691,770 337,478
Accrued expenses incurred in the sale of owned
subscriber accounts - - 3,097,278
Purchase of contract rights reduced by
unearned revenue acquired 580,616 397,544 149,710
Note payable from sale of owned subscriber
accounts - - 1,800,000
Subordinated debt paid for with Series A
Convertible Preferred Stock - - 10,000,000
Accrued interest and dividends paid for with
Series A Convertible Preferred Stock - - 3,576,166
Holdback notes reduced due to account attrition 476,492 505,518 279,629
---------- ---------- ----------
Purchase of contract rights with notes 1,021,813 863,921 245,850
========== ========== ==========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the SAI's long-term debt, which approximates the
carrying value, is estimated based on the current rates offered to SAI for
debt of the same remaining maturities.
F-12
<PAGE> 81
RECLASSIFICATIONS
The presentation of the statement of operations has been changed to more
clearly depict SAI's activities. Therefore, prior period results have been
reclassified to conform to the new presentation.
3. ACQUISITIONS
In November and December 1999, SAI acquired four central monitoring
stations located in the U.S. All of these acquisitions were accounted for
under the purchase method of accounting. SAI acquired these central
monitoring stations with $5,232,197 in cash plus 100,000 shares of the
SAI's common stock with a fair market value of $200,000 at the time of
acquisition. Total goodwill of $5,401,181 was recorded and is being
amortized over a 3-15 year period. The consolidated financial statements
include the results of these acquired companies since the date of
acquisition.
In 1998, the Company acquired seven central monitoring stations located in
the U.S. All of these acquisitions were accounted for under the purchase
method of accounting. The Company acquired these companies with
$12,431,113 in cash plus 89,000 shares of the Company's common stock with
a fair market value of $510,062 at the time of the acquisition. Total
goodwill of $12,567,650 was recorded and is being amortized over a 3-15
year period. The consolidated financial statements include the results of
these acquired companies since the date of acquisition.
On November 24, 1997, SAI purchased the stock of a central station. The
acquisition was accounted for under the purchase method of accounting. The
purchase price was $5,000,000 in cash. Goodwill of approximately
$5,088,000 was recorded as a result of this transaction and is being
amortized over 15 years.
F-13
<PAGE> 82
The following pro forma consolidated results of operations have been
prepared as if the acquisitions of central monitoring stations occurred at
the beginning of the year of acquisition and in the year immediately
preceding the acquisition. The sale of the owned subscriber accounts
discussed in note 5 is shown as if the transaction occurred at the
beginning of 1998 and 1999. The pro forma results of operations includes
adjustments for amortization of intangible assets and changes in interest
expense corresponding to changes in debt (in 000's):
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
1997 1998 1999
<S> <C> <C> <C>
Monitoring fees and other revenues $ 21,130 $ 17,146 $ 18,969
Selling and administrative expenses 18,017 15,589 18,166
Payroll expense paid to terminated employees 578 1,219 -
Amortization and depreciation 5,419 2,468 3,395
----------- ---------- ----------
Loss from operations (2,884) (2,130) (2,592)
Interest expense 2,955 1,252 1,589
----------- ---------- ----------
Loss before income taxes (5,839) (3,382) (4,181)
Income tax expense - - -
----------- ---------- -----------
Net loss (5,839) (3,382) (4,181)
Dividends accrued on preferred stock 413 522 450
----------- ---------- ----------
Net loss available to common stockholders $ (6,252) $ (3,904) (4,631)
----------- ---------- ----------
Net loss per share $ (1.45) $ (.61) $ (.66)
Weighted average shares outstanding 4,301,151 6,429,048 6,980,533
=========== ========== ==========
</TABLE>
The pro forma statement of income does not purport to represent what the
Company's results of operations would actually have been had the
acquisition or disposition been effected for the periods presented, or to
predict the Company's results of operations for any future period.
4. PREFERRED STOCK
On September 30, 1999, SAI entered into the Second Amendment to Security
Associates International, Inc. Common Stock Subscription and Purchase
Agreement with TJS Partners, L.P., SAI's principal stockholder. Pursuant
to this agreement: (i) $10,000,000 of subordinated debt and accrued
interest owed by SAI to TJS Partners, L.P.; (ii) 66,910 shares of
Convertible Preferred Stock; and, (iii) 500,000 shares of 12% Redeemable
Preferred Stock, together with all accrued dividends were exchanged for
135,709 shares of newly designated Series A Convertible Preferred Stock.
The Series A Convertible Preferred Stock has a $10 par value, a
liquidation preference of $350 per share and is convertible into
13,570,900 shares of SAI's common stock. The Series A Convertible
Preferred Stock is also entitled to receive
F-14
<PAGE> 83
dividends equal to those that would have been received if the holder had
converted into common stock.
The holder of Series A Convertible Preferred Stock is entitled to vote on
all matters on which holders of SAI's common stock are entitled to vote,
on an as-converted basis. However, the total voting power of all
securities owned by the holder of Series A Convertible Preferred Stock is
limited to a maximum of 45% of the total number of votes eligible to vote
on a matter submitted to our stockholders.
In connection with the restructuring, SAI's By-laws were amended to
increase the percentage of votes required to approve matters presented to
the stockholders from a simple majority to requiring approval by greater
than sixty (60) percent. This super-majority provision will be in effect
for as long as TJS Partners, L.P. owns 30% of SAI's common stock on an
as-converted basis. Additionally, for so long as TJS Partners, L.P. owns
at least fifteen percent (15%) of SAI's common stock on an as-converted
basis, SAI's Board of Directors will consist of five directors.
5. SALE OF OWNED SUBSCRIBER ACCOUNTS
On June 30, 1999 SAI sold its portfolio of approximately 27,000 owned
subscriber accounts to an unaffiliated third party. SAI will continue to
monitor these accounts.
The total transaction value was $22,800,000 of which $1,800,000 was a loan
extended by the purchaser. The loan is due on June 30, 2000 and bears
interest at the rate of 8% per annum. The loan and interest will be
considered paid in full with no cash paid by SAI, if during the term of
the loan SAI meets certain minimum new business referral targets.
SAI also agreed to guarantee attrition between 8% and 13% on a substantial
majority of the portfolio sold for a one year period. The remaining small
portion of the portfolio has a substantially higher attrition guarantee
percentage. An accrual for $1,700,000 was recorded to recognize this
guarantee. Additionally, SAI recorded an accrual of $547,000 for severance
and related expenses and an accrual for $850,000 to provide for moving the
accounts sold to phone lines owned by the purchaser.
6. LONG-TERM NOTES PAYABLE
On September 30, 1999, SAI refinanced its previous $30,000,000 line of
credit with FINOVA Capital Corporation. This previous line of credit had a
principal balance outstanding of approximately $6,600,000 on the closing
date. The refinancing with FINOVA and Citizens Bank consists of a term
loan and an acquisition line of credit. The term loan was in the principal
amount of $7,000,000, which covered SAI's existing indebtedness to FINOVA
and working capital. The acquisition line of credit of up to $38,000,000
is solely for acquisitions of central monitoring stations. SAI may draw on
this line of credit through March 31, 2001. The Company is currently
negotiating with its financing sources to modify its financing
arrangements.
F-15
<PAGE> 84
Management believes that these arrangements will provide adequate
resources to fund current needs. Both the term loan and the acquisition
line of credit bear initial interest at a variable rate of prime plus
0.75% (9.25% at year end). The interest rate is, however subject to an
upward adjustment depending on the loan to recurring monthly revenue
ratio. The loans mature as follows:
2.75% per quarter, beginning July,
2001
3.0% per quarter, beginning April,
2002
4.25% per quarter, beginning April,
2003
5.75% per quarter, beginning April,
2004, balance due December 31,
2004
Long-term debt consists of the following notes payable:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Note payable to Finova $26,609,730 $12,314,460
Note payable in connection with sale of owned
subscriber accounts - 1,800,000
Notes payable to Alarm Dealers 786,806 162,998
Other 83,964 10,354
----------- -----------
Total long-term debt 27,480,500 14,287,812
Current maturities (2,174,038) (1,973,352)
----------- -----------
$25,306,462 $12,314,460
=========== ===========
Notes payable to stockholder $ 8,500,000 -
=========== ===========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
As of December 31-
<S> <C>
2001 677,285
2002 1,446,949
2003 1,939,528
2004 8,250,688
----------
12,314,460
==========
</TABLE>
F-16
<PAGE> 85
7. EMPLOYEE BENEFIT PLAN
In April 1997, the Company adopted a 401(k) plan. Effective June 1, 1997,
employees were enrolled subject to the eligibility requirements of the
plan. The Company matches participant contributions up to 50% of the first
4% of each participant's compensation that is contributed to the plan.
Company contributions to the plan in 1999, 1998 and 1997 were
approximately $85,000, $24,200 and $$6,000, respectively.
On April 1, 1999 SAI adopted an employee stock purchase plan to provide
employees an opportunity to purchase shares of its common stock through
payroll deductions. Under this Plan, eligible employees may purchase
shares of SAI common stock at 85% of their market value on April 1, 1999.
Individual purchases of stock may not exceed $25,000 in fair market value
annually (determined at the time of grant). Employees in the plan as of
April 1, 1999 will be entitled to receive their shares on July 1, 2001.
Total shares committed, based on employees currently in the plan, are
approximately 100,000.
8. LEGAL PROCEEDINGS
From time to time SAI experiences routine litigation in the normal course
of its business. As these claims fall primarily under available insurance
coverage, management does not believe that any pending litigation will
have a material adverse effect on the Company's financial condition or
results of operations.
9. STOCK OPTIONS AND WARRANTS
At the discretion of management and approval by the Board of Directors,
the Company may grant options and warrants to purchase shares of the
Company's common stock and convertible preferred stock to certain
individuals. The exercise price may not be less than fair market value of
the common stock at the date of grant. Management and the Board of
Directors determine vesting periods and expiration dates at the time of
grant.
The Company applies APB Opinion No. 25 in accounting for options and
warrants issued to employees and directors. Accordingly, no compensation
cost has been recognized for stock options and warrants granted to those
individuals.
On July 8,1999 the Company issued options to purchase 1,580,000 shares of
common stock to its officers and directors under a stock option plan
approved by the shareholders. Options to purchase 790,000 of these shares
have an exercise price of $4.50 per share and the remaining options have
an exercise price of $6.00 per share. All options expire 6 years from the
date of grant and vest over a three year period. Had compensation costs
for the stock options and warrants issued to directors and employees been
determined based on the fair value at their grant date,
F-17
<PAGE> 86
the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss-
As reported $(4,524,646) $(6,275,889) $(4,046,635)
Pro forma (4,670,146) (6,363,889) (5,887,335)
Primary loss per share-
As reported (1.16) (1.06) (.59)
Pro forma (1.19) (1.07) (.85)
=========== =========== ===========
</TABLE>
Because the method of accounting prescribed in SFAS 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected
in future years.
The Company also issues warrants and stock to dealers under its dealer
incentive program. The stock and warrants issued under this program vest
25% upon issuance and 25% on each of the first three anniversary dates
after issuance. The number of shares and warrants issued under this
program at December 31, 1998 and 1999 were 254,912 and 548,802
respectively. The amount charged to expense related to stock and warrants
issued under this program was $255,282 and $70,402 during 1999 and 1998,
respectively. The share value was determined based on the market price of
the Company's stock on the date of issuance. The fair value of each option
and warrant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions; risk-free interest
rates between 4.53% and 6.17%; zero dividend yield; expected lives through
the expiration dates; and volatility between 42.30% and 135.46%.
The following summarizes the stock options and warrants for common stock
as of December 31, 1997, 1998 and 1999, and the changes during the years
then ending:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ---------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 1,840,878 $ .74 480,223 $1.76 418,827 $3.53
Granted 50,000 6.00 181,104 6.00 1,580,000 5.25
Exercised 1,410,655 .55 207,500 1.18 90,000 1.07
Canceled - - 35,000 6.00
--------- ------ -------- -------- --------- --------
End of year 480,223 $ 1.76 418,827 $3.53 1,908,827 $5.18
========= ====== ======== ======== ========= ========
Exercisable as of end of
year 405,223 252,999 268,275
========= ======== =========
</TABLE>
F-18
<PAGE> 87
The future expiration of the common stock options is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------ ----------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- -------- --------
As of December 31-
<S> <C> <C> <C> <C>
2000 125,000 $1.60 125,000 $1.60
2002 156,104 6.00 95,552 6.00
2003 22,723 4.14 22,723 4.14
2004 25,000 6.00 25,000 6.00
2005 1,580,000 5.25 - -
--------- ------- ------- --------
1,908,827 $5.18 268,275 $3.79
========= ======= ======= ========
</TABLE>
The Company has granted stock options and warrants to purchase shares of
convertible preferred stock which mirror certain of the Common Stock
options and warrants listed above and are only exercisable upon exercise
of the respective Common Stock options and warrants.
The following summarizes the stock options and warrants for convertible
preferred stock as of December 31, 1997, 1998 and 1999, and the changes
during the years then ended:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 33,409 $153.65 4,302 $130.46 2,227 $137.79
Granted - - - -
Exercised 29,107 156.62 2,075 118.07 900 106.94
Canceled - - - -
------- -------- ------- -------- ------ --------
End of year/period 4,302 $130.46 2,227 $137.79 1,327 $153.80
======= ======== ======= ======== ====== ========
</TABLE>
10. SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted FASB No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
requires that public business enterprises report certain financial
information in a similar manner as reported to the chief operating
decision makers of the Company for the purposes of evaluating performance
and allocating resources to the various operating segments. For the
purposes of this disclosure, the Company has identified two operating
segments, based upon the types of customers served. The Company owns
accounts to which it invoices subscribers directly for monitoring
services. The Company also provides monitoring to dealers in its central
station operation.
F-19
<PAGE> 88
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating income or loss before interest and income
taxes and operating cash flows as defined by operating income or loss plus
depreciation and amortization. The Company does not separately identify
interest expense, for its operating segments. Intersegment sales and
transfers are immaterial and therefore not disclosed below. The Company
also does not allocate corporate, general and administrative and payroll
expense to its operating segments.
On June 30, 1999 SAI sold its owned accounts. See Note 5.
Financial data by operating segment together with the items necessary to
reconcile these amounts to the consolidated financial statements are shown
below for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
CORPORATE
OWNED CENTRAL AND
ACCOUNTS STATION INTERCOMPANY CONSOLIDATED
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997-
Revenues $5,018,234 $ 6,680,882 $ (885,029) $10,814,087
Selling, marketing and business
development expenses - - 296,977 296,977
Depreciation and amortization 2,941,458 762,085 - 3,703,543
Operating income (loss) (724,526) 816,678 (2,754,192) (2,662,040)
Total assets 20,531,034 15,477,669 - 36,008,703
Capital expenditures 141,419 170,193 - 311,612
============== ============ =========== =============
Year ended December 31, 1998-
Revenues $6,942,036 $14,667,212 $(1,405,398) $20,203,850
Selling, marketing and business
development expenses - - 1,614,007 1,614,007
Depreciation and amortization 4,292,171 1,996,318 - 6,288,489
Operating income (loss) (1,074,121) 1,684,500 (4,016,675) (3,406,296)
Total assets 20,174,732 27,351,018 - 47,525,750
Capital expenditures 281,360 1,358,298 113,202 1,752,860
============== =========== =========== ==============
</TABLE>
F-20
<PAGE> 89
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year ended December 31, 1999-
Revenues 3,720,169 $19,768,281 $(799,318) $22,689,132
Selling, marketing and business
development expenses - 851,125 1,608,720 2,459,845
Depreciation and amortization 2,319,183 3,331,253 63,454 5,713,890
Operating income (loss) (338,779) 1,063,340 (3,655,786) (2,931,225)
Total assets - 31,688,384 1,652,266 33,340,650
Capital expenditures - 1,527,455 102,029 1,629,484
========= =========== ========== ==========
</TABLE>
The Company is currently providing services to customers only within the
United States and all long-lived assets are located in the United States.
No single customer accounted for more than 10% of the Company's revenues.
F-21
<PAGE> 90
No Dealer, sales person or other person has been, authorized to give, any
information or to make any representations other than those contained in this
prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by us. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
by anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this prospectus nor any sale made in
connection with this prospectus shall create any implication that the
information contained in this prospectus is correct as of any time subsequent to
its date.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................................... 1
SUMMARY FINANCIAL DATA...................................................... 4
RISK FACTORS................................................................ 5
THE SECURITIES THAT ARE BEING OFFERED THROUGH THIS PROSPECTUS............... 8
BUSINESS.................................................................... 9
USE OF PROCEEDS............................................................. 29
PRICE RANGE OF COMMON STOCK................................................. 31
STOCKHOLDER RETURN AND PERFORMANCE GRAPH.................................... 31
DIVIDENDS................................................................... 32
SELECTED FINANCIAL DATA..................................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................. 33
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................. 41
MANAGEMENT.................................................................. 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 47
PRINCIPAL AND SELLING STOCKHOLDERS.......................................... 51
DESCRIPTION OF CAPITAL STOCK................................................ 59
LEGAL MATTERS............................................................... 63
EXPERTS..................................................................... 63
ADDITIONAL INFORMATION...................................................... 63
FINANCIAL STATEMENTS........................................................F-1
7,696,688 SHARES AND
2,000,000 WARRANTS
SECURITY ASSOCIATES
INTERNATIONAL, INC.
COMMON STOCK
AND
WARRANTS
PROSPECTUS
________, 2000
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereby. All the amounts shown
are estimated, except the SEC registration fee.
SEC registration fee $ 10,700
--------
Blue Sky filing fees and expenses 1,500*
-------
Printing expenses 74,225*
-------
Legal fees and expenses 140,000*
-------
Auditors' accounting fees and expenses 65,500*
------
Transfer Agent and Registrar fees and expenses 9,000*
-------
Miscellaneous expenses 12,000*
========
Total $312,925*
--------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL empowers a Delaware corporation
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened because
such person is or was a director, officer, employee or agent of the corporation
or was serving as such with respect to another corporation or other entity at
the request of such corporation.
In accordance with Section 102(b)(7) of the DGCL, Article IX of the
Company's Amended and Restated Certificate of Incorporation provides that "a
director of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit."
The Company's Amended and Restated Certificate of Incorporation and By-Laws
contain provisions that require the Company to indemnify its directors and
officers to the fullest extent permitted by Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, we have issued the following securities that were
not registered under the Securities Act of 1933, as amended (the "Securities
Act"):
II-1
<PAGE> 92
Issuances for Services
On November 25, 1997, James W. Osborne was issued options to purchase
50,000 shares of common stock at a price of $6.00 per share. These options
expire November 25, 2003, and were issued in consideration of his employment
agreement with us. This option vests at a rate of 20% (10,000 shares) per year,
and terminates upon any material breach of his employment agreement. Mr. Osborne
left our employment before the expiration of the term of his employment
agreement with us. As a result, options to purchase only 15,000 shares vested,
and the options to purchase the other 35,000 shares were cancelled.
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. These options were to expire on December 31, 2002. On
July 8, 1999, the Board extended the expiration date of Mr. Jones' options to
July 8, 2005.
On January 6, 1998, ProFinance Associates, Inc. was issued options to
purchase 25,000 shares of common stock at a price of $6.00 per share. These
options were to expire on December 31, 2002, and were issued in partial
consideration of brokerage services rendered to us. Michael B. Jones, currently
one of our directors, is a principal of ProFinance Associates, Inc. On July 8,
1999, the Board extended the expiration date of these options to July 8, 2005.
These options were subsequently transferred into a family trust.
On January 15, 1998, Timothy Newman was awarded 800 shares of common stock
as a bonus for his performance as an employee.
On June 2, 1998, Gregory A. Hunigan was awarded 1,000 shares of common
stock as a bonus for his performance as an employee.
On November 4, 1998, we issued 623 shares of common stock to Kismet Group,
Ltd. in payment for services.
On December 31, 1998, we issued 1,088 shares of common stock to Kismet
Group, Ltd. in payment for services.
On March 31, 1999, we issued 35,160 shares of common stock to a former
employee as a distribution from our Supplemental Employees' Retirement Plan upon
his termination as an employee. These shares were registered on Form S-8 on May
6, 1999.
On March 31, 1999, we issued 1,088 shares of common stock to Kismet Group,
Ltd. in payment for services.
On March 31, 1999, we issued 12,931 shares of common stock to employees, as
stock bonuses for their performance. These shares were later registered on Form
S-8 on May 6, 1999.
On June 30, 1999, we issued 1,343 shares of common stock to Kismet Group,
Ltd. in payment for services.
II-2
<PAGE> 93
On September 30, 1999, we issued 1,653 shares of common stock to Kismet
Group, Ltd. in payment for services.
On December 30, 1999, we issued 1,846 shares of common stock to Kismet
Group, Ltd. in payment for services.
On January 19, 2000 we extended the expiration date on options to purchase
50,000 shares of common stock (25,000 shares at $2.00 per share and 25,000
shares at $3.00 per share) held by Buttonwood Advisory Group, Inc., to June 15,
2000.
On March 13, 2000, we issued option to purchase 123,000 shares of common
stock to certain key employees pursuant to our Stock Option Plan. The underlying
shares of common stock are registered on Form S-8; the options to purchase the
shares are not registered.
No underwriters were engaged in connection with the foregoing sales of
securities. These sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. Sales were made to
a very limited number of purchasers. We received no cash consideration.
TJS Partners, L.P.'s Investments
During 1997, TJS, our principal stockholder, exercised options to purchase
14,106.55 shares of Convertible Preferred Stock, each of which was convertible
into 100 shares of our common stock, for an aggregate purchase price of
$821,290, and a warrant to purchase 15,000 shares of Convertible Preferred Stock
for an aggregate purchase price of $3,750,000. Each option and warrant exercise
is detailed below under "Exercise of Options and Warrants."
During 1998, TJS exercised options to purchase 2,075 shares of Convertible
Preferred Stock for an aggregate purchase price of $245,000. Each option
exercise is detailed below under "Exercise of Options and Warrants." TJS also
purchased 155,835 shares of Redeemable Preferred Stock, which accrued dividends
at the rate of 12% a year, on June 1, 1998, for a purchase price of $1,558,350.
During 1999, TJS exercised options to purchase 250 shares of Convertible
Preferred Stock for an aggregate purchase price of $25,000.
On September 30, 1999, we entered into the Second Amendment to Security
Associates International, Inc. Common Stock Subscription and Purchase Agreement
with TJS. Pursuant to this agreement: (i) $10,000,000 of subordinated debt and
accrued interest owed by us to TJS, (ii) 66,910 shares of Convertible Preferred
Stock; and, (iii) 500,000 shares of Redeemable Preferred Stock, together with
all accrued dividends were exchanged for 135,709 shares of newly designated
Series A Convertible Preferred Stock.
The Series A Convertible Preferred Stock has a $10 par value, a liquidation
preference of $350 per share and is convertible into 13,570,900 shares of our
common stock. The Series A Convertible Preferred Stock is also entitled to
receive dividends equal to those that would have been received if the holder
had converted into common stock.
II-3
<PAGE> 94
The holder of Series A Convertible Preferred Stock is entitled to vote on
all matters on which holders of our common stock are entitled to vote, on an
as-converted basis. However, the total voting power of all securities owned by
the holder of Series A Convertible Preferred Stock is limited to a maximum of
45% of the total number of votes eligible to vote on a matter submitted to our
stockholders.
In connection with the restructuring, our By-laws were amended to increase
the percentage of votes required to approve matters presented to the
stockholders from a simple majority to requiring greater than sixty (60)
percent. This super-majority provision will be in effect for as long as TJS owns
30% of our common stock on an as-converted basis. Additionally, for so long as
TJS owns at least fifteen percent (15%) of our common stock on an as-converted
basis, our Board of Directors will consist of five directors.
During 1999, TJS exercised options to purchase 650 shares of Series A
Convertible Preferred Stock for an aggregate purchase price of $71,250.
No underwriters were engaged in connection with the foregoing sales of
securities. These sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. Sales were made to
a very limited number of purchasers.
Exercise of Options and Warrants
On March 18, 1997, Robert Brown exercised options to purchase 25,000 shares
of common stock for a total consideration of $11,050.
On March 18, 1997, Bobbie Conrad exercised options to purchase 20,000
shares of common stock for a total consideration of $8,840.
On March 18, 1997, Anita M. Delmar exercised options to purchase 20,000
shares of common stock for a total consideration of $8,840.
On March 18, 1997, Robert H. Dilworth exercised options to purchase 50,000
shares of common stock for a total consideration of $22,100.
On March 18, 1997, Dianne G. Freeman exercised options to purchase 25,000
shares of common stock for a total consideration of $11,050.
On March 31, 1997, Phyllis Greinwald exercised options to purchase 77,000
shares of common stock for a total consideration of $34,034.
On March 31, 1997, Inversiones Alanje, C.A. exercised options to purchase
62,500 shares of common stock for a total consideration of $27,625.
On March 31, 1997, Inversiones Aparicio, C.A. exercised options to purchase
120,000 shares
II-4
<PAGE> 95
of common stock for a total consideration of $53,040.
On March 31, 1997, Inversiones Erlanger, C.A. exercised options to purchase
100,000 shares of common stock for a total consideration of $44,200.
On April 22, 1997, TJS exercised options to purchase 5,215.88 shares of
Convertible Preferred Stock for a total consideration of $233,369.
On August 21, 1997, Cheryl L. Grolle exercised options to purchase 250
shares of common stock for a total consideration of $110.
On August 25, 1997, Lorraine Small exercised options to purchase 250 shares
of common stock for a total consideration of $110.
On October 22, 1997, the Sidney Dechter I.R.A. exercised options to
purchase 25,000 shares of common stock for a total consideration of $50,000.
On October 27, 1997, Fred Figge exercised options to purchase 86,000 shares
of common stock for a total consideration of $45,580.
On October 27, 1997, Brady E. Turner exercised options to purchase 12,500
shares of common stock for a total consideration of $25,000.
On October 30, 1997, Infinity Partnership II, by its General Partner James
Greco, exercised options to purchase 10,000 shares of common stock for a total
consideration of $20,000.
On October 30, 1997, Ronald I. Davis exercised options to purchase 278,308
shares of common stock for a total consideration of $158,635.
On October 30, 1997, James S. Brannen exercised options to purchase 278,308
shares of common stock for a total consideration of $158,635.
On October 30, 1997, Stephen Rubin exercised options to purchase 185,539
shares of common stock for a total consideration of $105,757.
On November 5, 1997, TJS exercised a warrant to purchase 15,000 shares of
Convertible Preferred Stock (which is convertible to common stock, at a ratio of
1 to 100), for a total consideration of $3,750,000.
On November 6, 1997, Irwin Jacobson exercised options to purchase 12,500
shares of common stock for a total consideration of $7,125.
On November 6, 1997, Mark Scharmann exercised options to purchase 12,500
shares of common stock for a total consideration of $7,125.
On November 12, 1997, TJS exercised options to purchase 8,761.55 shares of
Convertible
II-5
<PAGE> 96
Preferred Stock for a total consideration of $563,671.
On December 6, 1997, TJS exercised options to purchase 250 shares of
Convertible Preferred Stock for a total consideration of $14,250.
On December 7, 1997, Mark Scharmann exercised options to purchase 10,000
shares of common stock for a total consideration of $10,000.
On December 23, 1997, TJS exercised options to purchase 100 shares of
Convertible Preferred Stock for a total consideration of $10,000.
On May 5, 1998, Mark Scharmann exercised options to purchase 10,000 shares
of common stock for a total consideration of $10,000.
On June 1, 1998, Fred Figge exercised options to purchase 12,500 shares of
common stock for a total consideration of $25,000.
On June 5, 1998. TJS exercised options to purchase 225 shares of
Convertible Preferred Stock for a total consideration of $35,000.
On August 12, 1998, Stephen Rubin exercised options to purchase 40,000
shares of common stock for a total consideration of $40,000.
On August 14, 1998, J, S & R Ltd., L.P., an Illinois limited partnership,
exercised options to purchase 120,000 shares of common stock for a total
consideration of $120,000. The sole general partner of J, S & R Ltd., L.P. is
SAI Partners, Inc., an Illinois corporation, of which our Chairman, Ronald I.
Davis, is the sole officer, director, and shareholder. James Brannen and Stephen
Rubin are the limited partners of J, S & R Ltd., L.P. SAI Partners, Inc.
transferred the options to J, S & R Ltd., L.P. on June 1, 1998, as a capital
contribution pursuant to an Agreement of Limited Partnership.
On August 18, 1998, TJS Partners, L.P. exercised options to purchase 1,600
shares of Convertible Preferred Stock for a total consideration of $160,000.
On November 18, 1998, Bernard R. Sered exercised options of Metro Suburban
Pediatrics, S.C. to purchase 12,500 shares of common stock for a total
consideration of $25,000. The stock was issued to Bernard R. Sered as successor
in interest to Metro Suburban Pediatrics, S.C.
On November 18, 1998, Samuel S. Sered exercised options to purchase 12,500
shares of common stock for a total consideration of $25,000.
On November 23, 1998, TJS Partners, L.P. exercised options to purchase 250
shares of Convertible Preferred Stock for a total consideration of $50,000.
On June 21, 1999, Tom Hagedal exercised options to purchase 10,000 shares
of common stock for an aggregate exercise price of $10,000.
II-6
<PAGE> 97
On June 21, 1999, Harold Burgwald exercised options to purchase 10,000
shares of common stock for an aggregate exercise price of $10,000.
On June 21, 1999, Beverly Davis exercised options to purchase 5,000 shares
of common stock for an aggregate exercise price of $5,000.
On October 10, 1999, Raymond Hoven exercised options to purchase 40,000
shares of common stock for an aggregate exercise price of $40,000.
On October 10, 1999, Buttonwood Advisory Group, Inc. exercised options to
purchase 25,000 shares of common stock for an aggregate exercise price of
$31,250.
No underwriters or placement agents were engaged in connection with the
foregoing sales of securities, except as disclosed under the section entitled
"TJS Partners' Investments." Such sales were made in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act. Sales were
made to a very limited number of purchasers.
Private Placement
On December 31, 1997, we completed the sale of 1,000,000 shares of our
common stock. The shares were privately placed with a group of accredited
investors. No underwriter or placement agent was used. We received $5,000,000 in
consideration for the shares, of which we realized approximately $4,980,000
after estimated offering expenses of $20,000. A registration statement to
register the shares for resale was declared effective on April 22, 1998.
II-7
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company(1)
3.1 Certificate of Amendment of Certificate of Incorporation, As
Amended.(8)
3.2 By-Laws of the Company.(1)
3.2b Amended and Restated By-laws of Security Associates
International, Inc. as of 9/27/99.(10)
3.3 Certificate of Designations, Rights, Preferences and Limitations
of 12% Redeemable Preferred Stock, $10.00 par value per share, of
Security Associates International, Inc.(1)
3.4 Certificate of Designations, Rights, Preferences and Limitations
of Convertible Preferred Stock, $10.00 par value per share, of
Security Associates International, Inc.(1)
3.5 Amendment to Certificate of Designations, Rights, Preferences and
Limitations of 12% Redeemable Preferred Stock, $10.00 par value
per share, of Security Associates International, Inc.(6)
3.6 Certificate of Designations, Rights, Preferences and Limitations
of Series A Convertible Preferred Stock, $10.00 par value per
share, of Security Associates International, Inc.(9)
4.1 Specimen Common Stock certificate.(1)
5.1 Opinion of Sachnoff & Weaver, Ltd.
10.1 Employment Agreement between Registrant and James S. Brannen
dated August 29, 1996.(1)
10.2 Employment Agreement between Registrant and Ronald I. Davis dated
August 29, 1996.(1)
10.3 Employment Agreement between Registrant and Stephen Rubin dated
August 30, 1996.(1)
10.4 Adoption Agreement for the Datair Mass-Submitter Prototype
Standardized Cash or Deferred Profit Sharing Plan & Trust.(1)
10.5 Supplemental Employees' Retirement Plan.(1)
10.6 Purchase of Stock of Winnetka Investors, Inc. by Registrant dated
September 5, 1996.(1)
10.7 Purchase of Stock of MCAP Investors, Inc. by Registrant dated
September 5, 1996.(1)
10.8 Common Stock Subscription and Purchase Agreement between
Registrant and TJS Partners, L.P., dated September 5, 1996.(1)
10.9 Amendment to Common Stock Subscription and Purchase Agreement
between Registrant and TJS Partners, L.P., dated December 31,
1996.(1)
10.10 Purchase of Membership Interests of Limited Liability Agreements
between Registrant and Intec Company, Inc. dated September 5,
1996.(1)
10.11 Asset Purchase Agreement between Registrant and AMJ Central
Station Corporation dated December 19, 1996.(1)
10.12 Asset Purchase Agreement between All-Security Monitoring
Services, L.L.C. and Northern Central Station, Inc. dated
February 25, 1997.(1)
10.13 Loan Agreement among Registrant, Security Associates Command
Center II, L.L.C., Monitor Service Group, L.L.C., All-Security
Monitoring Services, L.L.C. and FINOVA Capital Corporation dated
December 31, 1996.(1)
10.14 Amendment to Loan Instruments among Registrant, Security
Associates Command Center II, L.L.C., Monitor Service Group,
L.L.C., All-Security Monitoring Services, L.L.C. and FINOVA
Capital Corporation dated February 28, 1997.(1)
10.15 Lease Agreement between American National Bank and Trust Company
of Chicago as Trustee under Trust No. 59948 and Registrant dated
November 21, 1995.(1)
10.16 Amendment to Lease Agreement between American National Bank and
Trust Company of Chicago as Trustee under Trust No. 59948 and
Registrant dated December 9, 1996.(1)
II-8
<PAGE> 99
EXHIBIT
NO. DESCRIPTION
--- -----------
10.17 Lease between Intec Company, Inc. and Security Associates Command
Center II, L.L.C. dated September 4, 1996.(1)
10.18 Sublease Agreement between William Jackson and Elizabeth Jackson
and Registrant dated December 29, 1996.(1)
10.19 First Amendment to Lease between William Jackson and Elizabeth
Jackson and Registrant dated February 7, 1997.(1)
10.20 Subordinated Loan Agreement between Registrant and TJS Partners,
L.P.(1)
10.21 Standby Option and Warrant Agreement between Registrant and TJS
Partners, Ltd. dated September 5, 1996.(1)
10.22 Amended Standby Option and Warrant Agreement between Registrant
and TJS Partners, Ltd. dated December 31, 1996.(1)
10.23 Warrant dated December 31, 1996 issued to TJS Partners, Ltd.(1)
10.24 Form of Warrant.(1)
10.25 Echo Star Joint Venture Agreement.(2)
10.26 Amended and Restated Loan Agreement among Security Associates
International, Inc., Security Associates Command Center II,
L.L.C., Monitor Service Group, L.L.C., All-Security Monitoring
Services, L.L.C., AMJ Central Station Corporation, Inc.,
Telecommunications Associates Group, Inc. and FINOVA Capital
Corporation dated December 2, 1997.(4)
10.27 Second Amendment to Lease between American National Bank and
Trust Company of Chicago as Trustee under Trust No. 59948 and
Registrant dated December 10, 1997.(4)
10.28 Koll Business Center Lease dated May 16, 1996 between
Telecommunications Associates Group, Inc. and TR Brell Austin
Corp.(4)
10.29 Lease between Indian Hill Properties, Inc. and Telecommunications
Associates Group, Inc. dated November 24, 1997.(4)
10.30 Stock Purchase Agreement between Security Associates
International, Inc. as purchaser and Robert Ambros as seller
dated November 21, 1997.(3)
10.31 $500,000 Promissory Note dated December 8, 1997 from Alarm
Funding Corporation to TJS Partners, L.P.(4)
10.32 Subordinated Loan Agreement dated November 14, 1997 between Alarm
Funding Corporation and TJS Partners, L.P.(4)
10.33 Amended Subordinated Loan Agreement dated January 30, 1998
between Security Associates International, Inc. and TJS Partners,
L.P.(4)
10.34 $5,000,000 Promissory Note dated December 31, 1996 from Security
Associates International, Inc. to TJS Partners, L.P.(4)
10.35 Standard Hardware Purchase and Software License Agreement,
between Monitoring Automation Systems and Security Associates
International, Inc. dated September 21, 1998.(6)
10.36 Form of Association Agreement.(6)
10.37 Security Associates International, Inc. Stock Option Plan.(6)
10.38 Security Associates International, Inc. Employee Stock Purchase
Plan.(6)
10.39 Allonge.(6)
10.40 Third amendment to Loan Instruments between Security Associates
International, Inc., All-Security Monitoring Services, L.L.C.,
AMJ Central Station Corporation, Telecommunications Associates
Group, Inc., Texas Security Central, Inc. and Reliance Protection
Services, Ltd. And FINOVA Capital Corporation.(6)
10.41 Stock Purchase Agreement between Security Associates
International, Inc. and the Willis Tate, Jr. Charitable Remainder
Unitrust for Southern Methodist University, Ray Hooker and Willis
Tate, Jr. dated June 17, 1998.(5)
10.42 Asset Purchase Agreement between Security Associates
International, Inc., as Seller and Security Alarm Financing
Enterprises, Inc, as Purchaser, dated June 30, 1999.(9)
II-9
<PAGE> 100
10.43 Second Amendment to Security Associates International, Inc.
Common Stock Subscription and Purchase Agreement Dated as of
September 5, 1996 between TJS Partners, L.P. and Security
Associates International, Inc. dated September 30, 1999.(10)
10.44 Second Amended and Restated Loan Agreement among Security
Associates International, Inc., FINOVA Capital Corporation and
State Street Bank and Trust Company dated September 30, 1999.(10)
10.45 Stock Purchase Agreement among Security Associates International,
Inc. and Herbert Warrick, Ramona Warrick and Russell VanDevanter
dated November 5, 1999.(11)
10.46 Second Amendment to Loan Instruments among Security Associates
International, Inc., FINOVA Capital Corporation and Citizens'
Bank of Massachusetts dated March 10, 2000.(12)
10.47 Revised Form of Association Agreement.
10.48 Second Amendment to Lease between 1471 Building Corporation and
Security Associates International, Inc. dated January 1, 1999.
10.49 Amendment Agreement between Indian Hills Properties, Inc. and
Telecommunications Associates Group, Inc. dated April 5, 1999.
10.50 Sublease between The Celtic Investment Co. and World Security
Services Corp. dated May 1, 1995.
10.51 Sublease Amendment No. 1 between The Celtic Investment Co. and
World Security Services Corp. dated April 15, 1998.
10.52 Sublease Amendment No. 2 between The Celtic Investment Co. and
World Security Services Corp. dated October 1, 1998.
10.53 Connection Agreement between Pacific Northwest Bell Telephone
Company and Alarm Monitoring Service, Inc. dated June 1, 1987.
10.54 Lease Agreement between Rodney Garner and Security Associates
International, Inc. dated May 8, 1998.
10.55 Standard Industrial/Commercial Single-Tenant Lease--Gross between
Number One Pipeline LLC and Valley Business Services, Inc.
(d.b.a. Total Electronic Alarm Monitoring) dated October 9, 1998.
10.56 Indenture of Lease between Parkway Bank and Trust Company and All
Security Products & Services, Inc. dated May 10, 1990.
10.57 Lease Assignment, Consent, Guaranty and Release among Parkway
Bank And Trust Company and S. Ann Hoven Enterprises, Inc.,
Shirley Ann Hoven, MSG Security L.L.C. and Security Associates
Command Center II, L.L.C. dated November 2, 1995.
10.58 Lease Agreement between GHT Joint Venture and Texas Security
Central, Inc. dated June 17, 1998
10.59 Lease Agreement among Ray E. Hooker and Willis M. Tate, Jr. and
Texas Security Central, Inc. dated June 17, 1998.
21.1 Subsidiaries of Registrant.(12)
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney (13)
27.1 Financial Data Schedule
II-10
<PAGE> 101
(1) Previously filed with the Registrant's Registration Statement on Form S-1
filed July 22, 1997.
(2) Previously filed September 8, 1997 in pre-effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-1.
(3) Previously filed with the Registrant's Current Report on Form 8-K filed
December 10, 1997 and dated November 25, 1997.
(4) Previously filed with the Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1997.
(5) Previously filed with the Registrant's Current Report on Form 8-K filed
July 2, 1998, dated May 8, 1998.
(6) Previously filed with the Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1998.
(7) Previously filed with the Registrant's Registration Statement on Form S-1
filed April 9, 1998.
(8) Previously filed with the registrants Definitive Proxy Statement filed
May 19, 1998.
(9) Previously filed with the Registrant's Current Report on Form 8-K filed
July 8, 1999, dated June 30, 1999.
(10) Previously filed with the Registrant's Current Report on Form 8-K filed
October 15, 1999, dated September 30, 1999.
(11) Previously filed with the Registrant's Current Report on Form 8-K filed
November 18, 1999, dated November 5, 1999.
(12) Previously filed with the Registrant's Form 10-KSB Annual Report for the
fiscal year ended December 31, 1999.
(13) Located on the Signature Page of this Registration Statement on Form S-1,
filed March 27, 2000.
II-11
<PAGE> 102
Report of Independent Public Accountants
Schedule Description
-------- -----------
II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. If a
claim for indemnification against such liability (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes;
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
II-12
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Arlington Heights, State
of Illinois, on March 27, 2000.
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ James S. Brannen
James S. Brannen
President
II-13
<PAGE> 104
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Daniel S. Zittnan, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any
and all pre or post-effective amendments to the Registration Statement, and to
file the same with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming that said attorney-in-fact and agent, or his
substitute, may lawfully do or cease to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the 27th day of March, 2000.
Signature Title
--------- -----
/s/ JAMES S. BRANNEN President (Principal Executive Officer) and
James S. Brannen Director
/s/ RONALD I. DAVIS Director
Ronald I. Davis
/s/ THOMAS J. SALVATORE Director
Thomas J. Salvatore
/s/ DOUGLAS OBERLANDER Director
Douglas Oberlander
/s/ MICHAEL B. JONES Director
Michael B. Jones
/s/ DANIEL S. ZITTNAN Senior Vice President, Treasurer and Chief Financial
Daniel S. Zittnan Officer (Principal Financial and Accounting
Officer)
II-14
<PAGE> 105
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(FOR EACH INCOME STATEMENT PRESENTED)
<TABLE>
<CAPTION>
Additions
----------------------------------------------------------------------------
Balance at Charged to Balance at
Beginning of Charged to Other End of
Description Period Expense Accounts Deductions Period
- ---------------------------------- ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted from related
accounts receivable balance sheet
accounts of Security Associates
International, Inc.
Year ended December 31, 1997 206,000 687,000 100,000 (498,000) 495,000
Year ended December 31, 1998 495,000 248,000 340,000 (346,000) 737,000
Year ended December 31, 1999 737,000 190,000 220,000 (648,000) 499,000
------------ ---------- ---------- ---------- -----------
</TABLE>
<PAGE> 1
Sachnoff & Weaver, Ltd.
30 S. Wacker Drive, Suite 2900
Chicago, Illinois 60606
March 24, 2000
Security Associates International, Inc.
2101 South Arlington Heights Road, Suite 100
Arlington Heights, Illinois 60005-4142
Re: REGISTRATION STATEMENT ON FORM S-1 (THE "REGISTRATION STATEMENT")
REG. NO._________
Gentlemen and Ladies:
In connection with the proposed registration for resale of 3,918,600
shares (the "Shares") of Common Stock, $0.001 par value (the "Common Stock"), of
Security Associates International, Inc. (the "Company"), including (i) 25,000
Shares of Common Stock issued to a Selling Securityholder, (ii) 3,635,900 Shares
of Common Stock issuable upon conversion of 36,359 shares of the Company's
Series A Convertible Preferred Stock, $10 par value (the "Series A Preferred
Stock"), issued to a Selling Securityholder, (iii) 132,700 Shares of Common
Stock issuable upon conversion of 1,327 shares of Series A Preferred Stock which
are issuable upon exercise of contingent options which may be issued to a
Selling Securityholder, and (iv) 125,000 Shares issuable upon exercise of
options previously granted and issued to certain Selling Securityholders (the
options under (iv), collectively, the "Options"), covered by the
above-referenced Registration Statement, we have examined such documents and
have reviewed such questions of law as we have considered necessary and
appropriate for the purposes of this opinion. We have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all the documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents.
Based upon such examination, we advise you that, in our opinion: (i)
the Company had corporate authority to register for resale the Shares proposed
to be offered as set forth in the Registration Statement; and (ii) the Shares,
whether presently issued or upon the issuance thereof in accordance with the
terms of the Series A Preferred Stock or the Options, will be duly authorized
and, assuming the appropriate consideration is remitted therefore, legally
issued, fully paid and non-assessable and will continue to be so when sold as
set forth in the Registration Statement.
<PAGE> 2
The opinions expressed in this Opinion Letter assume that: (i) the
Shares underlying the shares of Series A Preferred Stock are issued in
accordance with the terms of such Series A Preferred Stock; (ii) the Shares
underlying the Options are issued in accordance with the terms of each
applicable option agreement for the options being exercised and pursuant to
which the Shares are being issued; and (iii) each exercise or conversion price
for the Shares is not less than the par value of the Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and the reference to this firm under the
caption "Legal Matters" in the Prospectus constituting a part of such
Registration Statement. In giving this consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission.
Very truly yours,
/s/ SACHNOFF & WEAVER, LTD.
Sachnoff & Weaver, Ltd.
JAS/JTK
<PAGE> 1
EXHIBIT 10.47
ASSOCIATION AGREEMENT - S
THIS ASSOCIATION AGREEMENT (the "Agreement"), dated as of
_________________, is entered into by and between Security Associates
International, Inc., a Delaware Corporation ("SAI"), and _____________________,
a(n) _______________ ____________ ("Dealer"). SAI and Dealer hereby agree as
follows:
1. DEFINITIONS AND USE OF TERMS
1.1 DEFINITIONS. The following terms shall have the meanings assigned below
when used in this Agreement:
(a) "Account" shall men an arrangement between a Subscriber and
Dealer, typically evidenced by a Subscriber Agreement, pursuant
to which a Subscriber purchases from Dealer the services of a
CENTRAL MONITORING STATION to monitor, on a remote basis, the
security alarm system of the Subscriber;
(b) "Affiliate" shall mean any person that controls, is controlled by
or is under common control with, Dealer. For purposes of this
definition, any person that owns more than 10% of the equity of
another person shall be deemed conclusively to control such other
person;
(c) "Applicable Law" shall include any law, license, rule,
regulation, order, injunction, notice, approval or judgment of
any federal, state, or local government or governmental
department, agency, board or the like, which applies to this
Agreement, the DEALER AGREEMENT, the provision of services
pursuant to the DEALER AGREEMENT, and any agreement with any such
government or governmental department, agency or board relating
to compliance with any of the foregoing;
(d) "CENTRAL MONITORING STATION" shall mean one or more CENTRAL
MONITORING STATIONs owned by SAI (or a subsidiary of SAI) and
designated in the DEALER AGREEMENT as the CENTRAL MONITORING
STATIONs that are to provide service to all of Dealer's Accounts;
(e) "Closing Date" shall have the meaning assigned in Section 3.2;
(f) "Common Stock" means the common stock, $0.001 par value per
share, of Security Associates International, Inc., a Delaware
corporation;
(g) "DEALER AGREEMENT" means the agreement between Dealer and SAI, or
a subsidiary of SAI, pursuant to which the CENTRAL MONITORING
STATION provides services to the Subscribers of the Accounts, in
the form of Exhibit A attached hereto;
(h) "Default" means the occurrence of any of (i) the breach by Dealer
of the performance of any of its covenants under Sections 2.1.2,
2.1.3, 2.1.4, 2.1.5 or 2.1.7 of this Agreement, (ii) the
misrepresentation by Dealer of any material fact set forth in
this Agreement, or (iii) any other material breach by Dealer of
any other representation, warranty, covenant or agreement
contained herein;
(i) "Effective Date" means the first day of the first month following
the signing of this Agreement;
(j) "Permits" means all governmental approvals, licenses,
registrations and permits, and applications therefor;
(k) Subscriber" shall mean the party to which the Dealer provides
monitoring services;
(l) "Subscriber Agreement" means a written agreement between a
Subscriber and Dealer, evidencing an Account, pursuant to which
the Dealer provides monitoring services to the Subscriber in the
form attached hereto as Exhibit B;
(m) "Term" means the period commencing on the date hereof and ending
on the third anniversary of the Closing Date;
(n) "Vested Shares" means those shares of Common Stock issued to
Dealer pursuant to the terms of this Agreement as to which the
risk of forfeiture under Section 3.4 hereof and the restrictions
on transfer under Section 3.5 hereof shall have lapsed in
accordance with the provisions of Section 3.3 hereof; "Unvested
Shares" means those shares of Common Stock issued to Dealer
pursuant to this Agreement that are not Vested Shares.
2. TERMS OF ASSOCIATION.
2.1 DEALER'S RESPONSIBILITIES CONCERNING MONITORING. Upon the terms and
subject to the conditions contained in this Agreement, Dealer hereby agrees that
the CENTRAL MONITORING STATION shall be the provider of monitoring services to
all of Dealer's Accounts transferred pursuant to Section 2.1.2 or which are
presently monitored in the CENTRAL MONITORING STATION.
2.1.1 DEALER AGREEMENT. Concurrently with the execution of this Agreement,
Dealer will execute and deliver the DEALER AGREEMENT which sets forth the terms
and conditions and prices under which the CENTRAL MONITORING STATION will
provide services to Dealer's Subscribers.
2.1.2 TRANSFER OF ACCOUNTS. No later than __________________, Dealer shall
transfer no less than ___________________ Accounts to the CENTRAL MONITORING
STATION for monitoring for the entire term of the DEALER AGREEMENT. All costs
associated with the transfers, including, but not limited to visits to
Subscriber's premises and reprogramming of security systems shall be the
exclusive responsibility of Dealer. Monitoring fees for the transferred Accounts
will accrue under the DEALER AGREEMENT from the date of transfer for each
transferred Account.
<PAGE> 2
2.1.3 ACCOUNTS PRESENTLY MONITORED IN THE CENTRAL MONITORING STATION.
Dealer agrees that all of Dealer's Accounts that are presently monitored at the
CENTRAL MONITORING STATION will, on the Effective Date, become subject to the
terms of the DEALER AGREEMENT for the entire term of the DEALER AGREEMENT. All
previous agreements with SAI or the CENTRAL MONITORING STATION with respect to
those Accounts are superceded by the DEALER Agreement. _____ Accounts are
presently being monitored in the CENTRAL MONITORING STATION.
2.1.4 FEES. Dealer shall pay all fees for monitoring services and all other
amounts required to be paid, as set forth in the DEALER AGREEMENT and attached
price page, at the times and in the manner set forth therein.
2.1.5 MAINTENANCE OF ACCOUNTS. If Dealer subsequently transfers any of the
Accounts transferred pursuant to Section 2.1.2 or any of the Accounts presently
being monitored as set forth in Section 2.1.3 (collectively; the "Monitored
Accounts") to any central station other than an SAI CENTRAL MONITORING STATION
at any time during the Term of this Agreement, Dealer will be deemed to be in
breach of this Agreement as of the date of the transfer.
2.1.6 MAINTENANCE OF SUBSCRIBER RELATIONSHIPS. Dealer shall undertake its
best efforts to maintain good relationships and operational reliability with its
Subscribers and their security systems in order to maximize the number of
Monitored Accounts that remain in the CENTRAL MONITORING STATION during the
term.
2.1.7 OBLIGATIONS UNDER THE MONITORING AGREEMENT SURVIVE TRANSFER. Dealer's
obligation to have the Monitored Accounts monitored by the CENTRAL MONITORING
STATION for the duration of the Agreement shall survive the sale or other
transfer of any Account. By way of illustration, if Dealer were to sell a
Monitored Account to a third party (other than SAI or any subsidiary), Dealer
would be in breach of this Agreement, if during the Term of this Agreement said
third party attempts to or were to transfer such Account to another CENTRAL
MONITORING STATION.
2.1.8 EXCEPTIONS TO MONITORING AGREEMENT. If, and only if, the following
conditions apply, Dealer may contract with a party other than the CENTRAL
MONITORING STATION for monitoring of those Accounts to which the conditions
apply: (a) it is illegal under Applicable Law for the CENTRAL MONITORING STATION
to provide monitoring services for the Monitored Account in question, or (b) the
CENTRAL MONITORING STATION does not have the technical capability to provide the
services for which the Subscriber under that Monitored Account has contracted.
In either event, Dealer must specify in writing to SAI the Applicable Law that
would be violated or the exact service that the CENTRAL MONITORING STATION is
not capable of providing. Even if one of the two conditions applies, if there
exists an alternate CENTRAL MONITORING STATION owned by SAI (or a subsidiary)
that is capable of providing the required services on the terms set forth in the
DEALER AGREEMENT, Dealer shall transfer the Monitored Account in question to
such alternate CENTRAL MONITORING STATION.
2.1.9 SUBSCRIBER AGREEMENT. Dealer will provide CENTRAL MONITORING STATION
with a copy of the executed SAI standard form subscriber agreement for every
Account to be monitored unless Dealer has submitted and SAI has approved
Dealer's existing subscriber agreement a copy or copies, of which shall be
attached to this agreement.
2.2 RIGHTS OF FIRST REFUSAL. During the Term of this Agreement, Dealer
hereby grants to SAI the right of first refusal for any proposed sale of
Accounts by Dealer ("Account Sale") or any borrowings by Dealer which are to be
secured by Accounts ("Secured Borrowings").
2.2.1 NOTICE OF THIRD PARTY PROPOSAL. In the event that Dealer proposes to
enter into an Account Sale or a Secured Borrowing with a party other than SAI or
a subsidiary or affiliate of SAI (a "third party"), Dealer shall upon receipt of
the third party's proposal, offer to SAI the opportunity to enter into the
Account Sale or Secured Borrowing on terms equivalent or superior to Dealer than
those offered by the third party. Dealer shall convey the terms of the third
party proposal to SAI by a written notice which shall include a photocopy of the
third party proposal as well as a description of the Accounts proposed to be
sold or which are proposed as collateral for the Secured Borrowing.
2.2.2 SAI'S RESPONSE. If SAI wishes to exercise its right of first refusal
and enter into the proposed transaction, SAI will, within ten (10) days
following receipt of notice of the third party proposal, respond in writing and
offer to enter into the transaction on economic terms that are equivalent or
superior to Dealer than those offered by the third party. Any response must
include a proposal detailing the economic terms under which SAI or a subsidiary
will enter into the transaction. If those economic terms are equivalent or
superior to Dealer than those offered by the third party, the Dealer will enter
into the Account Sale or Secured Borrowing with SAI or a subsidiary on the terms
proposed by SAI. If SAI fails to respond within the required ten (10) days or
does not offer economic terms that are equivalent or superior to Dealer than
those offered by the third party, Dealer, for a period of sixty (60) days
following the expiration of such ten (10) day period, shall be free to
consummate the transaction with the third party on terms no less favorable to
Dealer than those presented to SAI pursuant to Section 2.2.1.
3. CONSIDERATION FOR ENTERING INTO THE ASSOCIATION AGREEMENT.
3.1 ISSUANCE OF SECURITIES. In consideration of the performance by Dealer
of its obligations under this Agreement and the DEALER AGREEMENT, SAI agrees to
issue to Dealer a certificate representing _____ shares of Common Stock.
<PAGE> 3
3.2 CLOSING DATE. The certificates representing the shares of Common Stock
will be issued to Dealer on the later of the Effective Date or, if applicable,
the date on which the transfer to the CENTRAL MONITORING STATION of the last of
the Accounts required to be transferred pursuant to Section 2.1.2 has occurred
(the "Closing Date").
3.3 VESTING OF COMMON STOCK. On the Closing Date, 25% of shares of Common
Stock issued to Dealer pursuant to the terms of this Agreement will be Vested
Shares and the remaining 75% will be Unvested Shares. On each anniversary of the
Closing Date, assuming that no Default on the part of Dealer has occurred, 25%
of the shares of Common Stock issued to Dealer pursuant to the terms of this
Agreement will become Vested Shares. The following table sets forth for the
Closing Date and each of the three anniversaries of the Closing Date, the
cumulative percentage of such shares that will be Vested Shares if no Default
has occurred prior to that anniversary :
Anniversary Percent Vested
----------- --------------
Closing Date 25%
First 50%
Second 75%
Third 100%
Stock 5-2.19.99
3.4 REMEDY FOR DEFAULT. Dealer acknowledges and agrees that the issuance of
Common Stock to Dealer pursuant to this Agreement is in consideration of
Dealer's performance of its obligations under this Agreement and the DEALER
AGREEMENT for the entire Term. If there shall occur a Default by Dealer in the
performance of any of its obligations under this Agreement or the DEALER
AGREEMENT, Dealer will either forfeit all shares of Common Stock that remain
Unvested Shares as of the date of the Default or immediately pay to SAI the
unpaid balance due pursuant to the DEALER AGREEMENT for the balance of the Term,
whichever is greater. The following table sets forth for the Closing Date and
each of the three anniversaries of the Closing Date, the percentage of the
shares of Common Stock issued to Dealer pursuant to this Agreement that will be
forfeited if a Default by Dealer occurs any time during the year preceding the
date of such anniversary:
Anniversary Percent Forfeited
----------- -----------------
First 75%
Second 50%
Third 25%
SAI will, promptly upon becoming aware of an event that has caused the
forfeiture of Common Stock, notify Dealer of the nature of the event, the
provision of this Agreement or the DEALER AGREEMENT as to which the Default has
occurred and the number of shares of Common Stock which have been forfeited as a
result. Any disputes concerning forfeitures will be determined by binding
arbitration as provided in Section 6.5. In determining whether the "unpaid
balance" is greater than the value of the Unvested Shares, the value of the
Unvested Shares shall be determined by multiplying the closing price of SAI's
Common Stock on the date that SAI notifies Dealer of the Default by the number
of Unvested Shares.
3.5 RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS. Dealer understands and
agrees that it may not sell, transfer, pledge, hypothecate or otherwise dispose
of, whether by assignment, operation of law or otherwise, any Unvested Shares of
Common Stock, without SAI's prior written consent, which may be withheld in
SAI's sole discretion. As a mechanism for carrying out the provisions of Section
3.4 and this Section 3.5, all certificates representing Unvested Shares
will bear the restrictive legend set forth below:
The securities represented by this certificate are subject to forfeiture
and restrictions on transfer pursuant to the provisions of an ASSOCIATION
AGREEMENT, a copy of which is on file at the offices of Security Associates
International, Inc., and may not be sold, transferred, pledged,
hypothecated or otherwise disposed of, whether by assignment, operation of
law or otherwise, except in compliance with the terms of that Agreement.
3.6 REMOVAL OF LEGEND. At any time, after each anniversary of the Closing
Date, at the written request of Dealer, and upon delivery to SAI of the
certificates bearing the restrictive legends, SAI will cancel the certificates
so delivered and issue to Dealer a new certificate bearing no restrictive legend
representing the number of shares of Common Stock which have become Vested
Shares, and an additional certificate bearing the restrictive legend
representing the balance of the shares which have not been forfeited pursuant to
Section 3.4 (i.e., the Unvested Shares).
3.7 CANCELLATION OF SECURITIES. In the event that Dealer forfeits Unvested
Shares as provided in Section 3.4, promptly upon the request of SAI, Dealer
shall deliver to SAI for cancellation all certificates held by Dealer
evidencing, in whole or in part, Unvested Shares. SAI shall immediately issue to
Dealer a new certificate evidencing the Vested Shares, if any, that were
evidenced by the certificate so cancelled. Whether or not such certificate or
certificates shall have been delivered to SAI, from the date of such forfeiture
all rights of Dealer with respect to the forfeited shares, including, without
limitation, the right to vote such shares and the right to receive dividends or
distributions with respect thereto, shall cease, such shares shall be deemed no
longer outstanding, and the certificates representing the Common Stock issued to
Dealer shall represent only the Vested Shares.
<PAGE> 4
4. REPRESENTATIONS WARRANTIES AND COVENANTS OF DEALER.
Dealer represents and warrants as follows:
4.1 ORGANIZATION. Dealer is a corporation [sole proprietorship,
partnership, limited liability company] duly organized, validly existing and in
good standing under the laws of the State of _____________ and has all requisite
[corporate] power and authority to own its assets and to conduct its business in
the manner in which it is now conducted. Dealer is duly qualified to do business
in, and is in good standing under the laws of, each jurisdiction in which the
Accounts to be monitored by the CENTRAL MONITORING STATION require such
qualification.
4.2 POWER AND AUTHORITY. Dealer has the [corporate] power and authority to
execute and deliver and perform its obligations under this Agreement and the
DEALER AGREEMENT. This Agreement and the DEALER AGREEMENT have been duly
authorized, executed and delivered by Dealer and constitute the legal, valid and
binding obligations of Dealer enforceable against Dealer in accordance with
their terms.
4.3 ACCOUNTS. Exhibit 4.3(a) is a true and complete list of all Accounts to
be transferred to the CENTRAL MONITORING STATION pursuant to Section 2.1.2 and
Exhibit 4.3(b) is a true and complete list of the Accounts presently being
monitored by the CENTRAL MONITORING STATION. Exhibit 4.3(c) is a true and
complete list of all Accounts where subscriber is currently in default to the
dealer. Except as disclosed on Schedule 4.3(c) no Subscriber is in default on
any such Account and Dealer has no present reason to believe that any such
Account will or is likely to be cancelled.
4.4 PERMITS. Dealer possesses all Permits required by Applicable Law to
sell, install and service security alarm systems and to contract with
Subscribers to provide monitoring services with the appropriate jurisdictions.
5. REPRESENTATIONS AND WARRANTIES OF SAI.
SAI represents and warrants to, and agrees with, Dealer as follows:
5.1 ORGANIZATION. SAI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
5.2 POWER OF AUTHORITY. SAI has the power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
has been duly authorized, executed, and delivered by SAI and constitutes the
legal, valid and binding obligation of SAI enforceable against SAI in accordance
with its terms.
5.3 PROSPECTUS. SAI has delivered to Dealer a prospectus dated April 22,
1998 pertaining to the offering of the Common Stock and Supplement No. 1
thereto, dated July 2, 1998 (as supplemented, the "Prospectus"). No
representation or warranty by SAI in this Agreement or the Prospectus contains
any untrue statement of material fact, or omits or shall omit to state a
material fact necessary in order to make the statements contained herein and
therein not misleading.
6. MISCELLANEOUS PROVISIONS.
6.1 NOTICES. Any notice, consent, request, claim, demand, instruction or
other communication to be given hereunder by SAI or Dealer shall be in writing
and shall be deemed to have been given (i) if by hand, when actually received,
(ii) if by mail, five days after deposit in the U.S. Mail, postage prepaid,
(iii) if by overnight courier, the next business day after deposit with the
overnight courier and (iv) if by telex or telefax on the next business day after
transmittal. Any such notice, consent, request, claim, demand, instruction or
other communication may be given by hand, mail, overnight courier service,
telex, or telefax, and shall be addressed as follows:
If to SAI, to: If to Dealer, to:
Security Associates International, Inc. Company Name
2101 S. Arlington Heights Road Address
Arlington Heights, IL 60005-4142 City, ST Zip
Fax No. (847) 956-9360 Fax No.(----------------
Attention: President Attention: President
or to such other address as a party may from time to time designate by written
notice to the other.
6.2 COSTS. The expenses of each party in connection with this Agreement
shall be the sole responsibility of such party.
6.3 INCORPORATION BY REFERENCE. The Schedules, Exhibits, certificates and
other documents attached hereto or referred to herein are deemed to be a part of
this Agreement and are incorporated herein by this reference. 6.4 ENTIRE
AGREEMENT. This Agreement and the other agreements referred to herein set forth
the entire understanding of the parties relating to the subject matter hereof
and supersede all prior agreements, understandings, and representations, whether
oral or written.
6.5 ARBITRATION. All disputes arising under this Agreement shall be
resolved by binding arbitration under the Commercial Arbitration Rules of the
American Arbitration Association (the "Rules"). Such arbitration shall be
conducted in Chicago, Illinois by a single arbitrator selected in accordance
with the Rules.
<PAGE> 5
6.6 GOVERNING LAW. This Agreement shall be construed in accordance with the
law of the State of Illinois excluding its conflict of law rules.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
SECURITY ASSOCIATES INTERNATIONAL, INC.
By:
---------------------------
Its
---------------------------
By: Federal Tax I.D. Number:
--------------------------- -------------
Its
Stock 5-2.19.99
<PAGE> 1
EXHIBIT 10.48
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE, effective January 1, 1999, by and
between 1471 Building Corporation ("Lessor") and Security Associates
International, Inc., a Delaware corporation ("Lessee") modifies and extends that
certain lease of the premises commonly known as 1471 S.W. 12th Avenue, Pompano
Beach, Florida 33069 (the "Leased Premises") as follows:
WHEREAS, the sublease dated December 29, 1996 by and between William
Jackson and Elizabeth Jackson and Lessee (the "Sublease") was amended by a First
Amendment to Lease (the "First Amendment") executed on or about January 7, 1997
(the sublease as so amended is referred to as the "Lease"); and
WHEREAS, Lessor and Lessee have agreed to further amend the Lease as
set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein and in the Lease, the parties agree as follows:
1. Section 1.04 of the Lease is amended to read in its entirety as
follows: "Property: The entire building located at 1471 S.W. 12th
Avenue, Pompano Beach, Florida consisting of approximately 13,000
square feet; provided, however, that until September 1, 1999 the
Property shall not include the approximately 900 square feet being
leased to The Steritech Group, Inc.
2. Section 1.05 of the Lease is amended to provide that the term of
the Lease is extended December 31, 2003.
3. Section 1.13 is amended to provide that commencing January 1, 1999
Rent shall be $13,750 per month, plus applicable Florida sales
tax, payable in advance, provided, however, until September 1,
1999, the monthly rental shall be $12,850 per month.
4. Section 1.15 is amended so that (i) Lessee's option to extend the
term of the Lease for an additional five (5) years shall be for
the renewal period commencing January 1, 2004, provided that
Lessee gives written notice of its intention to extend no later
than six (6) months before the end of the term. All other
provisions of Section 1.15 shall remain in effect.
5. Section 3.01 is amended to provide that for a calendar year 1999,
Lessee's monthly payment for real estate taxes shall be $1,661 per
month and payments for property and casualty insurance and
maintenance fees shall be $525 per month, provided, however, that
until September 1, 1999, such payments shall be $1,395.24 and $441
per month, respectively. The provisions of Section 3.01 providing
for annual adjustments to the
<PAGE> 2
amounts payable by Lessee by reason of increase in real estate
taxes, insurance and maintenance fees shall remain in full force
and effect, but only with respect to increases beyond the amounts
assessed for calendar year 1999.
6. Paragraph 2 of the First Amendment (Utilities/Services) shall be
of no further effect. In its place Section 3.02 of the Sublease
shall be the effective provision governing the Lease, as of
January 1,1999, with the following modifications: The last
sentence of Section 3.02 shall read in its entirety as follows:
"Lessee shall supply sewer service and such refuse disposal and
water as is reasonably incident to Lessee's occupancy."
7. Section 5.03 is amended by replacing the first sentence of that
section with the following: "The Lessor, at the expense of the
Lessor, will keep the roof and the foundation of the Building in
good and serviceable condition and repair; provided, however, that
if the roof or foundation of said Building shall become in need of
repair, it shall be the duty of the Lessee to notify the Lessor of
such needed repair. The balance of Section 5.03 shall remain in
full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Second
Amendment to Lease, effective as of the day and year first written above.
LESSOR:
1471 BUILDING CORPORATION
By:
-----------------------------
Its:
----------------------------
LESSEE:
SECURITY ASSOCIATES INTERNATIONAL, INC.
By: /s/ DANIEL ZITTNO
-----------------------------
Its: CFO
----------------------------
<PAGE> 1
EXHIBIT 10.49
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, executed this 5th day of April, 1999 by and between
Indian Hills Properties, Inc., as "Lessor" and Telecommunications Associates
Group, Inc., a wholly owned subsidiary of Security Associates International,
Inc., as "Lessee."
WITNESSETH:
WHEREAS the parties hereto executed a Lease Agreement the 27th day of
November, 1997 for a one-floor store suite located at 1520 East 191st Street,
Euclid, Ohio 44117 consisting of approximately Eight Thousand Four Hundred
(8,400) square feet, more or less, for a term of Seven (7) years (with one [1]
additional Five [5] years option term) commencing the 1st day of January, 1998.
WHEREAS the base rent for the Seven (7) years of the term was established
at Seventy Nine Thousand Eight Hundred Dollars ($79,800.00) per year, said sum
payable in equal monthly installments of Six Thousand Six Hundred Fifty Dollars
($6,650.00) such base rent increasing to Ninety Two Thousand Four Hundred
Dollars ($92,400.00) per year during the Five (5) years option term.
WHEREAS Lessee deposited with Lessor a non-interest bearing security
deposit in the amount of Seventy Nine Thousand Eight Hundred Dollars
($79,800.00), three-fourths of which was to be refunded as a rent rebate, in
accordance to a schedule established on an addendum to the Lease Agreement, also
executed on the 24th day of November, 1997.
<PAGE> 2
WHEREAS the parties hereto desire and agree to amend and modify the above
referenced Lease Agreement and Addendum to the Lease Agreement to include the
following:
A. Commencing the 1st day of May, 1999 the term "Demised Premises" shall
mean the area of the Building leased to the Lessee by the Lessor on a
parcel of land located at the northwest corner of Euclid Avenue and East
191st Street in the City of Euclid, County of Cuyahoga and State of Ohio,
and consisting of approximately Ten Thousand Eight Hundred (10,800) square
feet, more or less, of a one-floor store suite which is a part of a
multi-tenant shopping center designated as part of the property outlined in
red on Exhibit "A-l" attached hereto and made apart hereof, together with
the building and improvements (Exhibit "A-2") and use of the Common Areas
all constructed thereon on Lessor's property in Euclid, Ohio.
B. The term of the Lease Agreement is to be extended for a period of Two
(2) years until December 31st, 2006 with the one (1) option term being
reduced to Three (3) additional years.
C. Commencing the 1st day of May, 1999 the base rent for the Demised
Premises shall increase to One Hundred Two Thousand Six Hundred Dollars
($102,600.00) per year. Thereafter, in the event Lessee shall extend its
term by exercise of the three (3) year option, the base rent shall be One
Hundred Eighteen Thousand Eight Hundred Dollars ($118,800.00) per year.
2
<PAGE> 3
D. Commencing with the rent due for the month of May, 1999 and for the next
Forty One (41) months until the rent due for the month of October, 2002
Lessor will refund (as a rent rebate) the Seventy Nine Thousand Eight
Hundred Dollars ($79,800.00) non-interest bearing security deposit in Forty
Two (42) monthly installments of One Thousand Nine Hundred Dollars
(1,900.00) each.
NOW, THEREFORE the parties hereto agree as follows:
SECTION 1. The original terms of the Lease Agreement is herein extended by Two
(2) years until December 31st, 2006 with the one (1) term option being reduced
to Three (3) years commencing January 1st, 2007.
SECTION 2. The "Demised Premises" is herein increased to Ten Thousand Eight
Hundred (10,800) square feet from the original Eight Thousand Four Hundred
(8,400) square feet.
SECTION 3. Commencing with the rent due the 1st day of May, 1999 Lessee
covenants and agrees to pay Lessor at Lessor's office or such other place as
Lessor may from time to time designate, as rent for the Demised Premises without
abatement, deduction or set-off and without demand, unless otherwise provided
herein, the sum of One Hundred Two Thousand Six Hundred Dollars ($102,600.00)
per year, said sum to be payable in equal monthly installments of Eight Thousand
Five Hundred Fifty Dollars ($8,550.00), on the first day of each and every month
in advance, during each of the Seven (7) years and Eight (8) months of the term,
and thereafter in the event Lessee shall extend its term by exercise of the
option provided herein, Lessee covenants and agrees to pay Lessor as rent for
the Demised Premises the sum of One Hundred Eighteen Thousand Eight Hundred
Dollars ($118,800.00) per year, said sum to be payable in
3
<PAGE> 4
equal monthly installments of Nine Thousand Nine Hundred Dollars (9,900.00), on
the first day of each and every month in advance, during each of the Three (3)
years of such option.
SECTION 4. The Seventy Nine Thousand Eight Hundred Dollars ($79,800.00)
non-interest bearing security deposit shall be refunded to Lessee in Forty Two
(42) monthly installments of One Thousand Nine Hundred Dollars (1,900.00) each.
Such refunding will be in the form of an abatement of One Thousand Nine Hundred
Dollars (1,900.00) per month on the base rent due of Eight Thousand Five Hundred
Fifty Dollars ($8,550.00) reducing the amount payable to Six Thousand Six
Hundred Fifty Dollars ($6,650.00) per month for the months of May, 1999 through
October, 2002. After October, 2002, no security deposit will remain with Lessor.
SECTION 5. As an incentive for Lessee entering into this Amendment Agreement,
Lessor herein agrees to build, at its own cost, the hereunder listed renovations
(Exhibit "A-2") to the Demised Premises:
I. Existing Facilities:
a) Construct new lunchroom/kitchenette in existing file room area
including Cabinets, Countertop, Sink, Outlets for microwave and
vending machines. Also including all sewer and plumbing as needed,
paint, remove existing carpet and clean/polish tile.
b) Remove existing wall by computer area.
c) Construct new computer room wall with glass door.
4
<PAGE> 5
d) Install the required electrical outlets (110VAC) for racks of
receivers and computers in the new computer room and central
stations.
e) Construct new wall with door in new training room area.
r) Open divider wall to allow for construction of Supervisor platform
in central station.
g) Construct Supervisor platform in central station.
h) Paint all rooms in entire facility.
i) Install new carpet in all areas with exception of hallways,
bathrooms, kitchen areas and breakrooms. In those rooms clean and
polish tile floors.
j) Provide new signage on outside of facility to reflect building
addresses only.
k) Open doorway between existing facility and new facility and install
door.
II. New Facility:
a) Remove x-ray storage rack.
b) Remove existing walls (2) between the four (4) rear offices.
c) Remove cabinets on wall as directed.
d) Construct new conference room in front area by removing one
existing wall and construct new wall.
e) Provide hallway, with door, between existing facility and new
facility.
f) Install new carpet in all areas to match existing facility carpet
with the exception of hallway, bathrooms, and kitchen area. In
those rooms clean and polish tile floors.
5
<PAGE> 6
g) Paint all rooms in entire facility.
h) Provide signage on outside of facility to reflect address only.
All the above renovations shall comply with all local building codes and
regulations and with all U.L. standards for central monitoring stations.
SECTION 6. Lessor shall repair all damage (from both construction and existing
damage) to drop-ceiling, walls and floors as needed. Lessor shall apply its best
efforts to keep the construction areas well ventilated at all times and free of
debris. Maximum efforts will be employed to reduce and/or minimize the necessary
disturbance to Lessee's normal course of business during the construction
period.
SECTION 7. In addition for the above listed renovations Lessor will, at its own
cost, provide workers to assist in the moving of all existing files to new
filing room area and to relocate all existing workstations and furniture to new
areas as needed. All work to be directed and supervised by David Brown and
Robert Koenig of Security Associates International which will be fully
responsible for any damage to computers, workstations and furniture.
SECTION 8. Lessor shall endeavor to complete all renovation work within Sixty
(60) days from the execution of this Agreement by both parties. All completed
renovations shall be subjected to approval and acceptance by the on-site General
Manager, David Brown.
SECTION 9. Except to the extent amended herein, all other terms and conditions
of the Lease Agreement between the parties shall remain in full force and
effect.
6
<PAGE> 7
IN TESTIMONY WHEREOF, the Lessor and Lessee have caused this Amendment
Agreement to be signed in triplicate, upon the day and year first above written.
"LESSEE" "LESSOR"
Telecomunications Associates Group, Inc., Indian Hills Properties, Inc.
a wholly owned subsidiary of
Security Associates International, Inc.
By: /s/ Ronald J. Carr By: /s/ Juan Villanueva
------------------------------ -----------------------
Its President Its President
Agreed as to it:
Security Associates
International, Inc.
By: /s/ James S. Brannen
-----------------------
Its President
7
<PAGE> 1
EXHIBIT 10.50
S U B L E A S E
THIS SUBLEASE (hereafter "Sublease") is made and entered into this day
of May, 1995 (the "Effective Date"), by and between Arthur A. Riedel, dba
THE CELTIC INVESTMENT CO., as Lessor, and World Security Services Corp., as
Lessee, both Lessor and Lessee jointly referred to herein as "the parties."
WITNESSETH:
For and in consideration of the mutual promises, covenants and
agreements hereinafter contained to be kept and performed by the parties hereto,
it is mutually agreed as follows:
AGREEMENT:
1. Description. The Lessor hereby subleases and demises to the Lessee,
and the Lessee hereby takes and hires from the Lessor, for and during the term
hereof upon and subject to the terms and conditions herein set forth, to have
and to hold for the term the premises outlined in red in EXHIBIT "A" (the
"Subleased Premises").
2. Term. The term of this Sublease shall commence on the 1st day of
June, 1995, and shall expire on May 31, 2000 (the "Term") unless terminated
sooner as hereinafter provided. The occupancy of the Subleased Premises by
Lessee shall continue without interruption until the end of the Term or until
sooner terminated under the provisions of this Sublease.
3. Rental. During the Term of this Sublease, Lessee shall pay Lessor
$11.50 per square foot per annum, for the total square footage leased of 3,000
square feet payable in the sum of Two Thousand Eight Hundred Seventy Five and
no/100 Dollars ($2,875.00) per month, beginning the 1st day of June, 1995, and
with the same sum due on the first day of each month thereafter during the Term
of this Sublease.
<PAGE> 2
In calculating the rentable area of the Subleased Premises, the
rentable area shall be as defined by the standard method for measuring floor
area in office buildings, BOMA, American National Standard, 1981. The total
square footage leased, above, and monthly rental, above, may be adjusted to an
architect prepared certification of area occupied and leased according to BOMA
standards.
At the end of the twenty fourth (24th) month of the term (i.e.,
effective on June 1, 1997), Lessor shall have the option to increase the rent
for the remainder of the term. This increase shall be determined by the average
of the value in two (2) opinion letters provided to Lessor by separate
commercial real estate brokers who are qualified to determine such rentals.
Provided, however, the adjusted rental shall not be less than the rental rate
charged for the immediately preceding 24-month period, nor greater than an
amount that is the immediately preceding rental rate increased by five percent
(5%) compounded per lease year or portion thereof since June 1, 1995.
The monthly rentals due shall be paid at the Lessor's offices, 4511 N.
Channel Avenue, Portland, Oregon 97217 (or such other address as Lessor may
designate in writing).
4. Deposit. As partial consideration for execution of this Sublease,
Lessee has paid to Lessor, as a deposit, the sum of Two Thousand Eight Hundred
Seventy Five and no/100 Dollars ($2,875.00) (the "Deposit"), receipt of which is
hereby acknowledged. Upon the expiration of the Term, an amount equivalent to
the Deposit, after deduction of any sums necessary to complete Lessees
obligations under this Sublease, shall be returned to Lessee within thirty (30)
days of the expiration of the Term. Lessee agrees that Lessor is under no
obligation to segregate the Deposit and that Lessor may use the Deposit in any
manner that he sees fit, and shall not be liable to Lessee for any interest or
income accruing to Lessor by reason of his use of
2
<PAGE> 3
the Deposit. Upon termination of the Sublease other than by expiration, Lessor
shall apply the Deposit as he deems reasonable.
5. Use of Subleased Premises.
A. The Lessee shall use and occupy the Subleased Premises as
general office operations, and for any lawful purpose incidental
thereto. Lessee shall, at its own expense, obtain any and all licenses
and permits necessary for such use. Lessee shall not use the Subleased
Premises for any other purpose without the prior written consent of
Lessor, which Lessor may withhold in its sole and absolute discretion.
Lessee shall comply with the requirements of any State or Federal
statute or local ordinance or regulation applicable to Lessee and/or
its use of the Subleased Premises.
B. Lessee shall not allow on the Subleased Premises any vending
machines, whether owned by Lessee or leased by Lessee, and shall not
sell any gifts, novelties, sundries or incidentals of any kind, or
offer any merchandise for sale or delivery on the Subleased Premises
without the prior written consent of Lessor, which Lessor may withhold
in its sole and absolute discretion; provided, however, that Lessor may
require Lessee to pay additional rentals if such use(s) are permitted.
This is in recognition of Lessor's obligations to the Port under the
Master Lease as hereinafter described.
6. Alterations and Improvements to Prepare Subleased Premises for
Occupancy by the Lessee. Lessor shall, at its own cost and expense, make and
complete on or before June 1, 1995, or as soon thereafter as practicable, all
interior improvements and alterations in accordance with the plans and
specifications prepared by Lessor and attached hereto as EXHIBIT "B" and
approved and initialed by the parties hereto. If there is no attached and
initialed Exhibit B hereto,
3
<PAGE> 4
it shall be conclusively presumed that no such improvements and/or alterations
are required as part of this Sublease.
7. Real Estate Taxes. Lessor agrees to pay before they become
delinquent all taxes (both general and special), assessments or governmental
charges (hereinafter collectively referred to as "taxes") lawfully levied or
assessed against the premises leased by Lessor from the Port of Portland (the
"Demised Premises") under the terms of the Lease (the "Master Lease"), a copy of
which is available from the Lessor at his business offices; provided, however,
that Lessor may, at its sole cost and expense (in its own name or in the name of
Lessee as well, as it may deem appropriate) dispute and contest the same, and at
the conclusion of such contest, Lessor shall pay the items contested to the
extent that they are held valid, together with all court costs, interest and
penalties relating thereto.
8. Increase in Operating Costs.
A. If, in any calendar year commencing with calendar year 1995,
Lessor's Annual operating Costs (as hereinafter defined) with respect
to the Demised Premises shall be higher than such costs for the year
ending 1995 (the "Base Year"), then in each such year during the Term,
Lessee shall be obligated to pay, in addition to the monthly rental
provided in Section 3 herein, an amount equal to Four percent (4%) of
the excess over the Base Year's Annual Operating Cost (such percentage
being based upon the square footage of the Subleased Premises to the
Demised Premises). The term "Annual Operating Cost" is defined as
meaning any and all expenses, as determined by generally accepted
accounting practices, consistently applied, incurred in a calendar year
by the Lessor in connection with the servicing, operation, maintenance,
repair, and management of the Demised Premises, and related exterior
appurtenances of which the Demised
4
<PAGE> 5
Premises are a part, and the cost of any services incurred in order to
achieve a reduction of any operating expenses or real estate taxes.
"Annual Operating Cost" shall include the following costs by way of
illustration, but shall not be limited thereto: real estate taxes and
assessments levied on the land and building of which the Demised
Premises is a part; utilities and services; insurance premiums (except
as otherwise provided in Section 15); licenses, permits, and inspection
fees; and the cost of wages, materials and services for the operation,
maintenance, and management of the Demised Premises. "Annual Operating
Costs" shall not include any of the following: capital improvements
(except as described in Paragraph 6); expenses of painting, decorating,
and alteration of other than public areas, common areas or the
Subleased Premises; interest and amortization of mortgages;
depreciation of the Demised Premises; and income or franchise taxes or
other such taxes imposed or measured by the net income of the Lessor
from operation of the Demised Premises and related exterior
appurtenances, of which the Demised Premises, are a part; and certain
fire insurance premiums which shall be the obligation of Lessee as
provided in Section 15.
B. During December of each calendar year or as soon thereafter as
practicable, Lessor shall give Lessee written notice of its estimate of
amounts payable under Paragraph A. above for the ensuing calendar year.
On or before the first day of each month during the ensuing calendar
year, Lessee shall pay to Lessor 1/12 of such estimated amounts,
provided that if such notice is not given in December, Lessee shall
continue to pay on the basis of the prior year's estimate until the
month after such notice is given. If at any time or times it appears to
Lessor that the amounts payable under Paragraph A. above for the
current calendar year will vary from its estimate by more than
5
<PAGE> 6
75 percent, Lessor shall, by written notice to Lessee, revise its
estimate for such year, and subsequent payments by Lessee for such year
shall be based upon such revised estimate, subject, however, to the
provisions of Paragraph A above.
C. Within ninety (90) days following the end of each calendar year
during the Term, Lessor shall furnish to Lessee a statement certified
by accountants selected by Lessor showing the Annual Operating Cost for
the Base Year, the Annual Operating Cost for the immediately preceding
calendar year and the increase, if any, in such cost over the Base
Year. Lessee's pro rata share of such increase, if any, shall be shown
on the statement provided. If Lessee has been paying estimated increase
payments during the calendar year as specified in Paragraph B, then
Lessor shall compare Lessee's actual share of increase to Lessee's
estimated payments for the increase. Lessee shall pay any deficiency in
Lessee's share of the increase within thirty (30) days after receipt of
the statement. If Lessee's estimated increase payments exceed the
amount due, Lessee may offset the excess against the next rent due
until such excess is depleted.
D. If, for any reason other than the default of Lessee, this
Sublease shall terminate on a day other than the last day of a calendar
year, the amount of any increase in rental or Annual Operating Costs
payable by Lessee, applicable to the calendar year in which such
termination shall occur shall be prorated on the basis which the number
of days from the commencement of such calendar year to and including
such termination date bears to 365 irrespective of the actual number of
days in the calendar year.
9. Eminent Domain.
A. The term "eminent domain" as used herein shall include not only
the power exercised by governmental bodies that is called condemnation
or eminent domain but also
6
<PAGE> 7
the exercise of any similar governmental power, whether by public
authority or by private corporation, or any purchase or other
acquisition in lieu of condemnation. The settlement of any legal
proceedings and purchase price in lieu of condemnation shall require
the consent of all parties if the Subleased Premises or a portion
thereof are taken by such proceedings. The expression "date of taking"
means the date possession of the Demised Premises or any portion
thereof is surrendered to the condemnation authority.
B. If the entire Subleased Premises, or so much thereof as to make
the balance not reasonably adequate for the conduct of Lessee's
business not withstanding restoration by Lessor as hereinafter
provided, shall be taken under the power of eminent domain, this
Sublease shall automatically terminate as of the date on which the
condemning authority takes possession. The deposit return provisions of
Paragraph 4, Page 2 shall be applicable hereto.
C. In the event of any taking under power of eminent domain which
does not result in a termination of this Sublease, the Rent payable
hereunder shall be reduced, effective as of the date on which the
condemning authority takes possession, in the same proportion which the
floor area of the Subleased Premises taken represents to the entire
Subleased Premises, prior to the taking. Lessor shall promptly, at its
expense, restore the portion of the Subleased Premises not so taken to
as near its former condition as is reasonably possible, and the
Sublease shall continue in full force and effect.
D. Any award for any taking of all or any part of the Subleased
Premises under the power of eminent domain shall be the property of
Lessor, whether such award shall be made as compensation for diminution
in value of the leasehold or for taking of the fee. Except for pro rata
payments made by Lessee for tenant improvements in excess of
7
<PAGE> 8
building standards and moving expenses, nothing contained herein,
however, shall be deemed to preclude Lessee from obtaining an award to
Lessee for loss of or damage to Lessee's trade fixtures and removable
property or for damages for cessation or interruption of Lessee's
business.
E. A sale by Lessor to any authority having the power of eminent
domain, either under the threat of condemnation or while condemnation
proceedings are pending, shall be deemed a taking under the power of
eminent domain for all purposes under this section.
10. Janitorial Service, Maintenance, Repairs and Inspection. The Lessee
shall keep the demised premise in good and clean condition and Lessee shall
provide, at its own cost and expense, janitorial service for the Subleased
Premises. The Lessee agrees to keep the interior portion of the Subleased
Premises in as good order and repair as it is on the Effective Date; provided,
however, that Lessee shall not be liable for reasonable wear and tear caused by
Lessee or damage caused by Lessor or its agents. Lessee shall maintain in good
repair those exterior improvements, if any, which Lessee caused to be erected
upon the Subleased Premises. The Lessee agrees to surrender the Subleased
Premises at the expiration or sooner termination of the Term hereof in the same
condition in which Lessee has herein agreed to maintain the same during the
continuance of this Sublease.
Lessor shall, at its sole expense, keep and maintain in good and clean
condition and repair the structural supports and exterior of the Demised
Premises including, but not limited to, the foundation, exterior walls, roof,
cornices, guttering, downspouts, all utility and sewer line connections of the
Demised Premises, the sidewalks, loading, parking and landscaped areas, except
for any repairs caused by the wrongful act of Lessee or its agents. Lessee
waives the right
8
<PAGE> 9
to make repairs at Lessor's expense under any law, statute or ordinance now or
hereafter in effect.
Lessor and its agents shall have the right at any reasonable time to
enter upon the Subleased Premises for the purposes of inspection, posting
notices, showing to a prospective purchaser or tenant or lender, or making any
alterations or repairs which Lessor shall deem necessary for the protection,
improvement or preservation of the Subleased Premises or for any other lawful
purpose. At any time after ninety (90) days prior to the expiration of the Term,
Lessor may place thereon any usual or ordinary "For Lease" or "For Sale" signs.
11. Alteration, Improvements. The Lessor grants to the Lessee the right
to make such permanent alterations, improvements and changes upon the Subleased
Premises as the Lessee determines to be desirable or necessary for the operation
of its business; provided, that no such changes shall be made without first
receiving the written approval of the Lessor, and further provided that any such
improvements or alterations shall be made solely at Lessee's expense, unless the
parties hereto agree otherwise. Lessor may require Lessee to post a corporate
surety bond reasonably satisfactory to Lessor equaling 150 percent of the
estimated cost of the improvement plus attorneys' fees and interest before
granting any permission to alter, improve and/or change the Subleased Premises.
Lessee may, upon the termination of this Sublease, remove from the Subleased
Premises any decorations, furniture, shelving, trade fixtures, machines and
equipment which Lessee shall, at its own expense, have installed in the
Subleased Premises. Lessee shall restore, at its sole expense, the Subleased
Premises to its condition on the Effective Date of the Sublease, ordinary wear
and tear excepted.
12. Signs. Lessee agrees that no signs, banners, pennants, flags, or
other advertising devices or any signs shall be placed, installed, flown or
erected an the Subleased Premises without
9
<PAGE> 10
the written consent of the Lessor first obtained, which consent shall not be
unreasonably withheld. Irrespective of Lessor's consent, Lessee shall comply
with all governmental ordinances, rules or regulations and any rules and
regulations of the Port of Portland.
13. Utilities. Lessor shall, at its sole expense, provide the
electrical power necessary for lighting, heating, air conditioning and
ventilating; Lessee shall pay any and all charges for any unusual or
extraordinary gas and/or electricity requirements, telephone, and all other
charges for utilities furnished to the Subleased Premises during the Term.
14. Parking. Lessee shall cause its employees, independent contractors
and visitors to park their vehicles within the parking areas directly opposite
the Subleased Premises in the area currently provided for under the Master
Lease. Lessee shall be entitled to the use of eight (8) parking spaces in common
with all other tenants within the described area.
15. Liability Insurance/Fire Insurance. The Lessor shall procure and
maintain standard fire and extended coverage insurance covering the Demised
Premises and adjacent walk areas in an amount sufficient to prevent the Lessor
from becoming a co-insurer under the terms of said policies, but in any event in
an amount not less than seventy five percent (75%) of the replacement cost
thereof.
In addition to the provisions of Section 8 herein, Lessee shall
separately pay on demand any increase in premiums for fire insurance carried by
Lessor on the Subleased Premises or the Demised Premises in general which are
directly and peculiarly due to or caused by any activity of Lessee upon the
Subleased Premises whether or not Lessor has consented to such activity.
Lessee shall carry fire and extended coverage, malicious mischief and
vandalism insurance on Lessee's contents contained in the Subleased Premises.
All policies Lessee obtains shall also contain cross-liability endorsement and
contractual liability endorsement.
10
<PAGE> 11
Notwithstanding anything to the contrary contained in any other
provision of this Sublease, Lessee and Lessor hereby release the other from any
and all liability or responsibility to the other or anyone claiming through or
under them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any of the extended coverage casualties covered by the
insurance maintained hereunder, even if such fire or other casualty shall have
been caused by the fault or negligence of the other party, or anyone for whom
such party may be responsible; provided, however, that this release shall be
applicable and in force and effect only with respect to loss or damage occurring
during such times as the releasor's policies shall contain a clause or
endorsement to the effect that any release shall not adversely affect or impair
said policies or prejudice the right of the releasor to recover thereunder.
Lessee and Lessor agree that they will request their respective insurance
carriers to include in its policies such a clause or endorsement.
Lessee, shall procure and maintain throughout the Term a policy or
policies of insurance, at its sole cost and expense, insuring both Lessee and
Lessor against all claims, demands or actions arising out of or in connection
with Lessee's use or occupancy of or the condition of the Subleased Premises,
the limits of such policy or policies shall be in an amount not less than
$1,000,000, combined single limit, with respect to personal injury, death, and
property damage and $2,000,000 aggregate (occurrence form), such insurance to
provide for no deductible. Said policy or policies shall be written by insurance
companies qualified to do business in Oregon and reasonably acceptable to
Lessor. Such policies or duly executed certificates of insurance shall be
promptly delivered to Lessor upon written request.
16. Damage or Destruction by Fire or Other Casualty. In the event that
the Subleased Premises are so injured by the elements, fire, tornado, or other
causes or casualty as to be unfit for occupancy in whole or in part, and there
remains at least one (1) year of the Term, and in the
11
<PAGE> 12
further event that such damage can be reasonably repaired within one hundred
twenty (120) days and at a cost not to exceed reasonable replacement cost or the
available insurance proceeds, whichever is lesser, then Lessor shall promptly
commence work to repair the same and restore the Subleased Premises to the same
condition as it was immediately prior to the damage, and if the Lessee shall be
deprived of the occupancy by reason of such damage and repairs, a proportionate
allowance shall be made to Lessee from the rent corresponding to the time during
which and to the portion of the Subleased Premises of which it is so deprived.
If the Subleased Premises are so damaged that they cannot be reasonably
repaired and restored as aforesaid within 120 days, or in the event that there
is less than one (1) year then remaining in the Term, or if the reasonable cost
of repair and restoration exceeds the reasonable replacement cost or the
available insurance proceeds, whichever is lesser, then either party may
terminate this Sublease by giving written notice to the other of its intention
to do so within 60 days of the event causing the damage.
17. Liability/Indemnification. Lessor shall not be liable to Lessee or
Lessee's employees, independent contractors, agents, customers or visitors, or
to any other person whomsoever, for any injury to person or damage to property
on or about the Demised or Subleased Premises caused by the negligence of
Lessee, its agents, servants or employees, or of any other person entering upon
the Demised or Subleased Premises under express or implied invitation of Lessee,
or caused by the buildings and improvements located on the Demised or Subleased
Premises becoming out of repair, for which Lessee is responsible herein, or any
other reason and Lessee agrees to indemnify, defend, save and hold Lessor
harmless from any loss, expense, demand, investigations, remedial action,
cleanup or claims, post cleanup monitoring cost and expenses, including
reasonable attorneys' fees arising out of any such damage or injury;
12
<PAGE> 13
except that any injury to person or damage to property caused solely by the
negligence of Lessor, its agents, servants or employees, or solely by the
failure of Lessor, its agents, servants or employees to repair and maintain that
part of the Demised Premises which Lessor is obligated to repair and maintain
hereunder shall be the liability of Lessor and not of Lessee, and Lessor agrees
to indemnify Lessee and hold it harmless from any and all loss, expense or
claims, including reasonable attorneys' fees, arising out of such damage or
injury.
18. Assignment and Subletting. Lessee will not assign, transfer,
hypothecate, surrender or encumber this Sublease or any interest hereunder and
will not permit any assignment hereof by operation of law and will not sub-rent
or sublet the Subleased Premises or any portion thereof, and will not permit the
use or occupancy of the Subleased Premises by anyone other than Lessee or its
employees, without first obtaining the written consent of Lessor, which Lessor
may withhold in its sole and absolute discretion; provided, however, Lessor may
impose such reasonable conditions on its consent as Lessor deems appropriate. A
merger, consolidation, liquidation or ownership change by vote of the majority
of the outstanding shares of stock of the Lessee or its owner shall constitute
an assignment. Any consent by Lessor to any act of assignment, or subletting
shall be held to apply only to the specific transaction thereby authorized. Such
consent shall not be construed as a waiver of the duty of Lessee or its legal
representatives or assigns to obtain from Lessor consent to any other or
subsequent assignment or subletting or as modifying or limiting the rights of
Lessor under the foregoing covenant by Lessee not to assign or sublet without
such consent.
19. Possession and Quiet Enjoyment. Lessor covenants that it is
lawfully seized of the Demised Premises and has good right and lawful authority
to enter into this Sublease for the full Term, that Lessor will put the Lessee
in actual possession of the Subleased Premises at the
13
<PAGE> 14
beginning of the Term except as otherwise provided hereinabove and that Lessee,
on paying the rent and performing all of the other covenants herein agreed by it
to be performed, shall and may peaceably and quietly have, hold and enjoy the
Subleased Premises and areas in common with other tenants and/or use the
appurtenances thereto for the said Term.
20. Rules and Regulations. Lessee will comply with and abide by, and
will cause its agents, employees, invitees, guests, licensees, and visitors upon
the Demised or Subleased Premises to comply with and abide by all the rules and
regulations set forth in EXHIBIT "C". Lessor and/or Port of Portland (see
Paragraph 22 for Port's relationship to Lessor) will have the right to make
reasonable changes in, additions to, and deletions from said rules and
regulations during the Term. Lessee shall post a copy of the rules and
regulations in common employee areas.
21. Waiver of Priority. Lessor shall have the right, at any time or
from time to time during the Term, as security for any indebtedness with respect
to Demised Premises, to mortgage or refinance a mortgage on the Demised Premises
or any part thereof, the lien of which may, at the option of the Lessor, be
prior to any interest of the Lessee hereunder; but such encumbrance shall be
subject to and limited by the express condition that the mortgage, trust deed or
other instrument establishing a binding obligation on the lienor shall contain
apt provisions under the term of which the existence of this Sublease shall be
recognized and shall provide that so long as the Lessee, its successors and
assigns (as permitted hereinabove), shall keep and perform the terms, covenants
and conditions in this Sublease contained on its part to be kept and performed,
neither the holder of such encumbrance nor any holder or owner of the
indebtedness secured thereby, nor any other person, shall, in attempting to
enforce collection of said indebtedness or to realize upon such security, have
any power to impair, modify, abrogate or adversely affect the
14
<PAGE> 15
rights of the Lessee, its successors or assigns, under this Sublease to the full
enjoyment of the entire term hereof; to the end that the Lessee, while not in
default hereunder, shall, notwithstanding the creation of or default by Lessor
under any such encumbrance or indebtedness secured thereby, peacefully and
quietly have, hold and enjoy the Subleased Premises for the entire term hereof,
and all other rights, privileges and benefits to which it may be entitled under
and pursuant to the terms of this Sublease.
22. Master Lease Agreement. Lessee recognizes that Lessor's interest in
the Demised Premises is that of a lessee under the terms of an Amended Master
Lease and as may be further amended and confirmed by and between the Port of
Portland ("Port") and Lessor. Any change to the Master Lease shall be deemed a
change to this Lease and Lessee shall abide by any such changes hereafter made.
In the event of the cancellation or termination of the Master Lease prior to its
expiration, or prior to the expiration of the Term or any extensions and
renewals thereof, or in the event of the surrender of the Master Lease, whether
voluntary, involuntary, or by operation of law, the Lessee shall make full and
complete attornment, to the Port for the balance of the Term including any
extensions and renewals thereof, upon the same covenants and conditions as are
contained herein, so as to establish direct privity of an estate and contract
between the Port and the Lessee with the same force and effect as though this
lease was originally made directly from the Port to the Lessee. The Lessee shall
make all rent payments thereafter directly to the Port. By its approval of this
Sublease, the Port represents and covenants with Lessee for a period equal to
the full unelapsed portion of the Term including any extensions and renewals
thereof, and upon the same covenants and conditions as are contained herein, and
the Port will thereafter become the Lessor under this lease.
15
<PAGE> 16
This Sublease shall not be effective or valid until approved by Port,
and Lessor shall have no liability to Lessee if for any reason Port does not
approve this Sublease, except that all lease deposits shall be promptly restored
to Lessee by Lessor.
23. Default/Termination.
A. Any of the following shall constitute a default by Lessee under
this Sublease:
(i) Lessee's failure to pay rent or any other charge under this
Sublease within 10 days after it is due, or failure to comply with
any other term or condition of this Sublease within 20 days
following written notice from Lessor specifying the non-compliance.
If such non-compliance cannot be cured within the 20 day period,
this provision shall be satisfied if Lessee commences correction
within such period and thereafter proceeds in good faith and with
reasonable diligence to affect compliance as soon as possible. TIME
IS OF THE ESSENCE OF THIS SUBLEASE.
(ii) Tenant's insolvency, business failure or assignment for the
benefit of creditors. Lessee's commencement of proceedings under
any provisions of any bankruptcy or insolvency law or failure to
obtain dismissal of any petition filed against it under such laws
within the time required to answer, or the appointment of a
receiver for Lessee's properties.
(iii) Assignment or subletting by Lessee in violation of Section
18 of this Sublease.
(iv) Vacation or abandonment of the Subleased Premises without
the prior written consent of Lessor.
16
<PAGE> 17
B. In case of default as described in Section 23.A., Lessor shall
have the right to the following remedies which are intended to be
cumulative and in addition to any other remedies provided under
applicable law:
(i) Lessor may terminate the Sublease and retake possession of
the Subleased Premises. Following such retaking of possession,
efforts by Lessor to relet the Subleased Premises shall be
sufficient if Lessor follows its usual procedures for finding
tenants for the space at rates not less than the current rated for
other comparable space in the Demised Premises. If Lessor has other
vacant space in the Demised Premises, perspective tenants may be
placed in such other space without prejudice to Lessor's claim to
damages or loss of rentals from Lessee.
(ii) Lessor may recover all damages caused by Lessee's default
which shall include an amount equal to rentals lost because of the
default, lease commissions paid for this Sublease, and the
unamortized cost of any tenant improvements installed by Lessor to
meet Lessee's special requirements. Lessor may sue periodically to
recover damages as they occur throughout the Sublease Term, and no
action for accrued damages shall bar a later action for damages
subsequently accruing. Lessor may elect in any one action to
recover accrued damages plus damages attributable to the remaining
Term of this Sublease. Such damages shall be measured by the
difference between the rent under this Sublease and the reasonable
rental value of the subleased Premises for the remainder of the
Term, discounted to the time of judgment at the prevailing interest
rate of judgments.
17
<PAGE> 18
(iii) Lessor may make any payment or perform any obligation
which Lessee has failed to perform, in which case Lessor shall be
entitled to recover from Lessee upon demand all amounts so
expended, plus interest from the date of the expenditure at the
rate 1 and 1/2 percent per month. Any such payment or performance
by Lessor shall not waive Lessee's default.
24. Non-waiver. Any waiver of any breach of the terms, conditions or
covenants herein contained to be kept and performed by either party hereto shall
not be deemed or considered as a continuing waiver and shall not operate to bar
or prevent the other party hereto from declaring a forfeiture, termination or
cancellation for any succeeding breach either of the same condition or covenant
or otherwise. Acceptance or payment of rental shall not be deemed a waiver.
25. Attorneys' Fees. In the event any suit is brought by either party
against the other to enforce any of the terms or provisions of this Sublease, or
to collect any sum alleged to be due hereunder, or in the event that Lessor
shall institute a suit for an unlawful detainer of the Subleased Premises, then
it is agreed that the prevailing party in such suit shall be entitled to
attorneys' fees in a reasonable amount to be fixed by the court and included in
any judgment in such action, as well as reasonable attorneys' fees in the event
of an appeal.
26. Binding Effect. This Sublease and all the rights, obligations and
duties contained in this Sublease shall be binding upon and shall inure to the
benefit of the heirs, successors and assigns of the parties hereto; provided,
however, that this provision shall not be interpreted to mean, infer or imply
that Lessee shall have any rights to assign this Sublease or sublet all or any
part of the Subleased Premises except as provided in Section 18.
18
<PAGE> 19
27. Holdover. In the event the Lessee remain in possession of the
Subleased Premises after the expiration of Term, then such possession shall
operate to create a month-to-month tenancy upon the same terms and conditions as
set forth herein except that the monthly rental shall be increased to an amount
equal to 150% of the monthly rental paid by Lessee during the last month of the
Term of this Sublease.
28. Force Majeure. In the event that either party hereto shall be
delayed or hindered in, or prevented from, the performance of any act required
hereunder by reason of acts of the other party, strikes, lockouts, labor
troubles, inability to procure materials, failure of power, restrictive
governmental laws or regulations, riots, insurrections, war or other reason of a
like nature not the fault of the party delayed in performing work, or doing acts
required under the terms of the Sublease, then performance of such act shall be
excused for the period of the delay, and the period for the performance of any
such act shall be extended for a period equivalent to the period of the delay.
The provisions of this paragraph shall not operate to excuse Lessee from prompt
payment of any sums required by the terms of this Sublease.
29. Relationship of the Parties. The relationship between the parties
hereto is that of Lessor and Lessee, and of independent contracting parties, and
is not and shall not be deemed to be any other relationship including but
without limiting the generality thereof, that of joint venturers, partners, or
principal and agent.
30. Severability. Should any term, provision, clause, article,
condition or other portion of this Sublease be held inoperative, invalid or
void, the same shall not affect any other term, provision, clause, article,
condition or other portion of this Sublease, but the remainder of the Sublease
shall remain effective as if such term, provision, clause, article, condition or
other
19
<PAGE> 20
portion had not been contained herein, unless the inoperative, invalid or void
portion goes to the essence of this Sublease.
31. Amendment. This Sublease cannot be amended, altered or modified
except in writing signed by the parties hereto.
32. Exhibits. Exhibits "A", "B" and "C" annexed hereto are by this
reference incorporated herein as if set forth in full.
33. Notice. Any notice herein required or permitted to be given must be
in writing and shall be deemed to be delivered, whether actually received or
not, when deposited in the United States mail, postage prepaid, certified or
registered mail, and properly addressed to the party to whom such notice is
given. Any notice herein required or permitted to be given by Lessee to Lessor
shall be deemed given when mailed to Lessor and addressed as follows:
THE CELTIC INVESTMENT CO.
4511 N. Channel Avenue
Portland, Oregon 97217
and notice to the Lessee shall be sent to the following address:
World Security Services Corp.
4507 N. Channel Avenue
Portland, Oregon 97217
Each party shall have the right to specify as its proper address any other
address by giving prior written notice thereof to the
other party.
34. Complete Agreement. This Sublease contains all terms, covenants,
conditions, warranties and agreements of the parties relating in any manner to
the rental, use and occupancy of the Subleased Premises. No prior agreement or
understanding pertaining to the same shall be valid or of any force or effect.
35. Environmental Warranties/Representations.
20
<PAGE> 21
A. The Lessee warrants and represents to the Lessor that Lessee
does not and will not at any time during the term, any extensions,
renewals or period of holding over, have, use, place, bring on or in
any manner expose the Demised Premises or the Subleased Premises to any
hazardous materials, toxic substances, asbestos or any other substance
subject to governmental regulation. Lessee warrants that it will at all
times during the Term, any extensions thereof, holding over or
renewals, comply with all present and future federal, state and local
environmental statutes, rules and regulations at Lessee's sole cost and
expense.
B. Lessee agrees and shall pay any and all costs of
investigation, remedial and removal actions, fines, reasonable
attorneys' fees and all post cleanup costs, including but not limited
to monitoring post cleanup monitoring. Lessee shall indemnify, save and
hold harmless Lessor from any and all costs, expenses and reasonable
attorneys' fees for performance of its obligations contained herein
regardless of whether Lessee or its assigns (when permitted) are
responsible for such costs, expenses and attorneys' fees. Violation of
this paragraph by Lessee shall be grounds for immediate termination of
the Sublease.
36. As-Is Clause. EXCEPT FOR THE WORK, IF ANY, TO BE PERFORMED UNDER
PARAGRAPH 6 ABOVE, AND EXCEPT FOR ANY REPAIR, REPLACEMENT, AND/OR MAINTENANCE
OBLIGATIONS OF LESSOR TO BE PERFORMED IN ACCORDANCE WITH THIS SUBLEASE, THE
LESSEE ACCEPTS THE SUBLEASED PREMISES, AS-IS, WHERE-IS, AND WITHOUT WARRANTY OF
ANY TYPE, KIND OR NATURE, INCLUDING, BUT NOT LIMITED TO THE WARRANTIES OF
FITNESS FOR THE LESSEE'S INTENDED PURPOSE.
21
<PAGE> 22
37. Limitation an Lessor Liability. The term "Lessor" as used in this
Sublease shall mean the owner of the Demised Premises. If the Demised Premises
are sold or otherwise transferred by Lessor, or any successor, Lessee shall
attorn to the purchaser or transferor and recognize it as the Lessor under this
Sublease and, provided that purchaser assumes all obligations hereunder, the
transferor shall have no further liability hereunder.
38. Estoppel Certificates. Either party will within 20 days after
notice from the other execute, acknowledge and deliver to the other party a
certificate certifying whether or not this Sublease has been modified and is in
full force and effect; whether there are any modifications or alleged breaches
by the other party; the dates to which rent has been paid in advance, and the
amount of any security deposit or prepaid rent; and any other facts that may
reasonably be requested. Failure to deliver the certificate within the specified
time shall be conclusive upon the party of whom the certificate was requested
that the Sublease is in full force and effect and has not been modified except
as may be represented by the party requesting the certificate. If requested by
the holder of any encumbrances, the Port, Sublessee will agree to give such
holder, the Port or Lessor notice of and an opportunity to cure any default by
Lessor under this Sublease.
39. Only Lease. This is the only Sublease or other agreement by and
between the Lessor and Lessee for the Subleased Premises and any other
agreements and/or practices between the parties are merged herein. This Sublease
supersedes, replaces, and cancels the Sublease dated November 1, 1991 by and
between World Security Services Corp. and Lessor and as amended by unsigned
Addendum to Sublease dated April, 1995 only to the extent that full performance
has been given by Lessee herein. The parties acknowledge that the execution of
this Sublease with the additional term is sufficient consideration for the
Sublease.
22
<PAGE> 23
40. Options to Extend. Lessee shall have two separate, consecutive
options to renew this Sublease for additional three-year extension periods
exercisable as set forth hereinafter.
40.1 For all extension periods, in order for Lessee to be eligible to
exercise its extension rights, Lessee must not be in default at the time of the
notice of exercise is sent and cannot be in default at any time from the date of
notice of exercise until the extension date nor shall there be an event that has
occurred which with the passage of time or the giving of notice would constitute
a default during the same period of time.
40.2 Rent on any extension shall be market value, but not greater than
a five percent (5%) increase from the then current rental payment. Market value
shall be determined by an average of the value given in two (2) opinion letters,
one provided to Lessor and one provided to Lessee by separate commercial real
estate brokers who are qualified to determine such rentals. Each party shall
select their respective real estate brokers. If the Lessee is and Lessor's
brokers' value differ by 5 percent or less, then the two numbers shall be
averaged and that number shall be the rental for the one extension term. If the
parties' brokers differ by more than 5 percent, then the two brokers shall
select a third broker and the opinion of two of the three brokers shall be the
rental for the one extension term. All such adjustments are subject to the 5
percent cap set forth above The adjusted rentals shall be not less than the
rental rate charged for the immediately preceding Term or Extension Period,
whichever is applicable.
40.3 For all extensions, the notice to Lessor of extension shall be
within 90 days of the end of the then expiring Term or Extension.
40.4 Failure exercise an option to extend terminates any right to
further extensions. All options are consecutive and conditioned upon the
exercise of the prior option.
23
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed the foregoing
instrument the day and year first above written.
ARTHUR A. RIEDEL, dba
THE CELTIC INVESTMENT CO.
By: /s/ John Schenk
---------------------------------------
John Schenk, authorized agent for
Arthur A. Riedel ("Lessor")
By: /s/ Ewell R. Harris
---------------------------------------
Ewell R. Harris, Vice President
("Lessee")
24
<PAGE> 1
EXHIBIT 10.51
SUBLEASE AMENDMENT NO. 1
This Amendment No. 1 is to Sublease dated May 1, 1995, between Arthur A. Riedel,
dba The Celtic Investment Co., as Lessor, and World Security Services Corp., as
Lessee. Lessor and Lessee are jointly referred herein as "the parties".
Whereas Lessee desires to Sublease an additional area, connected to the existing
Sublease Premises;
NOW, THEREFORE, the parties agree, good and sufficient consideration
having been given and received:
1. This Sublease Amendment is effective as of April 15, 1998
("Effective Date"), or as may be adjusted to Occupancy Date.
2. Paragraph 1 of the Sublease, is amended by the addition of the
following as of the Effective Date:
Revised EXHIBIT A, attached hereto, shows the original
Subleased premises, plus area added by Amendment No. 1
outlined in red. The additional premises contains
approximately 300 square feet, and the total Subleased
Premises, with this Amendment collectively contains
approximately 3,300 square feet, plus an adjoining storage
area containing approximately 150 square fee.
3. Paragraph 3 of the Sublease, Rental, is amended by the
substitutions of the following as of the Effective Date:
Rental: During the remaining Term of this Sublease, Lessee
shall pay Lessor Three Thousand Three Hundred and No/100
Dollars ($3,300.00) per month beginning with the Effective
Date, exclusive of the provisions in Paragraph 8, and with
the same sum due on the first day of each month thereafter.
If the Effective Date/Occupancy Date is other than the first
of the month, the rental for that month will be prorated.
The monthly rentals due shall be paid at Lessor's offices, 4511 N.
Channel Avenue, Portland, Oregon 97217 (or such other address as
Lessor may designate in writing).
4. Paragraph 8 of the Sublease is deleted in its entirety and the
following is substituted in its place:
8. Increase in Annual Operating Costs:
A. In lieu of annual increases in rent or pass-throughs of
annual operating costs to Lessee, resulting from increases in
annual operating costs, excepting any increase in the minimum
monthly ground rent or off-site common area maintenance charges
as established by and paid to the Port of Portland under the
terms of the Master Lease, Lessor has established a five
percent (5%) annual increase, payable monthly, over the then
current base rental.
B. In the event that the Port of Portland (refer Paragraph 22)
increases the minimum monthly ground rent or off-site common
area maintenance charges over that of the preceding year,
Lessor shall furnish to Lessee a statement showing the minimum
monthly ground rent and the off-site common area maintenance
charges paid to the Port of Portland for the immediately
preceding year, together with the new minimum monthly ground
rent and/or off-site common area maintenance charges to be paid
to the Port of Portland, and the increase over that of the
immediately preceding year. Lessee's pro rata share of such
increase will be shown on the statement and future monthly
statements. The pro rata share will be based on the percentage
of the rentable square footage of the Subleased premises (.04%)
to the total Ports O'Call Demised Premises rentable square
footage, multiplied by the amount of the increase as shown on
the statement, not to exceed $25.00 per month over the base
year 1998.
All other terms, conditions and provisions of the Sublease, as amended, not
expressly amended herein, shall remain in full force and effect.
Dated this 11th day of March, 1998.
WORLD SECURITY SERVICES CORP.
By: /s/ HANK SLOVDA
------------------------------------
Title: President
"LESSEE"
A.A. RIEDEL, dba THE CELTIC INVESTMENT CO.
By:
------------------------------------
Title: Agent
"LESSOR"
<PAGE> 1
EXHIBIT 10.52
SUBLEASE AMENDMENT NO. 2
This Amendment No. 2 is to Sublease dated May 1, 1995, as amended by Amendment
No. 1 dated March 11, 1998, between ARTHUR A. RIEDEL, dba THE CELTIC INVESTMENT
CO., as Lessor and WORLD SECURITY SERVICES CORP., as Lessee. Lessor and Lessee
are jointly referred herein as the "parties".
NOW THEREFORE, the parties agree, good and sufficient consideration
having been given and received:
1. This Sublease Amendment shall be in effect ONLY upon the assumption
of the Sublease by Security Associates International, Inc.
2. This Sublease Amendment is effective as of October 1, 1998
("Effective Date"), and the new base year anniversary date is
amended to be October 1, 1998.
3. Paragraph 3 of the Sublease, Rental, is amended by the
substitutions of the following as of the Effective Date:
Rental: During the remaining Term of this Sublease, Lessee
shall pay Lessor Three Thousand Eight Hundred Twelve and 50/100
Dollars ($3,812.50) per month beginning with the Effective
Date, exclusive of the provisions in Paragraph 8, and with the
same sum due on the first day of each month thereafter. The
revised rental is based upon 3,300 square feet of finished
office area at the annual rate of $13.50 per square foot per
annum, and 150 square feet of storage area at $8.00 per square
foot per annum.
The monthly rentals due shall be paid at Lessor's offices: 4511
N. Channel Avenue; Portland, Oregon; 97217 (or such other
address as Lessor may designate in writing).
4. Paragraph 6 of the Sublease, as amended, alterations and
improvements, is amended by the substitution of the following as of
the effective date:
Alterations and Improvements to Prepare Subleased Premises for
Occupancy by the Lessee: As part consideration for Lessor
granting to Lessee this expansion opportunity, Lessee shall at
its own cost and expense, make and complete all interior
improvements and alterations in accordance with plans and
specifications prepared by Lessee and approved and initialized
by the parties hereto.
5. A new Paragraph 41 is added as follows:
41. Opportunity to Expand. Provided Lessee is not then in
default under this Sublease, Lessee shall have the right to
Sublease Suite 4599 of approximately 5,725 square feet as shown
on the attached Exhibit "A" until August 1, 1999, and such
expansion option shall terminate on August 1, 1999 (the
"Exercise Period"). This right to Sublease will be behind
Freightliner Corporation unless the right of Freightliner is
waived, which waiver of right has been requested by Lessor on
August 25, 1998. Such option shall be exercised by written
notice on or before the termination date. That is, the "Exercise
Notice", from Lessee to Lessor must be given within the Exercise
Period. In the event Lessee shall give Lessor Exercise Notice,
the monthly rent applicable to the Option Space shall be its
fair market rental value as of the date of the Exercise Notice.
Such fair market rental value shall be determined by Lessor in
good faith, based upon the then fair market value of comparable
premises in the building and comparable buildings in the general
vicinity. Lessee shall have the right to review Lessor's
calculations of fair market value. Lessee shall have the right,
within ten (10) days after receipt of such notice, to withdraw
its Exercise Notice, in which case this option right shall be of
no further force and effect and Lessor shall have the right to
sublease the Option Space to others. If no such withdrawal
notice is in its existing condition, any and all costs and
expenses incurred in the improvement of the first right of
refusal space shall be borne by Lessee. Any and all plans and
specifications for proposed construction work in the first right
of refusal space shall be first approved by Lessor in accordance
with Article 6 hereof, and any such construction work shall be
performed by a contractor approved by Lessor.
All other terms, conditions and provisions of the Sublease, as amended, not
expressly amended herein, shall remain in full force and effect.
Dated this 25th day of August, 1998.
<PAGE> 2
WORLD SECURITY SERVICES CORP.
By:
Title: President
"LESSEE"
A.A. RIEDEL, dba THE CELTIC INVESTMENT CO.
By:
Title: Agent for Celtic
"LESSOR"
<PAGE> 1
EXHIBIT 10.53
CONNECTION AGREEMENT
(Segregated)
THIS AGREEMENT is made and entered into by and between PACIFIC NORTHWEST BELL
TELEPHONE COMPANY (herein referred to as PNB), and ALARM MONITORING SERVICE
(herein referred to as Customer).
1. Scope of Agreement. PNB shall provide 2000 square feet of space on the
basement floor of its Seattle Emerson central office located at 1249 N.E. 145th
St., Seattle, Washington (hereinafter referred to as Premises), subject to
limitations set forth herein, for the installation and housing of Alarm
Monitoring Equipment owned by the Customer, which shall be connected to PNB's
network. A description of equipment, installation and other services are set
forth in Schedules A and B attached hereto and made a part hereof by this
reference.
2. Term. The term of this agreement shall be for fifteen years, commencing
the lst day of June, 1987, or such later date as may be mutually agreed upon in
writing by the parties.
If the building or improvements are not sufficiently completed to accommodate
occupancy by the commencement date, PNB shall give Customer written notice not
less than fifteen (15) days prior to the commencement date, specifying a later
date upon which the building or improvements will be completed. In this event,
the term of this agreement shall be deemed to commence upon the later date
specified in the notice.
If the commencement date has not occurred within forty-five (45) days from June
1, 1987, unless the date is extended by mutual agreement, this agreement shall
be deemed null and void and all rights and obligations of the parties shall
terminate. Such termination shall be Customer's sole remedy and Customer shall
have no other rights or claims at law or in equity.
Customer shall have the option of extending this lease for an additional ten
year term by providing PNB written notice not less than three (3) months prior
to the termination of the current term. Such option shall be exercised in five
(5) year increments on the 14th and 19th anniversary of the initial term.
3. Acceptance of Premises. If this agreement is entered into prior to the
completion of any construction or installation in the Premises, the acceptance
of the Premises by Customer shall be deferred until the giving of written notice
by PNB to Customer of the completion of such construction or installation.
Within seven (7) days after PNB gives such notice, Customer shall make such
inspection of the Premises as Customer deems appropriate and, except as
otherwise notified by Customer in writing to PNB, Customer shall be deemed to
have accepted the Premises in its then condition.
4. Consideration. Effective on the commencement date hereof, Customer
agrees to pay to PNB in advance on the first day of each month, without demand,
deduction or setoff, during the term hereof, computed as follows:
<PAGE> 2
a. For the first five year period, a monthly service charge
for connection to PNB's network and for use of space in
PNB's building in the amount of: $1,666.00
b. For construction of leasehold improvements on the
premises, amortized over the initial fifteen year term
of the lease;
Cost of Annual Compound
Improvements Interest Rate (10%) Annual Rate
- ------------ ------------------- -----------
$75,000 x 0.1314 $9,855 / 12 = 821.00
-------------
TOTAL MONTHLY PAYMENT: $2,487.00
The monthly service charge for connection to PNB's network and for use of space
shall be adjusted every five (5) years based on the increase in the CPI-U index,
using 1986 as the base year. The CPI-U index for 1986 is 328.4. Any increase in
the monthly service charge shall not exceed twenty-five (25%) percent.
The monthly charge for any period during the term hereof for which the customer
does not occupy or use the space which is less than one month shall be a
prorated portion of the monthly charge based upon a thirty (30) day month. All
payments shall be made to PNB at the address provided on the statement issued
monthly.
5. Taxes. All taxes and assessments, except those imposed directly upon
Customer's equipment and personal property located on the Premises, shall be
paid by PNB.
6. Technical Standards. PNB, or its designated representative, shall have
the right throughout the term of this agreement to:
a. approve the size, type and quality of telecommunications equipment,
including repairs, and electrical connections thereto.
b. PNB shall have the right to inspect Customer's equipment at any
reasonable time during normal business hours, by appointment with
Customer, for the term of this agreement to ensure compliance with the
terms and conditions hereof.
c. Customer shall install and operate its equipment in compliance with all
state and local fire and electrical codes. Customer shall operate its
equipment in compliance with the applicable rules and regulations of
the Federal Communications Commission, or any other federal, state or
municipal agency having jurisdiction. Any required license or permit
shall be posted at all times on the Premises.
2
<PAGE> 3
7. Special Improvements. Customer shall reimburse PNB for PNB's cost of
making all special improvements requested by Customer including, but not limited
to, partitioning, electrical and telephone outlets and plumbing connections,
which are other than as set forth in the attached schedules as being furnished
by PNB.
Customer will make no alterations to the Premises without first obtaining the
written consent of PNB, and all additions, improvements and fixtures of a
permanent nature made or added either by PNB or Customer shall be and remain the
property of PNB.
8. Additional Space. This agreement in no way implies that PNB will build,
furnish or provide Customer with any additional building space beyond what is
agreed to herein.
9. Parking. During the term of this agreement, customer shall have the
right to park five (5) vehicles in the parking facilities serving the building.
Customer may, as needed, request a change in the number of vehicles entitled to
parking privileges.
10. Security. The building of which the Premises are a part including, but
not limited to, the halls, passages, exits, entrances, restrooms, elevators and
stairways, is a secured building and is not for use by the general public. PNB
retains the right to control and prevent access thereto of all persons whose
presence in the judgment of PNB would compromise said security. Customer and its
agents and employees shall comply with any and all rules and regulations
established by PNB for the security of the Premises and the building. PNB shall
issue to Customer and Customer's designated agents or employees, subject to
security rules and regulations, door codes as may be required by Customer for
use of the Premises. PNB will provide 24-hour per day access to customer.
11. PNB Access. Customer shall permit PNB and its agents to enter into and
upon the Premises, upon reasonable notice, by appointment for the purpose of
inspecting the same or for the purposes of performing janitorial services,
repairing, altering or improving the Premises. When reasonably necessary, PNB
may temporarily close entrances, doors, corridors, elevators or other facilities
without liability to Customer by reason of such closure and without such action
by PNB being construed as a release of Customer from any duty to observe and
perform the provisions of this Agreement.
12. Electrical Installations. No electric wiring, telegraphic or other
electrical apparatus, including air conditioning equipment, shall be installed,
maintained or operated on said premises except with the approval of and in a
manner satisfactory to PNB.
13. Transmission Interference. Customer understands and agrees that the
quality of PNB's telecommunications transmissions shall at all times take
precedent, and PNB may require Customer, at Customer's own expense, to take
whatever action necessary to eliminate transmission and/or operational
interference with PNB's equipment which is caused by Customer's equipment,
providing PNB demonstrates that such interference does exist and such
interference is caused by Customer's equipment.
3
<PAGE> 4
In the event Customer's equipment is rendered unusable in whole or substantial
part due to transmission and/or operational interference by PNB's equipment,
Customer shall immediately give written notice of such to PNB. PNB shall
undertake a good faith effort to correct or remedy such interference.
If uncorrected after thirty (30) calendar days from date of Customer's notice of
interference, or such other period of time as may be mutually agreed upon,
Customer shall have the right to declare this agreement, and all obligations
hereunder, terminated. Customer shall have no further liability after the date
of such termination; provided, however, that customer shall assume the cost of
disconnecting and removing Customer's equipment from PNB's premises and shall be
liable for all amounts due to date of termination. The parties understand and
agree that PNB shall not be liable in any way for claims for damages or loss for
transmission interference beyond its obligation to undertake a good faith effort
to correct or remedy such interference.
14. Lawful Conduct. Customer represents and warrants during the term of
this agreement that it has full power and authority from the Federal
Communications Commission, or any other state or federal agency having
jurisdiction, to install, operate and maintain its equipment in the manner
contemplated by Customer. Customer agrees to use the facilities provided
hereunder only for the purposes described herein and to comply with all
applicable state, county and municipal laws and ordinances. Customer shall not
permit any illegal or immoral practice or business on or in the Premises.
15. Loss of License. In the event that Customer's license from the Federal
Communications Commission or any other state, federal or municipal agency having
jurisdiction, is revoked, cancelled, or not renewed, Customer shall have the
right to terminate this agreement by so notifying PNB in writing and by making
four (4) additional monthly payments within thirty (30) days of such notice of
termination.
16. Assignment and Subletting. Customer will not assign this agreement or
any interest hereunder, and will not sublet the Premises or any portion thereof,
and will not permit the use or occupancy of said Premises by other than Customer
and its agents and employees without first obtaining the written consent of PNB.
17. Liens. Customer shall not permit any lien to be imposed upon the
property or facilities of PNB as a result of work done by or on behalf of
Customer and shall indemnify and hold PNB harmless against any and all expenses,
including reasonable attorney's fees, in connection with any such lien.
18. Uses Prohibited. Customer will not use or permit the use of anything
that may be dangerous to life or limb, or in any manner deface or damage the
Premises or the building of which it is a part, or permit any objectionable
noise or odor to escape or to be emitted from said Premises, or permit anything
to be done upon said Premises in any way tending to create a nuisance or to
disturb any other persons using the building.
4
<PAGE> 5
19. Insurance. Prior to occupation of the space, Customer shall, at its own
expense, throughout the term of this agreement, maintain a comprehensive general
liability policy, including protection against death, personal injury and
property damage, issued by a qualified insurance company, of not less than $1
million combined single limit, in connection with the installation, operation,
repair, maintenance, removal or condition of Customer's equipment, Customer's
entry to or exit from the building. Customer shall provide certificates
evidencing such insurance upon request by PNB.
PNB shall, at its own expense, maintain fire and liability insurance upon the
building.
20. Waiver of Subrogation. Whether loss or damage is due to the negligence
of either PNB or Customer, their agents or employees, or any other cause, PNB
and Customer do hereby release and relieve the other, their agents or employees,
from responsibility for, and waive their claim of recovery for any loss or
damage covered by their respective insurance policies. Each party shall use
reasonable efforts to cause its insurance carriers to consent to such waiver of
subrogation against the other party.
21. Excused Performance. Neither party shall be considered to be in default
in the performance of any of its obligations under this agreement resulting from
any delay or failure to perform arising out of causes beyond the party's
control, such causes may include, but are not limited to, acts of God, acts of
the elements, fire, wind, flood, explosion, strikes or acts of civil
authorities.
22. Regulatory Approval. This agreement may be subject to approval by
regulatory agencies. In the event that such agency disapproves of this
agreement, this agreement shall be deemed null and void and all rights and
obligations of the parties shall terminate. Such termination shall be the
parties' sole remedy and neither party shall have any rights or claims at law or
in equity over and against the other party.
23. Default. Each of the following events shall constitute a breach or
default of this agreement:
a. If Customer shall fail to pay any installment of use charge within ten
(10) days of receipt of a written notice from PNB that such installment
was not paid when due.
b. If either party refuses or fails to perform its obligations under this
agreement thirty (30) days written notice shall be given to remedy such
default, and the defaulting party fails to remedy such default within
thirty (30) days from date of such notice; or, the defaulting party has
not made a good faith effort to commence remedy of such default within
thirty (30) days from date of such notice; or, if performance cannot be
reasonably commenced within the thirty (30) day period, remedy has not
been effected on such later date as may be mutually agreed upon by the
parties.
c. If Customer shall abandon the space described hereunder.
5
<PAGE> 6
24. Remedies. In the event of default or breach, the parties shall have the
following rights:
a. The aggrieved party shall have the right, in addition to all other
rights and remedies available at law or in equity, to terminate this
agreement in whole or in part.
b. Upon termination or expiration of this agreement, Customer shall remove
its equipment from PNB facilities and surrender such facilities to PNB
in as good a condition as when initially provided, normal wear and tear
excepted. Any damage to PNB facilities caused by removal shall be
billed to and paid by Customer. Equipment not removed within thirty
(30) days of termination or expiration of this agreement shall become
the property of PNB. In the event of Customer's failure to comply with
this provision, PNB may reenter the space used by Customer, take
possession of and remove Customer's equipment and recover any and all
costs incurred by PNB as a result thereof.
In the event either party elects to terminate the Agreement in whole or in part,
termination shall be effected by delivery of a Notice of Termination by
"Certified" mail to the other party specifying the extent to which the Agreement
is terminated, the reasons for such termination and the date upon which such
termination becomes effective.
The remedies provided hereunder shall be cumulative, and the exercise of one
right or remedy shall not impair the right to exercise any other right or
remedy.
25. Limitation of Liability and Indemnification.
a. General. Customer agrees that unless due to PNB's sole negligence, PNB
shall not be liable for injury or death to any person, damage to
property, or loss of business arising out of or in any way connected
with Customer's occupancy of the building, Customer's equipment, or
Customer's entry to or exit from the building. Customer shall
indemnify PNB from all loss, liability, damage or other injury,
including reasonable attorneys' fees, arising as a direct result of
the sole negligence of Customer, its officers, employees, contractors
or subcontractors in the performance of this agreement.
b. Damage to Building or Equipment. In the event that the building or any
equipment contained therein is damaged or destroyed to such an extent
as to render the building unusable in whole or substantial part, PNB
may terminate this agreement as of the date of such occurrence or
rebuild or repair the building. PNB shall give Customer written notice
of its election within seven (7) days of the occurrence of the damage.
If PNB elects to rebuild or repair, and does so without unnecessary
delay, Customer shall be bound by this agreement, except that the
service charge shall be abated for the time necessary to rebuild or
repair; provided, that if damage is due to the sole negligence of
Customer, there shall be no such abatement;
6
<PAGE> 7
provided, further, if PNB's election to rebuild or repair and the time
required to do so would cause an undue hardship on Customer, Customer
may terminate this agreement by giving notice to PNB in writing,
setting forth in detail the undue hardships Customer will experience
and the date upon which such termination will become effective. If PNB
fails to give any notice of election within seven (7) days of the
occurrence of the damage, Customer shall have the right to declare
this agreement, and all obligations hereunder, terminated. Customer
shall not be entitled to any compensation or damages from PNB for loss
of the use of the whole or any part of the Premises, Customer's
property, or any inconvenience occasioned by such damage, repair,
reconstruction or restoration, unless such is caused by or due to the
sole negligence of PNB.
PNB SHALL NOT BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
26. Nonwaiver. The failure of either party to enforce strict performance of
any provision of this agreement shall not be construed as a waiver of its right
to assert or rely upon such provision or any other provision of this agreement.
27. Attorney Fees. If Customer or PNB shall bring any action for relief
against the other, arising out of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees and costs.
28. Consent. Whenever consent of either party is required, it shall not be
unreasonably withheld.
29. Notices. All notices and other communications shall be in writing and
shall be deemed given if delivered or forwarded by certified mail, proper
postage prepaid, to the following:
PNB: Ms. Mavis D. Lindeman
Director - Property Management
Pacific Northwest Bell
1503 Bell Plaza
Seattle, Washington 98191
Customer: Mr. Russell E. VanDevanter
Alarm Monitoring Service
P.O. Box 25719
Seattle, Washington 98125
30. No Smoking. In accordance with PNB's No Smoking Policy, smoking is not
permitted in the Premises or at any place within the building of which it is a
part.
7
<PAGE> 8
31. Non-Discrimination. The applicable provisions in the attachment,
entitled "Non-Discrimination Compliance Agreement" shall form a part of this
agreement and any amendments thereto.
32. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state in which the Premises is located and the
regulations of the Federal Communications Commission.
33. Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties with respect to the subject matter herein. No
alterations, modifications, or changes to this agreement shall be valid unless
made in writing and agreed to by both parties.
ALARM MONITORING SERVICE
By: /s/ Russell E. VanDevanter
-----------------------------
Title: V.P. Operations
---------------
Date: 4/12/87
----------------------
PACIFIC NORTHWEST BELL TELEPHONE COMPANY
By: /s/ J. A. Ellis
-----------------
Title:
---------------
Date:
---------------
8
<PAGE> 1
EXHIBIT 10.54
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into as of the 8 day of May, 1998,
by and between RODNEY G. GARNER, hereinafter referred to as "LESSOR", and
SECURITY ASSOCIATES INTERNATIONAL, INC., hereinafter referred to as "Lessee".
WITNESSETH
That, for and in consideration of the payments to be made hereunder, and
the mutual promises, covenants and conditions hereinafter set forth to be kept
and performed, the parties hereby agree as follows:
1. GRANT OF LEASE
LESSOR does hereby lease unto LESSEE approximately 1000 square feet of
space at 2178 Washington Blvd., Ogden, Utah, and more particularly described as
Suite 300, consisting of the central station and two contiguous offices.
2. TERM OF LEASE
The term of this lease begins on May ____, 1998 and ends on May ____,
2003.
3. HOLDING OVER
In the event LESSEE shall remain in possession of the leased premises
beyond the term of this lease without executing a new lease, such holding over
shall be on a month to month basis on agreed to terms.
<PAGE> 2
A. ACCESS
LESSOR acknowledges that LESSEE'S business requires 24 hour/ 7 day a
week access and use of the lease premises and that LESSOR shall provide full
utilities and services, including HVAC in at all times.
4. RENT
LESSEE shall pay to LESSOR as rent for said leased premises the
following sums, payable in advance on the first day of each month and subject to
a 10% late fee if received by LESSOR after the 10th of each month.
Seven hundred and no/100 dollars ($700.00) per month.
The monthly rent shall include annual increase equal to COLA (cost of
living) with a 50% per annum cap.
5. SURRENDER OF PREMISES AT TERMINATION
At the expiration of the term of this lease, LESSEE will yield and
deliver up said premises to LESSOR in as good order and condition as when the
same was entered upon by LESSEE, reasonable use and wear excepted.
6. MAINTENANCE
Responsibility for the maintenance shall be as indicated: LESSEE
responsible for (T), and LESSOR responsible for (L); Not applicable (NA).
Roof(L), Exterior Walls (L), Interior Walls (T), Structural Repair (L),
Interior Decorating (T), Exterior Painting (L), Yard Surfacing (L), Grounds and
Yard Maintenance (L),
2
<PAGE> 3
Plumbing Lines Equipment (L), Lines and Fixtures (L), Heating and Air
Conditioning Equipment (L), Thermostats (L), Electrical Lines Equipment (L)
Electrical Equipment openly accessible to tenants (L), Snow and ice removed from
Sidewalks (L), Janitorial (L), Carpet (L), Common Entry Way Cleaning and
furnishing (L).
7. UTILITIES, TAXES AND INSURANCE
All utilities will be the responsibility of the Lessor subject to the
following reimbursement schedule:
a. For the telephone system, the Lessee pays 30% of the lease or about
$150.00 per month and will pay for any changes for the central office on a T & M
basis.
Notwithstanding the LESSOR'S responsibility to provide fire insurance
as above stated, should the LESSEE'S use as described in paragraph 19 to the
Lease Agreement result in any insurance premium increase or the imposition of
any other additional fee, cost or charge to LESSOR, LESSEE agrees to pay to
LESSOR within thirty (30) days of notice from LESSOR the complete and full
amount of said insurance premium increase, additional fee, cost or charge.
In the event of failure by LESSOR to provide and services, utilities,
maintenance, or repairs required under the Lease Agreement and said failure
remains uncorrected for a reasonable time after written notice to LESSOR, LESSEE
shall have right to secure said services, utilities, maintenance or repairs and
to deduct the cost there from the rental payments due LESSOR.
3
<PAGE> 4
8. REPAIRS
LESSEE agrees to report promptly any malfunction in plumbing,
electrical equipment, appliances, or structure of the building, to the LESSOR.
9. PARKING
All parking on the premises shall remain under the control of the
LESSOR and the LESSOR shall have the right from time to time to publish
reasonable regulations regarding LESSEES use for parking. The LESSEE shall be
given a minimum of 10 parking spaces on the premises.
10. SIGNS
Signs on the exterior of the building are strictly prohibited and
interior signage may only be installed with the written permission of the LESSOR
and only consistent with the terms of this lease. The LESSEE shall pay for any
approved interior signage.
11. ASSUMPTION OF THE RISK
The LESSEE assumes full risk of damage to his property, fixtures, tools
and equipment, stocks, goods of trade, that may be kept on or about the demised
premises.
12. RIGHT TO LEASE PREMISES
LESSOR hereby warrants that it has the legal right to lease said
premises.
4
<PAGE> 5
13. SUBLETTING OR ASSIGNMENT
LESSEE will not sublet said premises or any portion thereof or assign
this lease without the prior written consent of LESSOR, which consent will not
be unreasonably withheld. Lessor acknowledges and agrees that this lease may be
assigned by Lessee as collateral security to Lessee's institutional lender(s),
and Lessor shall execute and deliver such documents as may be reasonably
necessary to effectuate such assignment.
14. QUIET ENJOYMENT OF PREMISES
LESSOR covenants with LESSEE that upon fully complying with and
properly performing all of the terms, conditions and covenants hereof to be
performed by LESSEE, said LESSEE shall have and quietly enjoy the premises for
the entire term set forth herein.
15. CONDEMNATION
If the whole of the leased premises shall be taken by any public or
governmental authority under the power of eminent domain, then the term of this
lease shall cease as of the date possession is taken by such authority and the
lease payments required hereunder shall be taken and the remainder not so taken
and the remainder not so taken remains tenantable and adequate for the purposes
for which LESSEE has been using the premises, then this lease shall continue in
full force and effect as to said remainder and all of the provisions hereof
shall continue except that the LESSOR agrees that it will reduce the rent based
on the actual square footage of the building lost to condemnation. However, if
the remaining part of the premises are untenantable and inadequate for LESSEE'S
purposes, then LESSEE may terminate this lease by giving written notice thereof
to LESSOR. The term "eminent domain" as used in the paragraph shall include the
5
<PAGE> 6
exercise of any similar governmental power and any purchase or other acquisition
in lieu thereof by a governmental entity. LESSOR reserves unto itself all fights
to a compensation for damages to the premises, the building, the land and the
leasehold accruing by reason of the exercise of eminent domain.
16. ORDINANCES AND STATUTES
LESSOR and LESSEE shall comply with all laws, health codes, and
regulations of all municipal, state and federal authorities. LESSEE agrees not
to store up or use, on premises, flammable fluids or explosives except for
painting and cleaning products which will be stored in industry standard type
containers, or use premises for any purpose which will injure the reputation of
the building or which will disturb the residents of the building or the
inhabitants of the neighborhood, or would increase insurance rates.
17. DEFAULT
If either party defaults in any of the covenants contained herein and
fails to rectify the default within thirty (30) days after receipt of written
notice from the other party, the terms of the lease shall, at the option of the
non-defaulting party, forwith cease and termination. Such termination shall not
affect the rights of either party to damages arising from such default.
18. DAMAGE BY FIRE OR OTHER CASUALTY
If the demised premises are completely destroyed by fire or other
casualty, this lease shall terminate on the date of such fire or casualty and no
rental payment shall accrue or be payable by LESSEE on this lease hereafter.
6
<PAGE> 7
In the event that the Leased Premises are substantially damaged or
destroyed by fire or other casualty, which damage or destruction shall
substantially interfere with the LESSEE'S use of the Leased Premises as provided
herein for a continuous period of forty-eight (48) hours or more (commencing as
of the date of the fire or other casualty), then the LESSEE shall have the
option to terminate this Lease by the giving of written notice to the LESSOR
within five (5) days after the end of such forty-eight (48) hour period.
In any case which the Leased Premises are damaged and LESSEE retains
possession, rents from the date of the commencement of the damage to the time of
completion of repairs and restorations shall be reduced on a pro rata basis to
the extent that the Leased Premises have been untenantable. LESSOR and LESSEE
hereby waive all causes and rights of recovery against each other or their
respective agents, officers and employees for any loss occurring to the Leased
Premises or personal property brought and kept therein regardless of cause or
origin, to policy of insurance.
19. USE OF PREMISES
The premises shall be used for Central Station Monitoring and for other
directly related matters of the LESSEE. LESSEE hereby agrees that should its use
described above result in any increase of insurance premiums or other additional
fee, cost or charge to LESSOR, LESSEE shall be liable for said amounts as
provided for in paragraph 7 herein.
20. INDEMNIFICATION
a. LESSEE shall indemnify and save LESSOR harmless from all loss,
damage, liability or expense incurred by LESSOR due to the exclusive negligent
acts or omissions to act of the LESSEE, its officers, employees or agents
arising out of LESSEE'S use of operation
7
<PAGE> 8
of said leased premises, and shall not permit any hen or other claims or demand
to be enforced against the premises by reason of LESSEE'S use of said premises.
b. LESSOR shall indemnify the LESSEE harmless from all loss, damage,
liability or expense incurred by the LESSEE due to the exclusive negligent acts
or omissions to act of the LESSOR or its officers, employees or agents arising
out of the LESSOWS use of said leased premises.
21. WAIVER
It is agreed that the waiving of any of the covenants of this lease by
either party shall be limited to the particular instance and shall not be deemed
to waive any other breaches of such covenant or any provision herein contained.
22. ATTORNEY'S FEES
In the event either party shall enforce the terms of this lease by suit
or otherwise, the party at fault shall pay the costs and expenses incident
thereto, including a reasonable attorney's fee.
23. SUCCESSORS AND ASSIGNS
The covenants and agreements contained in this lease shall apply to,
inure to the benefit of, and be binding upon the parties hereto, their heirs,
distributee, executor, administrators, legal representatives, assigns and upon
their respective successors in interest, except as otherwise expressly herein
provided.
8
<PAGE> 9
24. INSURANCE
LESSEE agrees to obtain, keep and maintain with insurance carriers of
known responsibility, licensed to do business in the State of Utah,
comprehensive general liability insurance in an amount not less than
$1,000,000.00. Said insurance shall apply to LESSEE'S activities in. and in
connection with the premium and shall name LESSOR an additional insured.
Notwithstanding the foregoing LESSOR shall obtain, keep, and maintain such
insuranced, naming LESSEE as an additional insurety at a times during the term
of the Management Agreement, at even date herewith. Proof of this insurance must
be applied to LESSOR upon request by LESSOR.
25. IMPROVEMENTS
No alterations, additions, or improvements may be made by LESSEE to the
leased premises without first obtaining prior written approval of LESSOR.
26. ENVIRONMENTAL MATTERS
The LESSOR has made available to the LESSEE all material
correspondence, notices of violations, inspections, investigations, studies,
audits, tests, reviews, reports, and other analyses prepared by or for the
LESSOR, or any third parties prior to the date of this Agreement in the
possession of the LESSOR relating in any way to the environmental condition of
any of the real property to be assumed by LESSEE ( the "Property of which the
Leased Premises forms a part"). Except as described on Schedule 5, neither the
LESSOR nor any of its agents, employees, representatives, or, to LESSOR'S
knowledge, any other persons for whose conduct the LESSOR may be liable, has (i)
received notice of any violation, claim, or allegation, from any governmental
9
<PAGE> 10
or regulatory authority, or any other person of any violation of any
Environmental Law (as hereafter defined) relating to the Property; (ii)
transported, used, generated, handled, stored, released, emitted, leached,
discharged, dumped, or disposed of any Hazardous Substances (as hereafter
defined) onto, into or from the Property, or any part thereof, or from the
Property onto or into any property adjacent to any of the property or any other
property in violation of any Environmental Laws; no Hazardous Substances (as
hereafter defined) are currently or have been located at, in, on, under or about
the Property in a manager which violates any Environmental Laws or which
requires response, cleanup, or corrective action of any kind under any
applicable Environmental Laws, to the knowledge of the LESSOR, no underground
storage tanks have been located on the Property that have not been removed in
accordance with applicable Environmental Laws; and no Hazardous Substances have
been used in the operation of any of the Property or business other than in
accordance with applicable Environmental Laws in all material respects; or (iii)
any responsibilities under any other so-called transaction triggered or
disclosed law with respect to the transactions contemplated by this Agreement.
For this purpose of this Agreement: "Environmental Laws" shall mean all federal,
state, and local laws, ordinances, and rules of common law relating to
environmental matters, including those relating to fines, orders, injunctions,
penalties, damages, contribution, cost recovery compensation, losses or injuries
resulting from the release or threatened release of Hazardous Substances and the
generation, use, storage, transportation, or disposal of Hazardous Substances in
any matter applicable to either of the LESSOR or the Property, including,
without limitation of the generality of the foregoing, any rule, regulation,
permit, order of directive addressing environmental issues of or by the federal
government, and state or political subdivision thereof, or any agency, court or
body of the federal government or any state or political subdivision thereof
"Hazardous Substances" shall mean
10
<PAGE> 11
(1) any chemical, material or substance defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazard materials", "extremely
hazardous waste", "restricted hazardous waste", "toxic pollutants", "toxic
pollutants", "toxic substances", or words of similar import under any applicable
Environmental Law, (2) any oil, petroleum or petroleum products , (3) asbestos
and asbestos containing materials in any form which is or could become friable,
and (4) radon gas, urea formaldehyde foam insulation or polychlorinated
biphenyls.
27. NOTICES
Whenever any notice, approval, consent, request or election is given or
made pursuant to this Lease, it shall be in writing sent by certified mail.,
return receipt requested or registered mail or it shall be delivered personally.
Said notices and payments shall utilize the following address for LESSOR and
LESSEE or such addresses as may be specified in writing by the parties from time
to time.
LESSOR: Fire Protection/ Mountain Alarm
Rodney G. Garner
2178 Washington Blvd.
Ogden, UT 84401
LESSEE: Security Associates International
James Brannen, CEO
2001 S. Arlington Rd.
Arlington Heights, IL 6005-4142
11
<PAGE> 12
LESSEE: Security Associates International, Inc.
IN WITNESS WHEREOF, the parties have subscribed their names hereon and
have caused this Lease Agreement to be duly executed in the date appearing below
their respective signatures.
LESSOR:
/s/ Rodney G. Garner
------------------------------
Fire Protection/Mountain Alarm
Rodney G. Garner
LESSEE:
/s/ James S. Brannen
Security Associates International
Its: President
----------------------------
STATE OF UTAH )
:SS )
COUNTY OF )
On the _____ day of May, 1998, personally appeared before me RODNEY G.
GARNER, who, being by first duly sworn, did say that he signed the foregoing
instrument.
----------------------------------
NOTARY PUBLIC
Residing at:
My Commission Expires:
STATE OF UTAH )
:SS )
COUNTY OF )
On the _____day of May, 1998, personally appeared before
me_______________ who, being by me first duly sworn, did say that he was signing
on and in behalf of SECURITY ASSOCIATES INTERNATIONAL, INC., Title ___________,
who being by me first duly sworn, did say that he signed the foregoing
instrument.
----------------------------------
NOTARY PUBLIC
Residing at:
My Commission Expires-
12
<PAGE> 13
LESSEE: Security Associates International, Inc.
IN WITNESS WHEREOF, the parties have subscribed their names hereon and
have caused this Lease Agreement to be duly executed in the date appearing below
their respective signatures.
LESSOR:
----------------------------------
Fire Protection/ Mountain Alarm
Rodney G. Garner
LESSEE:
----------------------------------
Security Associates international
Its:
STATE OF UTAH )
:SS )
COUNTY OF )
On the ____ day of May, 1998, personally appeared before me RODNEY G.
GARNER who, being by first duly sworn did say that he signed the foregoing
instrument.
----------------------------------
NOTARY PUBLIC
Residing at:
My Commission Expires:
STATE OF UTAH )
:SS )
COLINTY OF )
On the _____ day of May, 1998, personally appeared before me
_____________ who, being by me first duly sworn, did say that he was signing on
and in behalf of SECURITY ASSOCIATES INTERNATIONAL, INC., Title ____________ who
being by me first duly sworn, did say that he signed the foregoing instrument.
----------------------------------
NOTARY PUBLIC
Residing at:
My Commission Expires:
13
<PAGE> 1
EXHIBIT 10.55
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("Basic Provisions")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
October 9_, __1998_, is made by and between Number One Pipeline, LLC ("Lessor")
and Valley Business Services, Inc. d/b/a Total Electronic Alarm Monitoring
("Lessee") (collectively the "Parties," or individually a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 13937 Magnolia Avenue located in the County of San Bernadino State of
California and generally described as (describe briefly the nature of the
property and, if applicable, the "Project", if the property is located within a
Project) an industrial building of approximately 5,976 square feet ("Premises").
(See also Paragraph 2)
1.3 TERM: Five (5) years and Two (2) months ("Original Term") commencing
October 1, 1998 ("Commencement Date") and ending November 3, 2002_
("Expiration Date"). (See also Paragraph 3)
1.4 EARLY POSSESSION: __________________ ("Early Possession Date"). (See
also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $2,988.00 per month ("Base Rent"), payable on the first day
of each month commencing October 1, 1998. (See all Paragraph 4)
|X| If this box is checked. there are provisions in this Lease for the Base Rent
to be adjusted and/or for common area maintenance charges.
1.6 BASE RENT PAID UPON EXECUTION: $2,988.00 as Base Rent for the period
October 1, , 1998 to October 1 , 1998 (see Paragraph 51 for rent abatement.).
1.7 SECURITY DEPOSIT: $2,988.00 ("Security Deposit"). (See also Paragraph
5)
1.8 AGREED USE: General offices and warehouse for an alarm monitoring
company . (See also Paragraph 6)
1.9 INSURING PARTY: Lessor is the "Insuring Party". The Annual "Base
Premium" is $ 886.00. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively.
the "Brokers") and brokerage relationships exist In this transaction (check
applicable boxes):
X Lee & Assoicates represents Lessor exclusively
- ---------------------------------------------- ("Lessor's Broker");
X The Seeley Company represents, Lessee exclusively
- ---------------------------------------------- ("Lessee's Broker"); or
[] represents both Lessor and
- ---------------------------------------------- Lessee ("Dual Agency").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this lease by
both Parties, Lessor shall pay to the, broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of ____ %
of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR: The obligations of the Lessee under this Lease are to be
guaranteed by Leonard G. Henderson ("Guarantor"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 51 and Exhibits _______________ all of which
constitute a part of this Lease.
Page 1 of 28
<PAGE> 2
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of size set forth In this Lease, or that may have been
used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon Is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises broom clean and free of
debris on the Commencement Date or the Early Possession Date, whichever first
occurs ("Start Date"), and warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"),
loading doors, if any, and all other such elements of the building, in the
Premises, other than those constructed by Lessee, shall be in good operating
condition on said date and that the surface and structural elements of the roof,
bearing walls and foundation of any buildings on the Premises (the "Building")
shall be free of material defects. If a non-compliance with said warranty exists
as of the Start Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within (i) six (6) months as to
the HVAC systems or (ii) thirty (30) days as to the remaining systems and other
elements of the Building, correction of such non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense, except for the roof,
foundations. and bearing wails which are handled as provided in paragraph 7.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances ("Applicable Requirements") in effect on the
Start Date. Said warranty does not apply to the use to which Lessee will put the
Premises or to any Alterations or Utility Installations (as defined in Paragraph
7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. It Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. It the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) (below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("Capital Expenditure"), Lessor and Lessee shall allocate the
cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall Immediately cease
the use of the Premium which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor and Lessee shall allocate the obligation to pay for
such costs pursuant to the provisions of Paragraph 7.1(c); provided, however,
that if such Capital Expenditure is required during the last two years of this
Lease or if Lessor reasonably determines that it Is not economically feasible to
pay its 5hare thereof, Lessor shall have the option to terminate this Lease upon
ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor,
in writing, within ten (10) days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure, Lessee
may advance such funds and deduct same, with Interest, from Rent until Lessors
share of such costs have been fully paid. It Lessee is unable to finance Lessors
share, or if the balance of the Rent due and payable for the remainder of this
Lease is riot sufficient to fully reimburse Lessee on an offset basis, Lessee
shall have the right to terminate this Lease upon thirty (30) days written
notice to Lessor.
Page 2 of 28
<PAGE> 3
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition. Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises, and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises, In such event, Lessee
shall be responsible for any necessary corrective work.
3. Term.
3.1 TERM. The Commencement Date Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. It Lessee totally or partially occupies the Premises
prior to ft Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease shall,
however, be in effect during such period. Any such early possession shall riot
affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under i Lease from and after
the Start Date, including the payment of Rent, notwithstanding Lessors election
to withhold possession pending receipt of such evidence, of Insurance. Further,
if Lessee is required to perform any other conditions prior to or concurrent
with the Start Date, the Start Date shall occur but Lessor may elect to withhold
possession until such conditions are satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one (1) full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at
Page 3 of 28
<PAGE> 4
its address; stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less than
the amount then due shall not be a waiver of Lessor's rights to the balance of
such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit Monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition,
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7 4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring properties. Lessor shall not
unreasonably withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, or is not significantly more burdensome to the
Premises. It Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, of waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises, is
either (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring Properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the
Page 4 of 28
<PAGE> 5
Premises and/or the environment against damage, contamination, injury and/or
liability, including, but not limited to, the installation (and removal on or
before Lease. expiration or termination) of protective modifications (such as
concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended whether or not formally ordered or required, to the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
or any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from adjacent properties). Lessee's obligations shall include
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
alterations) of the Premises, in which event Lessee shall be responsible for
such payment. Lessee shall cooperate fully in any such activities at the request
of Lessor, including allowing Lessor and Lessors agents to have reasonable
access to the Premises at reasonable times in order to carry out Lessor's
investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessors rights under Paragraph 6 2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessors expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue In full force and affect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessors notice of termination.
Page 5 of 28
<PAGE> 6
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's: engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessors written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's
Obligations), 9 (Damage and Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole expense, keep the Premises, Utility Installations, and
Alterations in good order, condition and repair (whether or not the portion of
the Premises requiring repairs, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, but not limited to, all
equipment or facilities, such as plumbing, heating, ventilating,
air-conditioning, electrical, lighting facilities, boilers, pressure vessels,
fire protection system, fixtures, walls (interior and exterior), ceilings,
floors, windows, doors, skylights, landscaping, driveways, parking lots, fences,
signs, sidewalks and parkways located in, on, or adjacent to the Premises.
Lessee is also responsible for keeping the roof and roof drainage clean and free
of debris. Lessor shall keep the surface and structural elements of the roof,
foundations, and bearing walls in good repair (see Paragraph 7 2). Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair Lessee shall, during the term of this Lease, keep the exterior appearance
of the Building in a first-class condition (Including, e.g., graffiti removal)
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements ("Basic Elements"), if
any, if and when installed on the Premises: (i) HVAC equipment, (it) boiler, and
pressure vessels, (m) fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) driveways and
parking lots, (vi) clarifiers, (vi) basic utility feed to the perimeter of the
Building, and (viii) any other equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices. If the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.
Page 6 of 28
<PAGE> 7
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 9
(Damage or Destruction) and 14 (Condemnation), it is intended by the Parties
hereto that Lessor have no obligation, in any manner whatsoever, to repair and
maintain the Premises, or the equipment therein, all of which obligations are
intended to be that of the Lessee, except for the surface and structural
elements of the roof, foundations and bearing walls, the repair of which shall
be the responsibility of Lessor upon receipt of written notice that such a
repair Is necessary. It Is the intention of the Parties that the terms of this
Lease govern the respective obligations of the Parties as to maintenance and
repair of the Premises, and they expressly waive the benefit of any statute now
or hereafter in effect, to the extent it is inconsistent with the terms of this
Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems and signs, communication
systems lighting fixtures, HVAC equipment, plumbing, and fencing in or on the
Premises. The term "TRADE FIXTURES" shall mean Lessees machinery and equipment
that can be removed without doing material damage to the Premises The term
"ALTERATIONS" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessors prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside. do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility. If Lessee shall contest the validity of any such
lien, claim or demand, then Lessee shall, at its sole expense defend and protect
Itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof. If Lessor shall require, Lessee shall furnish a surety bond in an
amount equal to one and one-half times the amount of such contested lien, claim
or demand, indemnifying Lessor against liability for the same. If Lessor elects
to participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessors right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee with the
Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not
earlier than ninety (90) and not later than thirty (30) days prior to the end of
the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the
Page 7 of 28
<PAGE> 8
expiration or termination of this Lease, Lessor may require the removal at any
time of all or any part of any Lessee Owned Alterations or Utility Installations
made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
Expiration Date or any earlier termination date, with all of the improvements,
parts and surfaces thereof broom clean and free of debris, and in good operating
order, condition and state of repair, ordinary wow and tear excepted. "ORDINARY
WEAR AND TEAR" shall not include any damage or deterioration that would have
been prevented by good maintenance practice. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee
Owned Alterations and Utility Installations, furnishings, and equipment as well
as the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil material or groundwater contaminated by
Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed
by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this
Paragraph 7.4(c) without the express written consent of Lessor shall constitute
a holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase
("INSURANCE COST INCREASE") occurring during the term of this Lease. "INSURANCE
COST INCREASE" is defined as any increase in the actual cost of the insurance
required under Paragraph 8.2(b), 8.3(a) and 8.3(b) ("REQUIRED INSURANCE"), over
and above the Base Premium as hereinafter defined calculated on an annual basis.
"INSURANCE COST INCREASE" shall include but not be limited to Increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of mortgage or deed of trust covering the Premises,
increased valuation of the Premises and/or a premium rate increase. The parties
are encouraged to fill in the Base Premium in paragraph 1.9 with a reasonable
premium for the Required Insurance based on the Agreed Use of the Premises. If
the parties fail to insert a dollar amount in Paragraph 1.9, then the Base
Premium shall be the lowest annual premium reasonably obtainable for the
Required Insurance as of the commencement of the Original Term for the Agreed
Use of the Premises. In no event, however, shall Lessee be responsible for any
portion of the increase in the premium cost attributable to liability insurance
carried by Lessor under Paragraph 8.11(b) in excess of $2,000,000 per
occurrence.
(b) Lessee shall pay any such Insurance Cost Increase to Lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Promises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods commencing
prior to, or extending beyond the term of this Lease, shall be prorated to
correspond to the term of this Lease.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000
$1,000,000 per occurrence with an "ADDITIONAL INSURED MANAGERS OR LESSORS OF
PREMISES ENDORSEMENT" and contain the "Amendment of the Pollution Exclusion
Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The
Policy shall not contain any intra-insured exclusions as between insured persons
or organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance shall not, however,
limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
All insurance carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose Insurance shall be considered
excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2l(a) in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
Page 8 of 28
<PAGE> 9
8.3 PROPERTY INSURANCE - BUILDING. IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable to
Lessor any groundle5sor, and to any Lender(s) insuring loss or damage to the
Premises The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's
personal property shall be insured by Lessee under Paragraph 8 4 rather than by
Lessor. If the coverage is available and commercially appropriate, such policy
or policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender or
included in the Base Premium), including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a
policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (I) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss Said Insurance shall
contain an agreed valuation provision in lieu of any coinsurance clause, and the
amount of coverage shall be adjusted annually to reflect the projected Rent
otherwise payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or of a group of buildings owned by Lessor which are adjacent to the Premises,
the Lessee shall pay for any increase in the premiums for the property insurance
of such building or buildings If said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best's
Insurance Guide". or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may but shall not be required to, procure and
maintain the same.
Page 9 of 28
<PAGE> 10
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct,
Lessee shall indemnity, protect, defend and hold harmless the Premises, Lessor
and its agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities arising
out of, involving, or in connection with, the use and/or occupancy of the
Premises by Lessee It any action or proceeding is brought against Lessor by
reason of any of the foregoing matters, Lessee shall upon notice defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect: of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations, Utility
Installations and Trade Fixtures, which can reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shah notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which cannot reasonably be repaired in six (6) months or less
from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility installations
and Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds as and when
required to complete said repairs.
Page 10 of 28
<PAGE> 11
In the event, however, such shortage was due to the fact that, by reason of the
unique nature of the improvements, full replacement cost insurance coverage was
not commercially reasonable and available, Lessor shall have no obligation to
pay for the Shortage in insurance proceeds or to fully restore the unique
aspects of the Premises unless Lessee provides Lessor with the funds to cover
same, or adequate assurance thereof, within ten (10) days following receipt of
written notice of such shortage and request therefor. If Lessor receives said
funds or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If such funds or
assurance are not received, Lessor may nevertheless elect by written notice to
Lessee within ten (10) days thereafter to: (i) make such restoration and repair
as is commercially reasonable with Lessor paying any shortage in proceeds, in
which case this Lease shall remain in full force and effect, or (ii) have this
Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to
reimbursement of any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earthquake shall be subject
to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but
the net proceeds of any such insurance shall be made available for the repairs
if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor at Lessees commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. It Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of this Lease there is damage for which the cost to repair exceeds one (1)
month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee with thirty (30) days after the
date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at
that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified In the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(A) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired but
not to exceed the proceeds received from the Rental Value Insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(B) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within ninety (90) days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to
Page 11 of 28
<PAGE> 12
terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice and such repair or
restoration is not commenced within thirty (30) days thereafter, this Lease
shall terminate as of the date specified in said notice. If the repair or
restoration is commenced within said thirty (30) days, this Lease shall continue
in full force and effect. "COMMENCE" shall mean either the unconditional
authorization of the preparation of the required plans, or the beginning of the
actual work on the Premises, whichever first occurs.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6 2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of assessment; real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes
applicable to the Premises provided, however, that Lessee shall pay to Lessor
the amount, if any, by which Real Property Taxes applicable to the Premises
increase over the fiscal tax year during which the Commencement Date occurs
("TAX INCREASE"). Subject to Paragraph 10.2(b), payment of any such Tax Increase
shall be made by Lessee to Lessor within thirty (30) days after receipt of
Lessors written statement setting forth the amount due and the computation
thereof. If any such taxes shall cover any period of time prior to or after the
expiration or termination of this Lease, Lessee's share of such taxes shall he
prorated to cover only that portion of the tax bill applicable to the period
that this Lease is in effect.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current Real Properly
Taxes, and require that the Tax Increase be paid in advance to Lessor by Lessee,
either: (i) in a lump sun amount equal to the amount due, at least twenty (20)
days prior to the applicable delinquency date; or (ii) monthly in advance with
the payment of the Base Rent. If Lessor elects to require payment monthly in
advance, the monthly payment shall be an amount equal to the amount of the
estimated installment of the Tax Increase divided by the number of months
remaining before the month in which said installment becomes delinquent. When
the actual amount of the applicable Tax Increase is known, the amount of such
equal monthly advance payments shall be adjusted as required to provide the
funds needed to pay the applicable Tax Increase. If the amount collected by
Lessor is insufficient to pay the Tax Increase when due, Lessee shall pay
Lessor, upon demand, such additional sums as are necessary to pay such
obligations. All moneys paid to Lessor under this Paragraph may be intermingled
with other moneys of Lessor and shall not bear interest. In the event of a
Breach by Lessee in the performance of its obligations under this Lease then any
balance of funds paid to Lessor under the provisions of this Paragraph may at
the option of Lessor, be treated as an additional Security Deposit.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding anything to the contrary
in this Paragraph 10.2, Lessee shall pay to Lessor upon demand therefor the
entirety of any increase in Real Property Taxes assessed by reason of
Alterations or Utility Installations placed upon the Premises by Lessee or at
Lessee's request.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Tax Increase for all
of the land and improvements included within the tax parcel assessed, such
proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessors work sheets or such other information as
may be reasonably available,
Page 12 of 28
<PAGE> 13
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessors real property, Lessee shall pay
Lessor the taxes attributable to Lessee s property within ten (10) days after
receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessors prior written consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of twenty-five percent
(25%) or more of the voting control of Lessee shall constitute a change in
control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger. sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects to
treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may either (i) terminate this Lease, or (ii) upon thirty (30) days' written
notice, increase the monthly Base Rent to one hundred ten percent (110%) of the
Base Rent then in effect. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessees remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the Payment of Rent or for the Performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessees obligations from
any person other than Lessee pending approval or disapproval of an assignment
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of Rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
Page 13 of 28
<PAGE> 14
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessees obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a fee of $1,000 or
ten percent (10%) of the current monthly Base Rent applicable to the portion of
the Premises which is the subject to the proposed assignment or sublease
whichever is greater as consideration for Lessor's considering and processing
said request. Lessee agrees to provide Lessor with such other additional
information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Lessee during the
term of said assignment or sublease, other than such obligations as are contrary
to or inconsistent with provisions of an assignment or sublease to which Lessor
has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor all Rent due and to become due under the
sublease. Sublessee shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "BREACH" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises, or the vacating of the Premises
without providing a commercially reasonable level of security and/or Security
Deposit or where the coverage of the property insurance described in Paragraph
8.3 is jeopardized as a result thereof, or without providing reasonable
assurances to minimize potential vandalism.
Page 14 of 28
<PAGE> 15
(b) The failure of Lessee to make any payment of Rent or any Security
Deposit required to be made by Lessee hereunder, whether to Lessor or to a third
party, when due, to provide reasonable evidence of insurance or surety bond, or
to fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) business days
following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "DEBTOR" as defined in 11 U S.C. Section 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days), (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessees obligations under this Lease is
guaranteed (i) the death of a Guarantor; (ii) the termination of a Guarantors
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide written alternative assurance or security, which, when coupled
with the then existing resources of Lessee, equals or exceeds the combined
financial resources of Lessee and the Guarantors that existed at the time of
execution of this Lease.
13.2 REMEDIES. If Lessee falls to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor If any check given to
Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashiers check. In the event of a Breach. Lessor may, with or without
further notice or demand and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination, (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided, and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises,
Page 15 of 28
<PAGE> 16
reasonable attorneys' fees, and that portion of any leasing commission paid by
Lessor in connection with this Lease applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the immediately preceding sentence shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of the District
within which the Promises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this
Lease shall not waive Lessors right to recover damages under Paragraph 12 If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding any unpaid
Rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof In a separate suit. If a notice and grace period
required under Paragraph 13.1 was not previously given, a notice to pay rent or
quit or to perform or quit given to Lessee under the unlawful detainer statute
shall also constitute the notice required by Paragraph 13 1. In such case, the
applicable grace period required by Paragraph 13.1 and the unlawful detainer
statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations, Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessors interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws
or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS,"
shall be deemed conditioned upon Lessee's full and faithful performance of all
of the terms covenants and conditions of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus inducement or
consideration theretofore abated, given or paid by Lessor under such an
inducement Provision shall be immediately due and payable by Lessee to Lessor,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
paragraph shall not be deemed a waiver by Lessor of the provisions of this
paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due then, without any requirement for notice to Lessee. Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as Base
Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("Interest") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus 4%, but shall not exceed the maximum rate allowed by law.
Interest is payable in addition to the potential late charge provided for in
Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30)
Page 16 of 28
<PAGE> 17
days after receipt by Lessor, and any Lender whose name and address shall have
been furnished Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed, provided, however,
that if the nature of Lessors obligation is such that more than thirty (30) days
are reasonably required for As performance, then Lessor shall not be in breach
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said written notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach at
Lessee's expense and offset from Rent an amount equal to the greater of one
month's Base Rent or the Security Deposit and to pay an excess of such expense
under protest, reserving Lessee's right to reimbursement from Lessor. Lessee
shall document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. It more than ten percent (10%) of any building portion of the
premises, or more than twenty-five percent (25%) of the land area portion of the
premises not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced In proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is riot terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that (a) if Lessee exercises any Option, (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of Lessor,
after the expiration of this Lease, or (d) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then, Lessor shall pay
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligations
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31, If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered Into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnity, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
Page 17 of 28
<PAGE> 18
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "Responding Party") shall within ten (10) days
after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Estoppel Certificate" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that:
(i) the Lease is in full force and effect without modification except as may be
represented by the Requesting Party, (ii) there are no uncured defaults in the
Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not
more than one month's rent has been paid in advance. Prospective purchasers and
encumbrances may rely upon the Requesting Party's Estoppel Certificate, and the
Responding Party shall be estopped from denying the truth of the facts contained
in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof. Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including but not limited to
Lessees financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessors interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises, Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor Dr Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount
Page 18 of 28
<PAGE> 19
up to the fee received by such Broker pursuant to this Lease; provided, however,
that the foregoing limitation on each Broker's liability shall not be applicable
to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered In person (by hand or by courier) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given it served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or it no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. The acceptance of Rent by
Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by
Lessee may be accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or conditions made by Lessee in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Less" to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this
Lease to be observed or Performed by Lessee are both covenants and conditions.
In construing this Lease, all headings and titles are for the convenience of the
parties only and shall not be considered a part of this Lease. Whenever required
by the context, the singular shall include the plural and vice versa. This Lease
shall not be construed as if prepared by one of the parties, but rather
according to its fair meaning as a whole, as if both parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and ass" and be governed by
the laws of the State in which the Premises are located. Any litigation between
the Parties hereto concerning this Lease shall be initiated in the county in
which the Premises are located.
Page 19 of 28
<PAGE> 20
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease, and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "LESSOR'S LENDER") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which Is secured
by the Premises In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessors lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents, provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
Involving the Premises to enforce the terms hereof or to declare rights
hereunder the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
In accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred, In addition, Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection herewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach,
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs improvements or additions to the Premises as Lessor may deem necessary
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "For Sale" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "For Lease" signs Lessee may at any time place on or about
the Premises any ordinary "For Sublease" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction
upon the Premises without Lessors prior written consent, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether to
permit an auction
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place any
sign upon the Premises without Lessor's prior written consent. All signs must
comply with all Applicable Requirements.
Page 20 of 28
<PAGE> 21
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessors actual reasonable costs
and expenses (including but not limited to architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish Its reasons in writing and in reasonable detail
within ten (10) business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in
the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor
fails or refuses, upon request to provide: (a) evidence of the execution of the
guaranty, including the authority of the party signing on Guarantor's behalf to
obligate Guarantor, and in the case of a corporate Guarantor, a codified copy of
a resolution of its board of directors authorizing the making of such guaranty,
(b) current financial statements, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "Option" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor, (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured, (ii) during the period of time arty Rent is unpaid
(without regard to whether notice thereof is given Lessee); (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not to
Default are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
Page 21 of 28
<PAGE> 22
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's Inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after such
exercise and prior to the commencement of the extended term, (i) Lessee fails to
pay Rent for a period of thirty (30) days after such Rent becomes due (without
any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee
three (3) or more notices of separate Default during any twelve (12) month
period, whether or not the Defaults are cured, or (iii) if Lessee commits a
Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
arid regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee.
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall riot be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on Its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease / / is / / is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
Page 22 of 28
<PAGE> 23
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND
THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- --------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the dates
specified above to their respective signatures
<TABLE>
<S><C>
Executed at: Santa Anna, CA Executed at: Diamond Bar
---------------------------------------- --------------------------------------
on 6/19/98 on 10/14/98
-------------------------------------------------- ------------------------------------------------
by LESSOR by LESSOR
Number One Pipeline, LLC
- ----------------------------------------------------- ---------------------------------------------------
- ----------------------------------------------------- ---------------------------------------------------
By: /s/ Richard L. Riemer By: Leonard C. Henderson
-------------------------------------------------- ------------------------------------------------
Name Printed: Richard L. Riemer Name Printed: Leonard C. Henderson
--------------------------------------- --------------------------------------
Title: Title: Vice President
---------------------------------------------- --------------------------------------------
By: By:
-------------------------------------------------- -----------------------------------------------
Name Printed: Name Printed:
---------------------------------------- -------------------------------------
Address: 850 North Parton Street, Santa Ana, CA 92701 Address: 80-020 Vista Grande, La Quinta, CA 92235
-------------------------------------------- ------------------------------------------
- ----------------------------------------------------- ---------------------------------------------------
Telephone: (714) 835-1551 Telephone: (760) 347-4419
------------------------------------------ ----------------------------------------
Facsimile: (714) 835-1551 Facsimile:
------------------------------------------- ----------------------------------------
Federal ID No.: Federal ID No.:
------------------------------------- -----------------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017 (213) 687-8777 Fax
No. (213) 687-8616
Page 23 of 28
<PAGE> 24
RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
Dated: October 9, 1998
-------------------
By and Between (Lessor) Number One Pipeline, LLC
----------------------------
(Lessee) Valley Business Services, Inc.
------------------------------
Address of Premises: 13937 Magnolia Avenue, Chino, CA
-------------------------------------
Paragraph 50
A. RENT ADJUSTMENTS
The monthly rent for each month of the adjustment period(s) specified below
shall be increased using the method(s) indicated below. (Check Method(s) to be
Used and Fill in Appropriately)
I. COST OF LIVING ADJUSTMENT(S) (COLA) / /
a. On (fill in COLA Dates)
-----------------------------------------
the Base Rent shall be adjusted by the change, if any, from the Base Month
specified below, in the Consumer Price Index of the Bureau of Labor Statistics
of the U.S. Department of Labor (select one) / / CPI W (Urban Wage Earners and
Clerical Workers) or / / CPI U (all Urban Consumers), for (Fill in Urban Area):.
All items (1981-1983 - 100) herein referred to as "CPI".
- ---------------------
b. The monthly rent payable in accordance with paragraph A.I.a. of
this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease shall be multiplied by a fraction, the
numerator of which shall be the CPI of the calendar month two months prior to
the month(s) specified in paragraph A.I.a. above during which the adjustment is
to take effect, and the denominator of which shall be the CPI of the calendar
month which is two months prior to (select one): / / the first month of the term
of this Lease as set forth in paragraph 1.3 ("Base Month" or / / (Fill in other
"Base Month") . The sum as calculated shall
-----------------------------------
constitute the new monthly rent hereunder, but in no event shall any such new
monthly rent be less than the rent payable for the month immediately preceding
the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall
be transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the CPI shall be used to
make such calculation. In the event that the Parties cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.
II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV) / /
a. On (Fill in MRV Adjustment Date(s)):
-----------------------------
the Base Rent shall be adjusted to the "Market Rental Value" of the property
as follows:
i. Four months prior to each Market Rental Value Adjustment
Date described above, the Parties shall attempt to agree upon what the new MRV
will be on the adjustment date. If agreement cannot be reached within thirty
days, then:
Page 24 of 28
<PAGE> 25
(a) Lessor and Lessee shall immediately appoint a
mutually acceptable appraiser or broker to establish the new MRV within the
next thirty days. Any associated costs will be split equally between the
Parties, or
(b) Both Lessor and Lessee shall each immediately make a
reasonable determination of the MRV and submit such determination, in writing,
to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and
Lessee shall each select an / / appraiser or / / broker ("Consultant") (check
one) of their choice to act as an arbitrator. The two arbitrators so appointed
shall immediately select a third mutually acceptable Consultant to act as a
third arbitrator.
(ii) The three arbitrators shall within thirty days
of the appointment of the third arbitrator reach a decision as to what the
actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV
is the closes thereto. The decision of a majority of the arbitrators shall be
binding on the Parties. The submitted MRV which is determined to be the closest
to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the parties fails to appoint an
arbitrator within the specified fifteen days, the arbitrator timely appointed by
one of them shall reach a decision on his or hr own, and said decision shall be
binding on the Parties.
(iv) The entire cost of such arbitration shall be
paid by the party whose submitted MRV is not selected, i.e., the one that is NOT
the closest to the actual MRV.
ii. Notwithstanding the foregoing, the new MRV shall not be
less than the rent payable for the month immediately preceding the rent
adjustment.
b. Upon the establish of each New Market Rental Value:
i. the new MRV will become the new "Base Rent" for the purpose
of calculating any further Adjustments, and
ii. the first month of each Market Rental Value term shall
become the new "Base Month" for the purpose of calculating any further
Adjustments.
III. FIXED RENTAL ADJUSTMENT(S) (FRA) / /
The base rent shall be increased at three percent (3%) annually to the
following amounts on the dates set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
October 1, 1999 $3,077.64
October 1, 2000 $3,169.97
October 1, 2001 $3,265.07
October 1, 2002 $3,363.02
B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments other
than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the
Lease.
Page 25 of 28
<PAGE> 26
c. BROKER'S FEE
The Broker specified in Paragraph 1.10 shall be paid a Brokerage Fee for
each adjustment specified above in accordance with paragraph 15 of the Lease.
Page 26 of 28
<PAGE> 27
ADDENDUM TO LEASE
This Lease Addendum is attached to and made a part of the Standard
Industrial/Commercial Multi-Tenant Lease -- Gross (the "Lease") OCTOBER 8, 1998,
by and between NUMBER ONE PIPELINE, LLC and VALLEY BUSINESS SERVICES, INC. DBA
TOTAL ELECTRONIC ALARM MONITORING effecting certain property in Chino,
California. In the event of any conflict between the provisions of this Addendum
and the printed provisions of the Lease, this Addendum shall control.
51. BASE RENT: November 1998 and December 1998 of the initial lease term shall
be abated and subject to Paragraph 13.3 need not be paid by Lessee at any
time.
52. COMMON AREA OPERATING EXPENSES: The Base Rent provided for in paragraph
1.5 includes all of Lessee's share of the Common Area Operating
Expenses listed in paragraph 4.2 EXCEPT Lessee's share of any Insurance
Cost Increase (see paragraph 8.1) and/or Real Property Tax increase
(see paragraph 10.1).
53. CONDITION OF THE PREMISES:
a) Notwithstanding the provisions contained in the printed portion of the
Lease, Lessee is aware that Lessor has recently purchased the subject
property, and that Lessor, as a consequence thereof, has no direct
knowledge as to the condition of the Premises or the Industrial
Center, its past uses, and/or the possible presence of hazardous
substances (hereinafter collectively referred to as 'the condition of
the Property'). Lessee acknowledges, therefore, that Lessee is not
relying upon any representations of Lessor with regard to the
condition of the Property and that instead, Lessee is relying solely
upon its own investigation, and that Lessee will not hold Lessor
responsible for any defects in the condition of the Property.
b) Notwithstanding the provisions of paragraph 2.3 hereof, Lessor makes
no warranty or representation as to whether or not the Premises comply
with the Americans with Disabilities Act or any similar legislation.
In the event that the Premises are at any time found to not be in
compliance therewith, Lessee agrees to make any necessary
modifications and/or additions to the Premises so as to bring the
Premises into compliance at Lessee's expense.
54. TRASH COLLECTION: If at any time in Lessor's reasonable judgement, Lessor
determines that Lessee's use of the trash dumpsters requires an increase in
the size of the dumpsters and/or an increase in the number of times per
month that said dumpsters are emptied then, and in that event, Lessor may
increase Lessee's Base Rent by the amount of any such increased costs.
55. ROOF: Lessee shall not, nor shall Lessee allow anyone else, make any roof
penetrations and/or install anything on the roof without the prior written
approval of Lessor. Lessor may, as a precondition to granting such
approval, require Lessee to utilize a contractor chosen and/or approved by
Lessor.
56. NONSUFFICIENT FUNDS: Lessee agrees to pay to lessor the sum of $25 in the
event that any check, draft or other instrument of payment is dishonored
for any reason.
57. CHANGE OF ADDRESS: Lessor shall have the right, exercisable without notice
and without liability to Lessee to seek to have the name and/or street
address of the Industrial Center changed at any time due to the
requirements of any governmental authority.
Page 27 of 28
<PAGE> 28
58. LIMITATION OF LIABILITY: In consideration of the benefits accruing
hereunder, Lessee agrees that, in the event of any actual or alleged
failure, breach or default of this Lease by Lessor:
a) The sole and exclusive remedy shall be against the Lessor, a limited
liability company, and its assets;
b) No member or manager of Lessor shall be sued or named as a party in
any suit or action;
c) No service of process shall be made against any member or manager of
Lessor, except for Richard L. Riemer, Esq. agent for service of
process for Number One Pipeline, LLC;
d) No member or manager of Lessor shall be required to answer or
otherwise plead to any service of process;
e) No judgment may be taken against any member or manager of Lessor;
f) Any judgment taken against any member or manager of Lessor shall be
vacated and set aside at any time without hearing;
g) No writ of execution will ever be levied against the assets of any
member or manager of Lessor;
h) These covenants and agreements are enforceable both by Lessor and also
by any member or manager of Lessor.
59. Lessor and Lessee agree that if an attorney is consulted by Lessor in
connection with a Lessee Default or Breach, $350.00 is a reasonable minimum
sum per such occurrence for legal services and costs in the preparation and
service of a notice of Default, and that Lessor may include the cost of
such services and costs in said notice as rent due and payable to cure said
default.
60. TENANT IMPROVEMENTS: Lessee, at Lessee's sole cost and expense and subject
to Lessor's approval of plans, contractor(s) and permits, shall be allowed
to perform the following improvements:
a) Install one standby generator in the rear yard of the building;
c) Build out one additional office space; and
d) Install two (2) additional air conditioning units.
61. CONSTRUCTION OF AGREEMENT: In construing this Lease, all headings and
titles are for the convenience of the parties only and shall not be
considered a part of this agreement. Whenever required by the context, the
singular shall include the plural and vice versa. This Lease shall not be
construed as if prepared by one of the parties, but rather according, to
its fair meaning as a whole, as if both parties had prepared it.
Date: 10/14/98 /s/ Leonard G. Henderson
--------------------- --------------------------------
Lessor's Signature
Date: /s/ Richard Riemer
--------------------- --------------------------------
Lessee's Signature
Page 28 of 28
<PAGE> 1
EXHIBIT 10.56
THIS INDENTURE OF LEASE, made on the 10th day of May, 1990, by Parkway
Bank and Trust Company, as Trustee under the provisions of a Trust Agreement
dated the 16th day of July, 1988 and known as Trust Number 8934, herein called
"Lessor", and All Security Products & Services, Inc., herein called "Tenant".
WITNESSETH:
ARTICLE I
GRANT AND TERM
SECTION 1.01. Leased Premises
In consideration of the rents, covenants and agreements hereinafter
reserved and contained on the part of Tenant to be observed and performed, the
Lessor demises and leases to the Tenant, and Tenant rents from Lessor those
certain premises now or hereafter to be erected in the O'HARE CORPORATE RUN
CENTER (herein called "the Center") or such other name as Lessor may designate,
2114-2130 South Wolf Road, in Des Plaines, Cook County, Illinois. The boundaries
and location of the leased premises, which consist of 4,700 square feet, are
outlined in red on the partial site plan of the Center, which is marked as
Exhibit "A" attached hereto and made a part hereof, and commonly known as 2114,
2116 and 2118 South Wolf Road, Des Plaines, Illinois 60018. Lessor reserves the
right, at any time, during the term of this Lease to re-assign a common street
address for the leased premises.
SECTION 1.02. Use of Additional Areas
The use and occupancy by the Tenant of the leased premises shall
include the use in common with others entitled thereto of the common areas,
service roads, loading facilities, sidewalks and customer car parking areas, and
other facilities as may be designated from time to time by the Lessor. subject
however to the terms and conditions of this Agreement and to reasonable rules
and regulations for the use thereof as prescribed from time to time by the
Lessor. Nothing in this Lease shall be construed as limiting the Lessor's future
development and building upon the common elements; provided, however, that the
parking lot shall not be diminished by more than ten percent (10%).
SECTION 1.03. Commencement and Ending Date of Term
The term of this Lease and Tenant's obligation to pay rent hereunder
shall commence on July 1, 1990. The term of this Lease shall end on the last day
of the tenth (10th) consecutive full lease year, as said term "Lease Year" is
hereinafter defined, that is on June 30, 2,000. At Lessor's request, Tenant
agrees to execute a short form memorandum certifying the commencement and
expiration dates of this Lease.
SECTION 1.04. Lease Year Defined
The term "Lease Year" as used herein shall mean a period of twelve (12)
consecutive full calendar months. The first Lease Year shall begin on the date
of commencement of the term hereof if the date of commencement of the term
hereof shall occur on the first day of a calendar month; if not, then the first
Lease Year shall commence upon the first day of the calendar month next
following the date of commencement of the
<PAGE> 2
term hereof. Each succeeding Lease Year shall commence upon the anniversary date
of the first Lease Year.
SECTION 1 05. Failure of Tenant to Open
In the event that the Tenant fails to take possession and to open the
leased premises for business fully fixtured, stocked and staffed by the
commencement of this Lease, then the Lessor shall have in addition to any and
all remedies herein provided, the right, at its option. to collect not only the
minimum rent herein provided, but all additional rents as herein provided and
would have been paid by Tenant as of the commencement date of this Lease.
SECTION 1.06. Excuse of Lessor's Performance
Anything in this Agreement to the contrary notwithstanding, providing
such cause in not due to the willful act or neglect of the Lessor or its
beneficiaries, the Lessor shall not be deemed in default with respect to the
performance of any of the terms, covenants and conditions of this Lease, if same
shall be due to any strike, inability to obtain materials, material shortage,
lockout, civil commotion, war-like operation, invasion, rebellion, hostilities,
military or usurped power, sabotage, governmental regulations or controls, or
any other causes beyond the control of the Lessor.
ARTICLE II
RENT
SECTION 2.01. Minimum Rent
Tenant agrees to pay to Lessor at the office of Lessor or at such other
place designated by Lessor, without any prior demand therefor and without any
deduction or set-off whatsoever, and as fixed minimum rent the sum of Five
Hundred Ninety One Thousand One Hundred Sixty and No/100 Dollars ($591,160.00)
payable as follows:
(a) The sum of $3,917.00 in advance upon the first day of each
calendar month of the first Lease Year;
(b) The sum of $4,113.00 in advance upon the first day of each
calendar month of the second Lease Year;
(c) The sum of $4,318.00 in advance upon the first day of each
calendar month of the third Lease Year;
(d) The sum of $4,534.00 in advance upon the first day of each
calendar month of the fourth Lease Year;
(e) The sum of $4,761.00 in advance upon the first day of each
calendar month of the fifth Lease Year;
(2)
<PAGE> 3
(f) The sum of $4,999.00 in advance upon the first day of each
calendar month of the sixth Lease Year;
(g) The sum of $5,249.00 in advance upon the first day of each
calendar month of the seventh Lease Year;
(h) The sum of $5.511.00 in advance upon the first day of each
calendar month of the eighth Lease Year;
(i) The sum of $5,787.00 in advance upon the first day of each
calendar month of the ninth Lease Year; and
(j) The sum of $6,076.00 in advance upon the first day of each
calendar month of the tenth and final Lease Year.
If the term shall commence upon a day other than the first day of a
calendar month, then Tenant shall pay, upon the commencement date of the term, a
prorata portion of the fixed monthly rent described in the foregoing clause (a)
prorated on a per diem basis with respect to the fractional calendar month
preceding the commencement of the first Lease Year hereof.
SECTION 2.02. Real Estate Taxes
(a) In each Lease Year, Tenant will pay to Lessor, in addition to the
fixed minimum rent specified in Section 2.01, as further additional rent, a
proportion of all real estate taxes, as hereinafter defined, relating to the
Center.
(b) Real Estate Taxes shall mean the aggregate of all general real
estate taxes, sewer taxes or similar service taxes, if any, and all installments
of any special assessments relating to the Center, or any portion thereof
payable during the Lease Year. Should the State of Illinois or any subdivision
thereof or any other governmental authority having jurisdiction thereover, levy,
assess or impose a tax, license fee, franchise fee or any other tax or charge by
way of substitution or replacement of general real estate taxes or any portion
of the same, then in such event any such tax or charge to the extent it so
replaces or is a substitute for such real estate taxes shall be included within
the definition of "Taxes", which shall also include any sums paid or reasonably
incurred by or on behalf of the Lessor in contesting or seeking a reduction of
any such Taxes or any valuation or rate, including attorney's fees and
consulting.
(c) For the purposes of computing Taxes, Tenant's pro-rata share shall
be based upon the ratio of the square feet of the leased premises (4,700 sq.
ft.) to the total square feet of all the leaseable building space in the Center
(16,000 sq. ft.). Based on the above computation, Tenant shall be responsible
each Lease Year for Tenant's pro-rata share of all Taxes.
(d) On the first day of each month during each Lease Year during the
term of this Lease, Tenant shall pay to Lessor in advance, as additional rent,
Lessor's estimate (determined as hereinabove described) of an amount
(3)
<PAGE> 4
equal to 1/12th of Tenant's pro-rata share of Taxes which are payable during any
Lease Year and shall base its estimate on the most recently ascertainable tax
bills, making such adjustments thereto reflect any anticipated increases, as
Lessor may in its reasonable discretion determine. Any fractional month shall be
prorated. Following the issuance by the taxing authorities of first tax bills
payable during any Lease Year, Lessor shall furnish Tenant with a copy of said
tax bill together with a written statement showing Tenant's pro-rata share of
such Taxes and the payments made by Tenant with respect to Lessor's estimate of
Tenant's pro-rata share of the said Taxes during said Lease Year. If Tenant's
pro-rata share of said Taxes exceeds Tenant's payments made pursuant to Lessor's
estimate, Tenant shall pay Lessor the deficiency within ten (10) days after
being invoiced by Lessor; if said payments exceed Tenant's pro-rata share of the
Taxes, Lessor shall credit such excess against the next due payments from Tenant
for Taxes. In the event the commencement date of the term of this Lease during
the first Lease Year and the last Lease Year do not correspond with a tax year,
the number of months within said Lease Years shall be prorated by the number of
lease months to the tax year. As to any tax year, a portion only of which is
contained in the term of this Lease, Tenant's obligation for such pro-rata share
of the actual Taxes shall remain in effect notwithstanding the expiration of
this Lease. Tenant's obligations under this Section shall survive the expiration
of the term of this Lease. Tenant's above initial estimate is $588.00 per month.
SECTION 2.03. Additional Rent
The Tenant shall pay as additional rent any money required to be paid
pursuant to Sections 2.02, 2.04, 8.01, 10.02, 11.02, 11.04 and 12.01 and all
other sums of money or charges required to be paid by Tenant under this Lease,
whether or not the same be designated "additional rent". If such amounts or
charges are not paid at the time provided in this Lease, they shall
nevertheless, if not paid when due, be collectible as additional rent with the
next installment of rent thereafter failing due hereunder, but nothing herein
contained shall be deemed to suspend or delay the payment of any amount of money
or charge at the time the same becomes due and payable hereunder, or limit any
other remedy of the Lessor.
SECTION 2.04. Past Due Rent and Additional Rent
If Tenant shall fail to pay, when the same is due and payable. any rent
or any additional rent, or amount or charges, of the character described in
Section 2.03 hereof, such unpaid amounts shall bear interest from the fifth
(5th) day after the due date thereof to the day of payment, at the rate of
fifteen percent (15%) per annum, or at Lessor's option, Tenant shall be assessed
a One Hundred Dollar ($100.00) penalty due and payable within seven (7) days
after invoice from Lessor.
(4)
<PAGE> 5
ARTICLE III
CONSTRUCTION, ALTERATION AND RELOCATION
OF IMPROVEMENTS AND ADDITIONS THERETO AND
NEW AND ADDITIONAL CONSTRUCTION
SECTION 3.01. Changes and Additions to Buildings and Additional Construction
Lessor hereby reserves the right at any time to make alterations or
additions to and to build additional stories on the building in which the leased
premises are contained and to build adjoining same. Lessor also reserves the
right to construct additional and other separate buildings or improvements in
the Center from time to time and to make alterations thereof or additions
thereto and to build additional stories on any such building or buildings and to
build adjoining same and to construct double-deck or elevated parking
facilities, and/or to diminish the parking area by the construction of other and
additional buildings or improvements. Lessor agrees that any such alterations,
additions and construction shall not cause any additional expenses to Tenant and
that the parking lot shall not be diminished by more than ten percent (10%).
SECTION 3.02. Construction of Leased Premises
Lessor shall construct the leased premises substantially in accordance
with the standards set forth on Exhibit B attached hereto ("Lessor's Work").
Tenant shall commence and complete Tenant's Work, substantially in accordance
with the standards set forth on Exhibit C attached hereto, and in accordance
with the following provisions:
(a) Within ten (10) days after Lessor provides Tenant with outline
plans for the leased premises prepared by Lessor's architect, Tenant shall
furnish Lessor, for Lessor's prior written approval, Tenant's preliminary plans
and specifications incorporating Tenant's Work as described on Exhibit C
attached hereto.
(b) Within seven (7) days after approval of Tenant's preliminary plans
and specifications by Lessor, Tenant shall submit complete working plans and
specifications for Lessor's review and written approval.
(c) Lessor shall approve or disapprove Tenant's preliminary plans and
specifications and Tenant's working plans and specifications within seven (7)
days after receipt of such plans and specifications.
(d) Tenant shall commence and complete Tenant's Work promptly upon
completion of Landlord's Work strictly in accordance with the approved working
plans and specifications through a contractor or contractors acceptable to
Lessor, who shall have supplied completion and material payment bonds in form
acceptable to lessor (unless this requirements is specifically waived in writing
by Lessor as to a particular contractor or contractors), at the sole cost and
expense of Tenant. Tenant may, with the written consent of Lessor, commence
Tenant's Work prior to completion of Lessor's Work, so long as Tenant's Work
does not interfere with the completion of Lessor's Work and is scheduled under
the direction of Lessor or Lessor's construction manager.
(5)
<PAGE> 6
(e) Lessor or its representatives shall be allowed to inspect Tenant's
Work in process, and in the event it fails to conform to the approved plans and
specifications, Lessor shall have the right to stop Tenant's Work and to require
strict compliance with the terms of this Lease.
(f) Tenant shall obtain all necessary approvals and permits required
for completion of Tenant's Work and shall comply fully with all applicable laws,
ordinances, codes and other governmental requirements and regulations pertaining
thereto and with the requirements of fire underwriters.
ARTICLE IV
CONDUCT OF BUSINESS BY TENANT
SECTION 4.01. Use of Leased Premises
Tenant shall use the leased premises solely and exclusively for the
purpose of conducting the business of a general and security monitoring
services, and other related services and products, so long as they do not
interfere with the business conducted by other tenants in the Center, and no
other purpose, subject to the terms, covenants and conditions of Sections 25.01
and 25.02 herein. Tenant shall occupy the leased premises as of the commencement
date of this Lease, and shall conduct continuously in the leased premises the
business above stated. Tenant shall not use or permit, or suffer the use of, the
leased premises for any other business or purpose. Tenant shall keep the display
windows and signs. if any, in the leased premises well lighted during the hours
from sundown to 11:00 o'clock P.M., unless prevented by causes beyond the
control of Tenant.
SECTION 4.02. Storage and Office Space
Tenant may warehouse, store and/or stock in the leased premises only
such goods, wares and merchandise as Tenant intends to offer for sale or lease
at retail at, in, from or upon the leased premises. This shall not preclude
occasional emergency transfer of merchandise to the other stores of Tenant, if
any, not located in the Center. Tenant may use for office, clerical or other
non-selling purposes only such space in the leased premises as is from time to
time reasonably required for Tenant's business in the leased premises. No
auction, fire or bankruptcy sales may be conducted in the leased premises
without the previous written consent of Lessor.
ARTICLE V
OPERATION OF CONCESSIONS
SECTION 5.01. Consent of Lessor
Tenant shall not permit any business to be operated in or from the
leased premises by any concessionaire or licensee without the prior written
consent of Lessor.
(6)
<PAGE> 7
ARTICLE VI
SECURITY DEPOSIT
SECTION 6.01. Amount of Deposit
Tenant, contemporaneously with the execution of this Lease, shall
deposit with Lessor the sum of Seven Thousand Eight Hundred Thirty Four and
No/100 Dollars ($7,834.00) which shall be held by Lessor without liability for
interest, as security for the faithful performance by Tenant of all of the
terms, covenants and conditions of this Lease by said Tenant to be kept and
performed during the term hereof. If at any time during the term of this Lease
any of the rent herein reserved shall be overdue and unpaid, or any other sum
payable by Tenant to Lessor hereunder shall be overdue and unpaid, then Lessor
may, at the option of Lessor (but Lessor shall not be required to), appropriate
and apply any portion of said deposit to the payment of any such overdue rent or
other sum. It is expressly covenanted and agreed that the sum deposited above is
not an advance of payment of or on account of rent herein received, or any part
or installment thereto or the measure of the Lessor's damages.
SECTION 6.02. Use and Return of Deposit
In the event of the failure of Tenant to keep and perform any of the
terms, covenants and conditions of this Lease to be kept and performed by
Tenant, then the Lessor, at its option may appropriate and apply said entire
deposit, or so much thereof as may be necessary, to compensate the Lessor for
loss or damage sustained or suffered by Lessor due to such breach on the part of
Tenant. Should the entire deposit, or any portion thereof, be appropriated and
applied by Lessor for the payment of overdue rent or other sums due and payable
to Lessor by Tenant hereunder, then Tenant shall, upon written demand of Lessor,
forthwith remit to Lessor sufficient amount in cash to restore said security to
the original sum deposited, and Tenant's failure to do so within five (5) days
after receipt of such demand shall constitute a breach of this Lease. Should
Tenant comply with all of said terms, covenants and conditions and promptly pay
all of the rental herein provided for as it falls due, and all other sums
payable by Tenant to Lessor hereunder, the said deposit shall be returned in
full to Tenant at the end of the term of this Lease or upon the earlier
termination of this Lease, or within sixty (60) days after the end of the term
of this Lease; provided, however, that Lessor, in Lessor's reasonable discretion
shall hold a portion of the deposit in reserve, until such time as Tenant's
share of the additional rent for the last Lease Year has been determined by
Lessor. In the event that Tenant's share of the additional rent exceeds the
reserve, then Tenant shall promptly remit to Lessor the difference within ten
(10) days after Lessor generates an invoice therefor.
SECTION 6.03. Transfer of Deposit
Lessor may deliver the funds deposited hereunder by Tenant to the
purchaser of Lessor's interest in the leased premises, in the event that such
interest be sold, and thereupon Lessor shall be discharged from any further
liability with respect to such deposit.
(7)
<PAGE> 8
ARTICLE VII
PARKING AND COMMON USE AREAS AND FACILITIES
SECTION 7.01. Control of Common Areas by Lessor
All automobile, parking areas, driveways, entrances and exits thereto,
and other facilities furnished by Lessor in or near the Center, including
employee parking areas, truck way or ways, loading docks, package pick-lip
stations, pedestrian sidewalks and ramps, landscaped areas, exterior stairways,
and other areas and improvements provided by Lessor for the general use in
common, of tenants, their officers, agents, employees and customers. shall at
all times be subject to the exclusive control and management of Lessor, and
Lessor shall have the right from time to time to establish, modify and enforce
reasonable rules and regulations with respect to all facilities and areas
mentioned in this Article. Lessor shall have the right to construct. maintain
and operate lighting facilities on all said areas and improvements; to police
same; from time to time to change the area, level location and arrangement of
parking areas and other facilities hereinabove referred to; to restrict parking
by tenants, their officers, agents and employees to employee parking areas; to
close all or any portion of said areas or facilities to such extent as may, in
the opinion of Lessor's counsel, be legally sufficient to prevent a dedication
thereof or the accrual of any rights to any person or the public therein; to
close temporarily all or any portion of the parking areas or facilities; to
discourage non-customer parking; and to do and perform such other acts in and to
said areas and improvements as, in the use of good business judgment. the Lessor
shall determine to be advisable. Lessor will operate and maintain the common
facilities referred to above in such manner as Lessor, in its reasonable
discretion, shall determine from time to time. Without limiting the scope of
such discretion, Lessor shall have the full right and authority to employ all
personnel and to make all rules and regulations pertaining to and necessary for
the proper operation and maintenance of the common facilities and areas.
SECTION 7.02. License
All common areas and facilities which Tenant may be permitted to use
and occupy, are to be used and occupied under a revocable license, and if the
amount of such areas be diminished, Lessor shall not be subject to any liability
nor shall Tenant be entitled to any compensation or diminution or abatement of
rent, nor shall such diminution of such areas and facilities be deemed
constructive or actual eviction.
ARTICLE VIII
COST OF MAINTENANCE OF COMMON AREAS
SECTION 8.01. Tenant to Bear Pro Rata. Share of Expense
(a) In each Lease Year, Tenant shall pay to Lessor, in addition to the
rentals specified in Article II hereof, as further additional rent, a portion of
the Center's operating costs, as hereinafter defined in Section 8.01(b) below.
Tenant's pro-rata share of the Center's operating costs shall be based on the
same basis as in Section 2.02(c).
(8)
<PAGE> 9
Tenant's initial estimate of the Center's operating costs shall be
Fifty Cents ($0.50) per square foot during the first Lease year. totaling
$2,350.00, and paid in monthly installments of $196.00. Each Lease Year
thereafter Tenant's initial estimate shall be determined by Lessor, which
estimate shall be reasonably based on anticipated expenses. Should Tenant's pro
rata share of the Center's operating costs for any Lease Year exceed the then
current contribution by Tenant for such Lease Year, then Tenant shall be
responsible to pay Lessor such excess costs within thirty (30) days from receipt
of an itemized statement of such costs. In the event Tenant's contribution for
any Lease Year exceeds the Tenant's pro rata share of such costs, then such
excess contribution shall be retained by lessor as a credit against the next due
payments from Tenant.
In the event the term of this Lease commences on a day other than a
January 1 or ends on a day other than December 31, Tenant shall pay a pro rata
portion of such costs for the partial year and yearly thereafter. Commencing
with the first payment of minimum rent and each month thereafter, Tenant shall
pay the above monthly installments, representing one-twelfth (1/12th) of
Tenant's estimated share of the Center's operating costs. Lessor, in its sole
discretion, reserves the right to increase or decrease the amounts of Tenant's
monthly installments, at any time during the term of this Lease.
(b) the purpose of this Section 8.01 the "Center's operating costs"
means the total cost and expense incurred in operating and maintaining the
Center and the common facilities, hereinafter defined, specifically including,
but not by way of limitation, landscaping; sealing, striping. Asphalt repairing
and blacktop repairs; electrical repairs; management fees; maintenance of all
signs; the cost of fire and extended coverage, business interruption, public
liability and property damage insurance; water; all costs of utilities; repairs;
line painting lighting; sanitary control; removal of snow, trash, rubbish,
garbage and other refuse from the common facilities only; repair, maintenance
and replacement of the roof(s) of the buildings; cleaning, furnishing of
supplies, tools and other janitorial services; personnel costs and contract for
labor and services; and painting of the exterior walls of the Center and
interior common walls of the Center. It is understood that Lessor shall remove
trash, rubbish, garbage and other refuse from the common facilities only, and
such service shall be provided at Lessor's sole discretion. It is further
understood and agreed that Lessor shall not be responsible for any janitorial
services and garbage pick-up relating to Tenant's operation of the leased
premises, which Tenant agrees to be solely responsible for. Tenant further
agrees not to deposit any of Tenant's trash, rubbish, garbage or other refuse in
the garbage and refuse containers within the common facilities of the Center.
"Common facilities" means all areas, space equipment and special services
provided by Lessor for the common or joint use and benefit of the occupants of
the Center, their employees, agents, servants, customers and other
(9)
<PAGE> 10
invitees, including without limitation, parking areas, access roads, driveway,
retaining walls, landscaped areas, truck serviceways, loading docks, pedestrian
walks, courts, stairs and ramps and sidewalks.
ARTICLE IX
SIGNS, FIXTURES AND ALTERATIONS
SECTION 9.01. Installation by Tenant
All fixtures installed by Tenant shall be new. Tenant shall not make or
cause to be made any alterations, additions or improvements or install or cause
to be installed any trade fixture, exterior signs, floor covering, interior or
exterior lighting, plumbing fixtures, shades or awnings or make any changes to
the store front without first obtaining Lessor's written approval and consent,
and all of the foregoing shall be new. Tenant shall present to the Lessor plans
and specifications for such work at the time the approval is sought. Before the
opening of Tenant's business and prior to the commencement of any improvements
to the leased premises pursuant to Section 3.02, Tenant shall provide Lessor
with plans and specifications of such improvements for Lessor's prior written
consent.
SECTION 9.02. Removal and Restoration by Tenant
All alterations. decorations, additions and improvements made by the
Tenant, or made by the Lessor on the Tenant's behalf by agreement under this
Lease, shall remain the property of the Tenant for the term of the Lease, or any
extension or renewal thereof. Such alterations, decorations, additions and
improvements shall not be removed from the leased premises prior to the end of
the term hereof without prior written consent in writing from the Lessor. Upon
expiration of this Lease, or any extension or renewal thereof, the Tenant shall
remove all such alterations, decorations, additions and improvements, and
restore the leased premises as provided in Section 10.03 hereof. If the Tenant
fails to remove such alterations, decorations, additions and improvements and
restore the leased premises, then upon the expiration of this Lease, or any
extension or renewal thereof, and upon the Tenant's removal from the leased
premises, all such alterations, decorations, additions and improvements shall
become the property of the Lessor.
SECTION 9.03. Tenant Shall Discharge All Liens
Tenant shall promptly pay all contractors and material men, so as to
minimize the possibility of a lien attaching to the leased premises or the
Center, and should any such lien be made, recorded or filed, Tenant shall bond
against or discharge the same within ten (10) days after written notice. Tenant
also agrees to supply Lessor with partial and/or final waivers of lien, by any
contractors and/or material men hired or engaged by Tenant. Every contract for
repairs, additions, alterations, remodeling, premises and the Center and no
contract or agreement, oral or written, shall be made by Tenant for repairs or
improvements upon the leased premises, unless it shall contain such express
waiver or release of lien upon the part
(10)
<PAGE> 11
of the party contracting, and a signed copy of every such contract and of the
plans and specifications for such repairs or improvements shall be promptly
delivered to and may be retained by Lessor.
SECTION 9.04. Workmanlike Manner and Governmental Regulations
Any and all repairs, additions, alterations, remodeling, interior
construction. or any other improvements and work on the leased premises, or any
part thereof, made by Tenant or caused to be made by Tenant shall be done in a
good and workmanlike manner, and shall further conform to all federal, interior
construction, or any other improvements on the leased premises or any part
thereof, shall contain an express, full and complete waiver and release of any
and all liens, or claims or rights of lien, against the leased state, county and
municipal regulations, laws and ordinances, including any and all federal,
state, county and municipal building codes and regulations, and further, Tenant
shall obtain any and all necessary federal, state, county and municipal permits,
to the extent they are required, prior to the commencement of any such repairs,
additions, alterations, remodeling, interior construction, or any other
improvements and work, and Tenant shall supply Lessor with copies of said
permits, prior to the commencement of any work.
SECTION 9.05. Signs
Tenant shall not place or suffer to be placed or maintained on any
exterior door, wall or window of the leased premises any sign, awning or canopy,
or advertising matter or other thing of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door of the leased premises without first obtaining Lessor's written approval
and consent. Tenant agrees to maintain such sign, decoration, lettering,
advertising matter or other thing as may be approved in good condition and
repair at all times. Signage shall be of individual lettering, and shall be
located within the space designated by Lessor.
ARTICLE X
MAINTENANCE OF LEASED PREMISES
SECTION 10.01. Maintenance by Tenant
(a) Tenant shall at all times, at Tenant's sole cost and expense, keep
the leased premises (including not by way of limitation. maintenance of exterior
entrances, all glass and show window moldings) and all partitions, doors,
fixtures, equipment and appurtenances thereof (including not by way of
limitation, lighting, heating and plumbing fixtures, and equipment), heating
systems, and all air conditioning systems in good order, condition and repair
(including not, by way of limitation reasonably periodic painting as determined
by Lessor), damage by unavoidable casualty excepted, except for
(11)
<PAGE> 12
structural portions of the premises (other than the roof (s)) which shall be
maintained by Lessor, but if Lessor is required to make repairs to structural
portions by reason of Tenant's negligent acts or omission to act, Lessor may add
the cost of such repairs to the rent which shall thereafter become due and paid
with the next installment of fixed minimum rent. Any replacement of equipment
shall be by Tenant at Tenant's sole cost and expense and shall be a replacement
of similar quality and kind. Said replacement shall become the property of
Lessor upon termination or expiration of this Lease. Tenant shall have the right
to maintain within the leased premises a backup generator for auxiliary power
and may operate same up to three (3) times per week, but for short periods of
time. Tenant shall maintain said backup generator in good order and repair.
(b) Tenant shall not make nor permit any noise or odor that is
objectionable to the other tenants or occupants of the Center to emanate from
the leased premises, shall not create or maintain a nuisance thereof, shall not
disturb, solicit or canvas any occupant of the Center and shall not do any act
tending to injure the appearance or reputation of the Center.
(c) Tenant from October 1st to May 1st of every year shall heat the
leased premises, and at all times shall maintain a temperature within the leased
premises of not less than 60 Degrees Fahrenheit.
(d) Tenant shall at all times provide Lessor with duplicates of all
keys that are used within the leased premises.
(e) At no time shall Tenant cause any alteration, construction or work
that may affect the roof of the leased premises or of the Center, without first
obtaining Lessor's written approval and consent, and Tenant shall only use
contractors that are approved by Lessor, prior to any work.
SECTION 10.02. Maintenance by Lessor
If Tenant refuses or neglects to repair and pay for the repair of any
property or equipment as required hereunder and to the reasonable satisfaction
of Lessor within ten (10) days after written demand, Lessor may make such repair
without liability to Tenant for any loss or damage that may accrue to Tenant's
merchandise, fixtures, or their property or to Tenant's business by reason
thereof, and upon complete on thereof, Tenant shall pay Lessor's costs for
making such repair plus fifteen percent (15%) for overhead or One Hundred
Dollars ($100.00), whichever is greater, upon presentation of a bill therefor,
as additional rent.
SECTION 10.03. Surrender of Leased Premises
At the expiration of the tenancy hereby created, Tenant shall surrender
the leased premises in the same condition as the leased premises were in upon
delivery of possession thereto under this Lease, reasonable wear and tear
excepted, and damage by unavoidable casualty excepted, and shall surrender all
keys for the leased premises to Lessor at the place then fixed for the payment
of rents and shall inform Lessor of all combinations on locks, safes and vaults,
if any, in the leased premises. Tenant shall remove all its trade fixtures, and
any alterations or improvements as provided in Section
(12)
<PAGE> 13
9.02 hereof, before surrendering the leased premises as aforesaid and shall
repair any damage to the leased premises caused thereby. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of the term of this Lease.
SECTION 10.04. Rules and Regulations
The rules and regulations, if any, appended to this Lease are hereby
made a part of this Lease, and Tenant agrees to comply with and observe the
same. Tenant's failure to keep and observe said rules and regulations shall
constitute a breach of the terms of this Lease in the manner as if the same were
contained herein as covenants. Lessor reserves the right, from time to time, to
amend or supplement said rules and regulations, and to adopt and promulgate
additional rules and regulations applicable to the leased premises and the
Center. Notice of such additional rules and regulations, and amendments and
supplements, if any, shall be given to Tenant, and Tenant agrees thereupon to
comply with and observe all such rules and regulations, and amendments thereof
and supplements thereof, provided the same shall apply uniformly to all tenants
of the Center. It is understood by Lessor that the nature of Tenant's business
requires access to the leased premises 24 hours per day.
SECTION 10.05. Lessor's Right to Enter for Repairs and Alterations
Lessor may enter the leased premises at reasonable times and upon prior
written notice to Tenant for the purpose of making repairs and alterations, or
as Lessor may deem necessary for electrical, plumbing and structural work for
the leased premises or the Center or for the safety, preservation or improvement
of the leased premises or the Center. In cases of emergency Lessor shall have
the right to enter the leased premises without notice.
ARTICLE XI
INSURANCE AND INDEMNITY
SECTION 11.01. Liability Insurance
Tenant shall, during the entire term hereof, keep in full force and
effect a policy of public liability and property damage insurance with respect
to the leased premises, and the business operated by Tenant and any subtenants
of Tenant in the leased premises, in which the limits of public liability shall
not be less than $500,000.00 per person and $1,000,000.00 per accident and in
which the property damage liability shall not be less than $300,000.00. The
policy shall name Lessor, any person, firm or corporations designated by Lessor,
and Tenant as insured, and shall contain a clause that the insurer will not
cancel or change the insurance without first giving the Lessor ten (10), days
prior written notice. The insurance shall be placed with an insurance company
approved by Lessor and a copy of the policy or a certificate of insurance shall
be delivered to Lessor within thirty (30) days from the date of this Lease. If
proof of the above mentioned coverages is not provided within thirty (30) days
from the date of this Lease, Lessor shall have the right, but not the
obligation, to secure such coverages and bill the Tenant for the premium as
additional rent.
(13)
<PAGE> 14
SECTION 11.02. Increase in Fire Insurance Premium
Tenant agrees that it will not keep, use, tell or offer for sale in or
upon the leased premises any article which may be prohibited by the standard
form of fire insurance policy. Tenant agrees to pay any increase in premiums for
fire and extended coverage insurance that may be charged during the term of this
Lease on the amount of such insurance which may be carried by Lessor on the
leased premises or the building of which they are a part, resulting from the
type of merchandise sold, or the type of business activity conducted by Tenant
in the leased premises, whether or not Lessor has consented to the same. In
determining whether increased premiums are the result of Tenant's use of the
leased premises, a schedule, issued by the organization setting the insurance
rate on the leased premises, showing the various components of such rate, shall
be conclusive evidence of the several items and charges which make up the fire
and extended coverage insurance rate on the leased premises.
In the event Tenant's occupancy causes an increase of premium for the
fire, boiler and/or casualty rates on the leased premises, or any part thereof,
above the rate for the least hazardous type of occupancy legally permitted in
the leased premises, the Tenant shall pay the additional premium on the fire,
boiler and/or casualty insurance policies by reason thereof. The Tenant also
shall pay in such event, any additional premium on the rent insurance policy
that may be carried by the Lessor for its protection against loss through fire.
Bills for such additional premiums shall be rendered by Lessor to Tenant at such
times as Lessor may elect and shall be due from, and payable by Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid as,
additional rent.
SECTION 11.03. Indemnification of Lessor
Tenant hereby indemnifies Lessor and Lessor's beneficiaries and saves
them harmless from and against any and all claims, actions, damages, liability
and expense in connection with loss of life, personal injury and/or damage to
property arising from or out of any occurrence in, upon or at the leased
premises, or the occupancy or use by Tenant of the leased premises or any part
thereof, or occasioned wholly or in part by any act or omission of Tenant, its
agents, contractors, employees, servants, lessees or concessionaires. In case
Lessor and/or its beneficiaries shall, without fault on their part, be made
parties to any litigation commenced by or against Tenant, then Tenant shall
protect and hold Lessor and Lessor's beneficiaries harmless and shall pay all
costs, expenses and reasonable attorney's fees incurred or paid by Lessor and
Lessor's beneficiaries in connection with such litigation. Tenant shall also pay
all costs, expenses and attorney's fees that may be incurred or paid by Lessor
and Lessor's beneficiaries in enforcing the covenants and agreements in this
Lease.
(14)
<PAGE> 15
SECTION 11.04. Plate Glass
At all times during the term of this Lease. Tenant, at Tenant's cost
and expense, shall be responsible for the replacement of all plate in the event
same cracks or brakes. Tenant shall replace any such cracked or broken plate
glass within five (5) days after such an occurrence.
SECTION 11.05. Waiver of Subrogation
Lessor and Tenant hereby release each other, their respective agents,
servants or employees or anyone claiming by, through or under then from any and
all liability whatsoever caused by or resulting from fire or other casualty for
which insurance (permitting waiver of liability and containing a waiver of
subrogation) is carried by the injured party at the time of such injury,
regardless of the cause of such loss or injury, even if it results from some act
or negligence of a party hereto, its agents, servants or employees; provided,
however, that this provision shall be inapplicable if it shall have the effect
of invalidating the insurance coverage of a party hereto. Nothing contained
herein shall relieve Lessor or Tenant of their other obligations described
elsewhere in this Lease.
SECTION 11.06. Environmental Restrictions
During the entire term hereof Tenant agrees not to use or permit the
use of the leased premises for any activities involving, directly or indirectly,
the use, generation, treatment, storage or disposal of any hazardous or toxic
chemical, material, substance or waste, and Tenant shall indemnify and hold
Lessor and Lessor's mortgagees (lenders) harmless from any and all costs,
expenses, losses, actions, suits, claims, judgments, and any other liability
whatsoever in connection with a breach by Tenant of any federal, state or local
environmental protection laws and/or regulations. It is understood by Lessor
that Tenant shall have the right to store within the leased premises minimal
amounts of diesel fuel for purposes of operating the backup generator. Tenant
shall take all necessary measures to store said diesel fuel in a safe manner.
ARTICLE XII
UTILITIES
SECTION 12.01. Utility Charges
Tenant shall be solely responsible for and promptly pay all charges for
heat, gas, electricity, water or any other utility used or consumed in the
leased premises. Should Lessor elect to supply the water, gas, heat, electricity
or any other utility used or consumed in the leased premises, Tenant agrees to
purchase and pay for the same as additional rent at the applicable rate filed by
the Lessor with the proper regulatory authority. In no event shall Lessor be
liable for an interruption or failure in the supply of any such utilities to the
leased premises.
(15)
<PAGE> 16
ARTICLE XIII
OFFSET STATEMENT, ATTORNMENT AND SUBORDINATION
SECTION 13.01. Offset Statement
Within seven (7) days after request therefor by Lessor, or in the event
that upon any sale, assignment or hypothecation of the leased premises, the
Center and/or the land thereunder by Lessor, an offset statement shall be
required from Tenant, Tenant agrees to deliver, in recordable form, a
certificate to any proposed purchaser or mortgagee, or to Lessor, certifying (if
such be the case) that this Lease is in full force and effect, and that there
are no defenses or offsets thereto.
SECTION 13.02. Attornment
Tenant shall, in the event any proceedings are brought for the
foreclosure of, or in the event of the exercise of the power of sale under any
mortgage made by Lessor covering the leased premises, attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Lessor
under this Lease. In the event that Tenant is requested to provide an attornment
letter, such attornment letter shall provide that the tenancy, created herein
shall be recognized so long as Tenant is not in default under this Lease.
SECTION 13.03. Subordination
Within seven (7) days after request of the Lessor, Tenant shall
subordinate its rights hereunder to the lien of any mortgage or mortgages, or
the lien resulting from any other method of financing or refinancing, now or
hereafter in force against the land, Center and/or the building of which the
leased premises are a part, or against any building(s) hereafter placed upon the
land of which the leased premises are a part, and to all advances made or
hereafter to be made upon the security thereof.
SECTION 13.04. Attorney in Fact
The Tenant, within seven (7) days after request of any party in
interest, shall execute promptly such instruments or certificates to carry out
the intent of Sections 13.02 and 13.03 above, as shall be requested by Lessor.
SECTION 13.05. Financial Statements
The Tenant, within seven (7) days after request from Lessor, shall
provide Lessor with a current copy (no older than three months) of Tenant's
financial statements, with said statements being certified by Tenant as being
true and correct.
(16)
<PAGE> 17
ARTICLE XIV
ASSIGNMENT AND SUBLETTING
SECTION 14.01. Consent Required
Tenant shall not assign this Lease, in whole or in part, nor sublet all
or any part of the leased premises, without the prior written consent of the
Lessor in each instance. The consent by Lessor to any assignment or subletting
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. This prohibition against assigning or
subletting shall be construed to include a prohibition against any assignment or
subletting by operation of law. If this Lease be assigned, or if the leased
premises or any part thereof be underlet or occupied by anybody other than
Tenant, Lessor may collect rent from such assignee, under-tenant or occupant,
and apply the net amount collected to the rents herein reserved, but no such
assignment, underletting, occupancy or collection shall be deemed a waiver of
this covenant. or the assignee, under-tenant or occupant as tenant, or a release
of Tenant from the further performance by Tenant of covenants on the part of
Tenant herein to be performed. Notwithstanding any assignment or sublease,
Tenant shall remain fully liable on this Lease and shall not be released from
performing any of the terms, covenants and conditions of this Lease. In the
event this Lease is assigned or sublet by Tenant, in whole or in part, without
the prior written consent of Lessor, Lessor may terminate this Lease upon thirty
(30) days notice of such termination, without incurring any liability on account
thereof, and the term hereby granted is expressly limited accordingly.
SECTION 14.02. Corporate Ownership
If at any time during the term of this Lease any part or all of the
corporate shares of Tenant shall be transferred by sale, assignment, operation
of law or other disposition, so as to result in a change in the present
effective voting control of Tenant by the person or persons owning a majority of
said corporate shares as of the date of this Lease, then Lessor may terminate
this Lease at any time after such change in control by giving Tenant thirty (30)
days prior written notice of such termination, without incurring any liability
on account thereof, and the term hereby granted is expressly limited
accordingly.
ARTICLE XV
WASTE AND GOVERNMENTAL REGULATIONS
SECTION 15.01. Waste or Nuisance
Tenant shall not commit or suffer to be committed any waste upon the
leased premises or any nuisance or other act or thing which may disturb the
quiet enjoyment of any other tenant or occupant in the building in which the
leased premises may be located, or in the Center, or which may disturb the quiet
enjoyment of any person within the Center.
(17)
<PAGE> 18
SECTION 15.02. Governmental Regulations
Tenant shall, at Tenant's sole cost and expense, comply with all of the
requirements of all federal, state, county, municipal and other applicable
governmental authorities, now in force, or which may hereafter be in force,
pertaining to the said leased premises, and shall faithfully observe in the use
of the leased premises all federal and state statutes, and county and municipal
ordinances now in force or which may hereafter be in force.
ARTICLE XVI
ADVERTISING
SECTION 16.01. Change of Name
Tenant agrees not to change the advertised name of the business
operated in the leased premises without the prior written consent of Lessor.
SECTION 16.02. Solicitation of Business
Tenant and Tenant's employees and agents shall not solicit business in
the parking lot or other common areas or facilities, nor shall Tenant distribute
any handbills or other advertising matter in or on automobiles parked in the
parking area or in other common areas or facilities.
ARTICLE XVII
DESTRUCTION OF LEASED PREMISES
SECTION 17.01. Total or Partial Destruction
If the leased premises shall be damaged by fire, the elements,
unavoidable accident or other casualty, but are not thereby rendered
untenantable in whole or in part, Lessor shall at its own expense cause such
damage to be repaired, and the rent shall not be abated. If by reason of such
occurrence the leased premises shall be rendered untenantable only in part,
Lessor shall at its own expense cause the damage to be repaired, and the fixed
minimum rent meanwhile shall be abated proportionately as to the portion of the
leased premises rendered untenantable. If the leased premises shall be rendered
wholly untenantable by reason of such occurrence, the Lessor shall at its own
expense cause such damage to be repaired, and the fixed minimum rent meanwhile
shall abate until the leased premises have been restored and rendered
tenantable, or Lessor may a its election terminate this Lease and the tenancy
hereby created by giving to Tenant within fifteen (15) days following the date
of said occurrence, written notice of Lessor's election so to do and in the
event of such termination, the rent shall be adjusted as of the date of the
occurrence. In the event that the restoration work shall exceed sixty (60) days,
then either party shall have the right to terminate this Lease at any time after
the expiration of the sixty (60) day period, but prior to the time that the
leased premises are restored.
(18)
<PAGE> 19
SECTION 17.02. Partial Destruction of Center
In the event that fifty percent (50%) or more of the leaseable area of
the Center shall be damaged or destroyed by fire or other cause, notwithstanding
that the leased premises may be unaffected by such fire or other cause, Lessor
may terminate this Lease and the tenancy hereby created by giving to Tenant
fifteen (15) days prior written notice of Lessor's election so to do, which
notice shall be given, if at all, within the fifteen (15) days following the
date of said occurrence. Rent shall be adjusted as of the date of such
termination. In the event that the restoration work shall exceed sixty (60)
days, then either party shall have the right to terminate this Lease at any time
after the expiration of the sixty (60) day period, but prior to the time that
the leased premises are restored.
ARTICLE XVIII
EMINENT DOMAIN
SECTION 18.01. Total Condemnation of Leased Premises
If the whole of the leased premises shall be acquired or condemned by
eminent domain for any public or quasi-public use or purpose, then the term of
this Lease shall cease and terminate as of the date of title vesting in such
proceeding and all rentals shall be paid up to that date and Tenant shall have
no claim against Lessor nor the condemning authority for the value of any
portion of the unexpired term of this Lease.
SECTION 18.02. Partial Condemnation
If any part of the leased premises shall be acquired or condemned as
aforesaid, and in the event that such partial taking or condemnation shall
render the leased premises unsuitable for the business of the Tenant, then. the
term of this Lease shall cease and terminate as of the date of title vesting in
such proceeding. Tenant shall have no claim against the Lessor nor the
condemning authority for the value of the unexpired term of this Lease and rent
shall be adjusted to the date of such termination. In the event of a partial
taking or condemnation which is not extensive enough to render the leased
premises unsuitable for the business of Tenant, then Lessor shall promptly
restore the lease premises to a condition comparable to its condition at the
time of such condemnation, less the portion lost in the taking, and this Lease
shall continue in full force and effect without any reduction or statement of
rent.
SECTION 18.03. Lessor's Damages
In the event of any condemnation or taking as aforesaid, whether whole
or partial, the, Tenant shall not be entitled to any part of the award paid for
such condemnation and Lessor is to receive the full amount of such award, the
Tenant hereby expressly waiving all rights or claims to any part thereof.
(19)
<PAGE> 20
SECTION 18.04. Tenant's Damages
Tenant shall have the right to claim and recover from the condemning
authority, but not from Lessor, such compensation as may be separately awarded
or recoverable by Tenant in Tenant's own right on account of any and all damage
to Tenant's business by reason of the condemnation and, for, or on account of
any cost or loss to which Tenant might be put in removing Tenant's merchandise,
furniture, fixtures, leasehold improvements and equipment, and for its loss of
its leasehold interest under this Lease.
SECTION 18.05. Condemnation of Less Than a Fee
In the event of a condemnation of a leasehold interest in all or a
portion of the leased premises, without the condemnation of the fee simple title
also. this Lease shall not terminate and such condemnation shall no excuse
Tenant from full performance of all its covenants hereunder, but Tenant in such
event shall be entitled to present or pursue the condemning authority its claim
for and to receive all compensation or damages sustained by it by reason of such
condemnation; it being understood, however, that during such times as Tenant
shall be out of possession of the leased premises by reason of such
condemnation, this Lease shall not be subject to forfeiture for failure to
observe and perform those covenants not calling for the payment of money. In the
event the condemning authority shall fail to keep the leased premises in the
state of repair required hereunder, or to perform any other covenant not calling
for the payment of money, Tenant shall have ninety (90) days after the
restoration of possession to it within which to carry out its obligations under
such covenant or covenants. During such time as Tenant shall be out of
possession of the leased premises by reason of such leasehold condemnation,
Tenant shall pay to Lessor, all the minimum and additional rents provided for
hereunder, in addition to any other payments required of Tenant hereunder, for
the period from the commencement of the term until the condemning authority
shall take possession. At any time after such condemnation proceedings are
commenced, Lessor shall have the right, at its option, to require Tenant to
assign to Lessor all compensation and damages payable by the condemnor to
Tenant, to be held without liability for interest thereon, as security for the
full and faithful performance of Tenant's covenants hereunder; such compensation
and damages received pursuant to said assignment to be applied first to the
payment of rents aid all other sums from time to time payable by Tenant pursuant
to the terms this Lease, as such sums fall due, and the remainder, if any, to be
payable to Tenant at the end of the term hereof or upon restoration of
possession to Tenant.
ARTICLE XIX
DEFAULT OF THE TENANT
SECTION 19.01. Right to Re-Enter
In the event of any failure of Tenant to pay any rental due hereunder
within five (5) days after the same shall be due or any failure to perform
(20)
<PAGE> 21
any other of the terms, conditions or covenants of this Lease to be observed or
performed by Tenant for more than twenty (20) days (if the breach is of the
nature that may require a period of tine in excess of twenty (20) days, then
Tenant shall be allowed such additional time as shall be reasonably acceptable
to Lessor for Tenant to cure such breach; provided, however, that Tenant shall
diligently commence curing any such breach after notification from Lessor) after
written notice of such default shall have been given to Tenant, or if Tenant or
an agent of Tenant had falsified or shall falsify any report or statement
required to be furnished to Lessor pursuant to the terms of this Lease. or if
Tenant or any guarantor of this Lease shall become bankrupt or insolvent, or
file any debtor proceedings or take or have taken any action against Tenant or
any guarantor of this Lease in any court pursuant to any statute, either of the
United States or of any State, a petition in bankruptcy or insolvency, or for
the reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's or any such guarantor's property, or if Tenant or any such
guarantor makes an assignment for the benefit of creditors, or petitions for or
enters into an arrangement, or if Tenant shall abandon said leased premises, or
suffer this Lease to be taken under any writ or execution, then the Lessor,
besides all other rights or remedies it may have, shall have the immediate right
of re-entry and may remove all persons and property from the leased premises and
such property may be removed and stored in a public warehouse or elsewhere at
the cost of, and for the account of Tenant, all without service of notice or
resort to legal process and without being deemed guilty of trespass, or becoming
liable for any loss or damage which may be occasioned thereby.
SECTION 19.02. Right to Relet
Should Lessor elect to re-enter, as herein provided, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided for
by law, it may either terminate this Lease or it may or it may from time to time
without terminating this lease, make such alterations and repairs as may be
necessary in order to relet the premises, and relet said premises or any part
thereof for such term or terms (which may be for a term extending beyond the
term of this lease) and at such rental or rentals and upon such other terms and
conditions as Lessor from such reletting shall be applied, first, to the payment
of any indebtedness other than rent due hereunder from Tenant to Lessor, second,
to the payment of any costs and expenses of such reletting, including brokerage
fees and attorney's fees and of costs of such alterations and repairs, third, to
the payment of rent due and unpaid hereunder, and the residue, if any, shall be
held by Lessor and applied in payment of future rent as the same may become due
and payable hereunder. If such rentals received from such reletting during the
month be less than that to be paid during that month by Tenant hereunder. Tenant
shall pay any such deficiency to Lessor. Such deficiency shall be calculated and
paid monthly. No such re-entry or taking possession of said premises by Lessor
shall be construed as an election on its part to terminate this lease unless a
written notice of such intention be given to Tenant or unless the termination
thereof be decreed by a court of competent jurisdiction. Notwithstanding any
such reletting without termination, Lessor may at the time thereafter elect to
terminate this lease for such previous breach, in addition to any other remedies
it may have, it may recover from Tenant all damages it may incur by
(21)
<PAGE> 22
reason of such breach, including, the cost of recovering the leased premises,
reasonable attorney's fees, and including the worth at the time of such
termination of the excess, if any, of the amount of rent and charges equivalent
to rent reserved in this Lease for the remainder of the stated term over the
then reasonable rental value of the leased premises for the remainder of the
stated term, all of which amounts shall be immediately due and payable from
Tenant to Lessor.
SECTION 19.03. Legal Expenses
In case suit shall be brought for recovery of possession of the leased
premises, for the recovery of rent or any other amount due under the provisions
of this Lease, or because of the breach of any other covenant herein contained
on the part of a party herein to be kept or performed, and a breach shall be
established, the losing party shall pay to the prevailing party all expenses
incurred therefor, including not by way of limitation a reasonable attorney's
fee, and a reasonable accountant's fee.
SECTION 19.04. Waiver of Jury Trial and Counterclaim
The parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Lessor and Tenant, Tenant's use
or occupancy of the leased premises, and/or any claim of injury or damage.
SECTION 19.05. Waiver of Rights of Redemption
Tenant hereby expressly waives any and all rights of redemption granted
by or under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Lessor obtaining possession of
the leased premises, by reason of the violation by Tenant of any of the
covenants or conditions of this Lease, or otherwise.
ARTICLE XX
ACCESS BY OWNER
SECTION 20.1. Right of Entry
Lessor or Lessor's beneficiaries or their agents shall have the right
to enter the leased premises, at reasonable hours and upon forty eight (48)
hours prior notice, unless in an emergency where no notice shall be given to
examine the same, and to make such repairs, alterations, improvements or
additions as Lessor and beneficiaries may deem necessary or desirable, and
Lessors and beneficiaries shall be allowed to take all material into and upon
said premises, that may be required therefor. During the six months prior to the
expiration of the term of this Lease or any renewal term, Lessor or Lessor's
beneficiaries may exhibit the premises to prospective tenants or purchasers, and
place upon the premises the usual notices "To Let" or "For Sale" which notices
Tenant shall permit to remain thereon without
(22)
<PAGE> 23
molestation. If Tenant shall not be personally present to open and permit an
entry into said premises, at any time, when for any reason an entry therein
shall be necessary or permissible, Lessor or Lessor's beneficiaries or their
agents may enter the same by a master key, or may forcibly enter the same,
without rendering Lessor or Lessor's beneficiaries or such agents liable
therefor and without in any manner affecting the obligations and covenants of
this Lease. Nothing herein contained, however, shall be deemed or construed to
impose upon Lessor or Lessor's beneficiaries any obligation, responsibility or
liability whatsoever, for the care, maintenance or repair of the building or any
part thereof, except as otherwise herein specifically provided. When possible,
Lessor shall provide Tenant with notice of Lessor's intention to enter the
leased premises in order that Tenant may be present.
SECTION 20.02. Excavation
If an excavation shall be made upon land adjacent to the leased
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon. The
leased premises for the purpose of doing such work as Lessor shall deem
necessary to preserve the wall or the building of which the leased premises form
a part from injury or damage and to support the same by proper foundations,
without any claim for damages or indemnification against Lessor or diminution or
abatement of rent; provided, however, that the terms, provisions and conditions
contained in this Section 20.02 shall not limit Tenant's ability to pursue any
other parties who may have caused Tenant to incur damages as a result of any
such excavation.
ARTICLE XXI
TENANT'S PROPERTY
SECTION 21.01. Taxes on Leasehold
Tenant shall be responsible for and shall pay before delinquency all
municipal, county or state taxes assessed during the term of this Lease against
any leasehold interest or personal property of any kind, owned by or placed in,
upon or about the leased premises by the Tenant.
SECTION 21.02. Loss and Damage
Except for the negligence of Lessor or Lessor's beneficiary, Lessor and
Lessor's beneficiaries shall not be responsible for any damage to property of
Tenant or of others located on the leased premises, nor for the loss of or
damage to any property of Tenant or of others by theft or otherwise. Except for
the negligence of Lessor or Lessor's beneficiary, Lessor and Lessor's
beneficiaries shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow or leaks from any part of the leased premises
or from the pipes, appliances or plumbing works or from the roof, street or
sub-surface or from any other place or by dampness or by any other cause of
whatsoever nature. Lessor and Lessor's beneficiaries shall not be liable for any
such damage caused by other tenants or persons in the leased
(23)
<PAGE> 24
premises, occupants of adjacent property, of the Center, or the public, or
caused by operations in construction of any private, public or quasi-public
work. Lessor and Lessor's beneficiaries shall not be liable for any latent
defect in the leased premises or in the building of which they form a part. All
property of Tenant kept or stored on the leased premises shall be so kept or
stored at the risk of Tenant only and Tenant shall hold Lessor and Lessor's
beneficiaries harmless from any claims arising out of damage to the same,
including subrogation claims by Tenant's insurance carrier, unless such damage
shall be caused by the willful act or gross neglect of Lessor and Lessor's
beneficiaries.
SECTION 21.03. Notice by Tenant
Tenant shall give immediate notice to Lessor in case of fire or
accidents in the leased premises or in the building of which the premises are a
part of, or defects therein, or in any fixtures or equipment.
ARTICLE XXII
HOLDING OVER, SUCCESSORS
SECTION 22.01. Holding Over
Any holding over after the expiration of the term hereof, if with or
without the consent of the Lessor, shall be construed to be a tenancy from month
to month at double the rents herein specified (pro-rated on a monthly basis) and
shall otherwise be on the terms and conditions herein specified so far as
applicable. In the event of said holding over, Tenant agrees to save whole and
hold harmless and indemnify Lessor for any damages and costs suffered because of
said holding over.
SECTION 22.02. Successors
All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the several respective heirs,
executors, administrators, successors, and assigns of the said parties, and if
there shall be more than one tenant, they shall all be bound jointly and
severally by the terms, covenants and agreements herein. No rights, however,
shall insure to the benefit of any assignee of .tenant unless the assignment to
such assignee has been approved by Lessor in writing as provided in Section
14.01 hereof.
ARTICLE XXIII
QUIET ENJOYMENT
SECTION 23.01. Lessor's Covenant
Upon payment by the Tenant of the rents herein provided, and upon the
observance and performance of all the covenants, terms, and conditions on
Tenant's part to be observed and performed, Tenant shall peaceably and quietly
hold and enjoy the leased premises for the term hereby demised
(24)
<PAGE> 25
without hindrance or interruption by Lessor or any other person or persons
lawfully or equitably claiming by, through or under the Lessor, subject,
nevertheless, to the terms and conditions of this lease.
ARTICLE XIX
MISCELLANEOUS
SECTION 24.01. Waiver
The waiver by Lessor of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Lessor shall not be deemed to be a waiver of any proceeding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rental so accepted, regardless of Lessor's knowledge of
such proceeding breach at the time of acceptance of such rent. No covenant, term
or condition of this Lease shall be deemed to have been waived by Lessor, unless
such waiver be in writing by Lessor.
SECTION 24.02. Accord and Satisfaction
No payment by Tenant or receipt by Lessor of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement on. any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Lessor may accept such check or payment without
prejudice to Lessor's right to recover the balance of such rent or pursue any
other remedy in this lease provided.
SECTION 24.03. Entire Agreement
This Lease and the Exhibits, and Rider, if any, attached hereto and
forming a part hereof, set forth all the covenants, promises, agreements,
conditions and understandings between beneficiaries and Tenant concerning the
leased premises and there are no covenants, promises, agreements, conditions or
understandings, either oral or written, between them other than are herein set
forth. Except as herein otherwise provided, no subsequent alteration, amendment,
change or addition to this Lease shall be binding upon Lessor or Tenant unless
reduced to writing and signed by them.
SECTION 24.04. No. Partnership
Lessor does not, in any way or for any purpose, become a partner of
Tenant in the conduct of its business, or otherwise, or joint venturer or a
member of a joint enterprise with Tenant. The provisions of this Lease relating
to the percentage rent, if any, payable hereunder are included solely for the
purpose of providing a method whereby the rent is to be measured and
ascertained.
(25)
<PAGE> 26
SECTION 24.05. Force Majeure
In the event that Lessor hereto shall be delayed or hindered in or
prevented from the performance of any act required hereunder, by reason of
strikes, acts of God, lock-outs, labor troubles, inability to procure materials.
material shortage, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war or other reason of alike nature, then
performance of such act shall be excused for the period of the delay and the
period for the performance of any such act shall be extended for a period
equivalent to the period of such delay. The provisions of this Section 24.05.
shall not operate to excuse Tenant from prompt payment of rent, additional rent
or any other payments required by the terms of this Lease.
SECTION 24.06. Notices
Any notice, demand, request or other instrument which may be or are
required to be given under this Lease shall be delivered in person or sent by
United States certified mail postage prepaid and shall be addressed (a) if to
Lessor at c/o Robert L. Kozonis, 2130 South Wolf Road, Des Plaines, Illinois
60018, or at such other address as Lessor may designate by written notice and
(b) if to Tenant, at the leased premises or at such other address as Tenant
shall designate by written notice. The date of mailing shall constitute the date
of service.
SECTION 24.07. Captions and Section Numbers
The captions, section numbers, article numbers, and index appearing in
this Lease are inserted only as a matter of convenience and in no way define,
limit, construe, or describe the scope or intent of such sections or articles of
this Lease nor in any way affect this lease.
SECTION 24.08. Tenant Defined, Use of Pronoun
The word "Tenant" shall be deemed and taken to mean each and every
person or party mentioned as Tenant herein, be the same one or more, and if
there shall be more than one Tenant, any notice required or permitted by the
terms of this Lease may be given by or to any one thereof, and shall have the
same force and effect as if given by or to all thereof. The use of the neuter
singular pronoun to refer to Lessor or Tenant shall be deemed a proper reference
even though Lessor or Tenant may be an individual, a partnership, a corporation,
or a group of two or more individuals or corporations. The necessary grammatical
changes required to make the provisions of this Lease apply in the plural sense
where there is more than one Lessor or Tenant and to either corporations,
associations, partnerships, or individuals, males or females, shall in all
instances be assumed as though in each case fully expressed.
SECTION 24.09. Broker's Commission
Each of the parties represents and warrants that there are no claims for
brokerage commissions or finder's fees in connection with the execution of
(26)
<PAGE> 27
this Lease, except as listed below, and each of the parties agrees to indemnify
the other against, and hold it harmless from, all liabilities arising from any
such claim (including, without limitation, the cost of counsel fees in
connection therewith) except as follows:
None
SECTION 24.10. Partial Invalidity
If any term covenant or condition of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
term, covenant or condition of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
SECTION 24.11. No Option
The submission of this Lease for examination does not constitute a
reservation of or option for the leased premises and this Lease becomes
effective as a Lease only upon execution and delivery thereof by Lessor and
Tenant.
SECTION 24.12. Recording
Tenant shall not record this Lease without the written consent of
Lessor, however, upon the request of either party hereto the other party shall
join in the execution of a memorandum or so-called "short Form" of this Lease
for the purposes of recordation. Said memorandum or short form of this Lease
shall describe the parties, the leased premises and the term of this Lease and
shall incorporate this Lease by reference.
SECTION 24.13. Relocation of Tenant
(THIS SPACE LEFT BLANK INTENTIONALLY)
SECTION 24.14. Lessor's Consent
Wherever in this Lease Lessor's consent or permission is required, such
consent or permission shall not be unreasonably withheld.
SECTION 24.15. Execution of Lease by Trustee
It is expressly understood and agreed by and between the parties
hereto, anything herein to the contrary notwithstanding, that each and all of
the representations, covenants, undertakings and agreements herein made on the
(27)
<PAGE> 28
part of Lessor while in form purporting (except as herein otherwise expressed)
to be the representations, covenants, undertakings and agreements of Lessor are
nevertheless each and every one of them, made and intended not as personal
representations, covenants, undertakings and agreements by Lesser or for the
purpose or with the intention of binding said Lessor personally but are made and
intended for the purpose of binding only that portion of the trust property
specifically leased hereunder, and this Lease is executed and delivered by said
Lessor not in its own right, but solely in the exercise of the powers conferred
upon it as such Trustee; that no duty shall rest upon Lessor to sequester the
trust estate or the rents, issues and profits arising therefrom, or the proceeds
or personal responsibility is assumed by nor shall at any time be asserted or
enforceable against the Lessor or any of the beneficiaries under said Trust
Agreement, on account of this Lease or on account of any representation,
covenant, undertaking or agreement of the said Lessor in this Lease contained,
either expressed or implied all such personal liability, if any, being expressly
waived and released by the Tenant herein and by all persons claiming by/through
or under said Tenant.
ARTICLE XXV
USE RESTRICTIONS AND PROHIBITIONS
SECTION 25.01. Usage and Restrictions
Tenant shall use the leased premises solely for purpose of conducting
the business of a general office and security monitoring services (which may
include the leasing of equipment owned by Tenant for off-site use by third
parties), and Tenant agrees to use the premises for no other purpose or use
whatsoever. Tenant further agrees not to stock or sell any other types of
products or goods at retail level, or to lease or rent any such products or
goods.
SECTION 25.02. Express Prohibitions
(a) During the term of this Lease and any extension hereof Tenant
promises and agrees not to conduct any other business other than the usage
provided for in Section 25.01.
(b) Tenant acknowledges and has been informed by Lessor that a
violation by Tenant of the prohibitions of Section 25.02 (a), shall cause Lessor
to be in a material breach and violation in other leases with tenants of the
Center, and Lessor shall suffer economic injury, and offset, and abatement to
rents, and loss of rents, as a result of any violation by Tenant of such
prohibitions. In the event Lessor discovers or is informed by any tenant of the
Center that Tenant is violating the prohibitions contained in Section 25.02 (a),
then Tenant shall immediately cease any conduct that in Lessor's opinion,
constitutes a violation of the prohibitions contained in Section 25.02 (a),
Tenant further does hereby agree, covenant, promise and warrant to fully and
forever save, indemnify, hold harmless, and defend Lessor and Lessor's
successors and assigns of and from all manner of claims,
(28)
<PAGE> 29
causes, causes of action, damages, costs, liabilities, and expanse (including
all attorneys fees and court costs), offsets and abatements In rents, and any
other loss of rents arising out of or in any manner connected with Tenant's
violation of the prohibitions contained in Section 25.02(a).
ARTICLE XXVI
OPTION TO EXTEND
SECTION 26.01. Option Term
Provided that Tenant is not then in default under any of the terms and
provisions of this Lease, including, but not limited to all payments of fixed
minimum rent and all payments of additional rent, Tenant shall have the option
to extend the terms and provisions of this Lease for an additional five (5) year
term ("Option Term"). Said Option Term shall commence immediately following the
last month of the Lease Term and shall continue for sixty (60) consecutive
months thereafter. Tenant's option herein must be exercised in writing to Lessor
no later than one hundred eighty (180) days prior to the expiration of the tenth
(10th) Lease Year of the Lease Term. The fixed minimum rent to be paid by Tenant
to Lessor during the Option Term shall be determined pursuant to the terms and
provisions set forth in Section 26.02 below.
SECTION 26.02. Option Term Fixed Minimum Rent
Within twenty (20) days after Tenant notifies Lessor pursuant to
Section 26.01 above, each party hereto shall select an appraiser (who shall be a
member of the American Institute of Real Estate Appraisers or other comparable
professional appraisal society). The two (2) appraisers so selected shall
proceed to promptly determine the fair market rent to be paid by Tenant for the
leased premises during the Option Term. The two (2) appraisers shall deliver
their written reports to both parties no later than forty five (45) days after
Tenant's notice pursuant to Section 26.01. The determination of such fair market
rent by the two (2) appraisers, selected as hereinabove provided, shall be final
and binding upon both parties; and if the two (2) appraisers so selected are
unable to agree upon such a fair market rent, said two (2) appraisers shall
select a third appraiser (who shall also be a member of the American Institute
of Real Estate Appraisers or other comparable professional appraisal society)
whose determination as to such fair market rent shall be averaged with the
appraisals of the other two (2) appraisers, and the average of the three (3)
appraisals shall be conclusive evidence as to such fair market rent and shall be
final and binding upon both parties. Each party shall pay the fee and expense of
the appraiser, selected by such party, and, if a third appraiser is selected,
the fee of the third appraiser shall be borne equally between the parties
hereto. Fixed minimum rent during the Option Term shall be paid in monthly
installments, in advance upon the first day of each month, without any prior
demand therefor and without any deduction or set-off whatsoever. Notwithstanding
any provision contained herein to the contrary, at no time shall the fixed
minimum rent during the Option Term decrease or be less than the fixed minimum
rent paid during the last Lease Year of the Lease Term.
(29)
<PAGE> 30
SECTION 26.03. Option Term Additional Rents
During the Option Term, Tenant shall also be liable and pay for all
additional rents for taxes pursuant to Article II and for the Center's operating
costs pursuant to Article VIII of this Lease.
ARTICLE XXVII
GARBAGE AND REFUSE REMOVAL
In the interests of providing consistent and contemporaneous removal of
garbage and refuse of the tenants of the Center, Lessor shall have the right, at
all times during the Lease Term and Option Term, to cause Tenant to have its
garbage and refuse removed by a party of Lessor's choice. Tenant shall pay such
portion of the cost of trash and rubbish removal as Lessor shall reasonably
attribute to Tenant.
IN WITNESS WHEREOF, Lessor and Tenant have signed and sealed this lease
as of the day and year first above written.
SEE ATTACHED RIDER MADE A PART HEREOF CONTAINING TRUSTEES EXONERATION
CLAUSE.
TENANT: LESSOR: PARKWAY BANK AND TRUST COMPANY, not
personally but as Trustee under the
provisions of a Trust Agreement
dated the 16th day of July, 1988
and known as Trust Number 8934.
ALL SECURITY PRODUCTS & SERVICES, INC.
BY: /s/ SHIRLEY A. HOVEN BY: /s/ ROSANNE DILLANS
---------------------------- --------------------------------------
ITS: PRESIDENT ITS: ASST. VICE PRESIDENT & TRUST OFFICER
-------------------------- -------------------------------------
The Trustee in executing this document SPECIFICALLY EXCLUDES Paragraph * of this
document as though it did not exist thereon relative to the Trustees execution
hereof and SPECIFICALLY EXCLUDES all references. to any environmental condition
of the premises whether under the ILLINOIS ENVIRONMENTAL PROTECTION ACT or
otherwise. The Beneficiary of this Trust, as management and control of the
premises and as such, has the authority on its/their own behalf to execute as
environmental representative but not as agent. for or on behalf of the Trustee.
PARKWAY BANK AND TRUST COMPANY, as Trustee.
*Page 15 Section 11.06
Page 17 Section 15.01
Page 18 Section 15.02
(30)
<PAGE> 1
EXHIBIT 10.57
LEASE ASSIGNMENT, CONSENT, GUARANTY AND RELEASE
This Agreement is made this 2nd day of November, 1995 and is entered into
by and between Parkway Bank and Trust Company, as Trustee under the provisions
of a Trust Agreement dated the 16th day of July, 1988 and known as Trust Number
8934 (hereinafter referred to as "Lessor"), S. Ann Hoven Enterprises, Inc.
(formerly, All Security Products & Services, Inc.), an Illinois corporation
(hereinafter referred to as "Assignor"), Shirley A. Hoven (hereinafter referred
to as "Hoven"), MSG Security, L.L.C., an Illinois limited liability company
(hereinafter referred to as "Assignee"), and Security Associates Command Center
II, L.L.C. (hereinafter referred to as "SACC").
WITNESSETH:
WHEREAS, Lessor and Assignor entered into that certain lease (hereinafter
referred to as "Lease") dated May 10, 1990 for the lease of 2114, 2116 and 2118
South Wolf Road, Des Plaines, Illinois 60018 (hereinafter referred to as
"Assigned Premises"), which Premises are located in the O'Hare Corporate Run
Center. A true and correct copy of the Lease is attached hereto as Exhibit A;
WHEREAS, Tenant's obligations under the Lease are guaranteed by Hoven;
WHEREAS, Assignor desires to Assign and Assignee desires to acquire
Assignor's interest in and to the Lease and the Assigned Premises upon the same
terms and conditions as are contained in the Lease and as are hereinafter set
forth, effective as of August 24, 1995 (the "Assignment Date"); and
WHEREAS, SACC desires to guaranty the full and faithful performance by
Assignee of all obligations, covenants, promises and agreements under the Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained and of other good and valuable consideration, the parties hereby agree
as follows:
1. ASSIGNMENT BY AND WARRANTIES OF ASSIGNOR. Assignor assigns to Assignee
all of Assignor's right, title and interest in the Lease and the Assigned
Premises, effective as of the Assignment Date. Assignor hereby covenants and
warrants that (a) to the best of Assignor's knowledge, Assignor is not in
default under the Lease nor do any circumstances exist which by lapse of time or
after notice would result in a default under the Lease, (c) Assignor has not
encumbered by any prior transfer, assignment, mortgage or any encumbrance its
interest in the Lease, nor, to the best of Assignor's knowledge has Assignor's
interest in the Lease been encumbered by any prior transfer, assignment,
mortgage or any encumbrance, and (d) Assignor has full and lawful authority to
assign the Lease. The warranties contained in the paragraph are true and correct
as of the date hereof, will be true on the Assignment Date.
<PAGE> 2
2. ASSUMPTION AND ACCEPTANCE. Assignee assumes and agrees to perform each
and every duty and obligation of Assignor under the Lease with respect to the
Assigned Premises, effective as of the Assignment Date.
3. LIABILITY. Through and including the Assignment Date, Assignor shall
remain liable for the performance and observance of the covenants and conditions
contained in the Lease to be performed and observed. Assignor shall be released
for the performance and observance of the covenants and conditions contained in
the Lease to be performed and observed after the Assignment Date.
4. LIABILITY AND RELEASE OF HOVEN. Hoven shall remain liable under the
Guaranty (the "Guaranty") attached to the Lease and executed by Hoven
concurrently with the execution of the Lease by Assignor, for all obligations
under the Lease arising through August 24, 1995. Hoven is hereby released from
the Guaranty for all obligations under the Lease arising after August 24, 1995.
5. CONSENT OF LANDLORD. Landlord hereby consents to this Assignment and
certifies to Assignor and Assignee as follows:
A) Lessor owns fee simple title to the Assigned Premises.
B) All rent and other sums or charges due and payable under the Lease have
been paid in full through the Assignment Date, subject to adjustment of
operating expenses and taxes, which are reconciled once a year.
C) All rent and other sums or charges due under the Lease are paid to the
order of Robert L. Kozonis at the following address:
1721 Moon Lake Boulevard
Suite 301
Hoffman Estates, Illinois 60194
D) All notices to Lessor shall be delivered to Robert L. Kozonis at the
following address:
1721 Moon Lake Boulevard
Suite 301
Hoffman Estates, Illinois 60194
E) The undersigned has full power and authority to execute this Assignment
on behalf of the Lessor.
6. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
between the Assignor and Assignee with respect to the Assigned Premises; no
prior written or contemporaneous oral promises or representations shall be
binding.
2
<PAGE> 3
7. COMPLIANCE WITH LAWS. The parties expressly intend that this Assignment
shall comply with all applicable laws, rules and regulations of all applicable
governmental, certification and regulatory authorities. Accordingly, the parties
agree to renegotiate, in good faith, any term, condition or provision of this
Assignment that is determined to be in contravention of any such law, rule or
regulation.
8. NO FURTHER ASSIGNMENT. Any subsequent assignments of Assignee's interest
in the Lease shall be subject to Lessor's prior written approval and consent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
LESSOR: PARKWAY BANK AND TRUST COMPANY,
AS TRUSTEE AS AFORESAID, AND NOT INDIVIDUAL)
BY: /s/ Frank Y. Taggart
-----------------------------
ITS: Vice President Trust Officer
----------------------------
ASSIGNOR: S. ANN HOVEN ENTERPRISES, INC. (FORMERLY
ALL SECURITY PRODUCTS & SERVICES, INC.
BY: /s/ Shirley A. Hoven, Pres.
----------------------------
Shirley A. Hoven
ITS: President
Accepted and Agreed to on this 2nd day of
November, 1995
BY: /s/ Shirley A. Hoven
-----------------------------
Shirley A. Hoven, Individually
ASSIGNEE: MSG SECURITY, L.L.C.
BY: /s/ James S. Brannen
-----------------------------
James S. Brannen
ITS: President of Security Associates
International, Inc., Sole manager
of MSG Security, Inc.
3
<PAGE> 1
EXHIBIT 10.58
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into June 17, 1998,
by and between GHT JOINT VENTURE, as landlord, and TEXAS SECURITY CENTRAL, INC.,
as tenant.
ARTICLE 1
Basic Lease Information
The following basic lease information is part of this Lease, but if any
conflict exists between the basic lease information and any other provisions of
this Lease, the other provisions of this Lease will control.
1.1. Landlord: GHT Joint Venture ("Landlord").
1.2. Landlord's Address: 4432 Walnut Hill Lane, Dallas, Texas 75229.
1.3. Tenant: Texas Security Central, Inc., a Texas corporation ("Tenant").
1.4. Tenant's Address: 9750 Brockbank, Dallas, Texas 75220.
1.5. Lease: This Lease Agreement, including all exhibits and addenda
hereto, as amended or modified from time to time (this "Lease").
1.6. Leased Premises: The front portion of the building (the "Building")
consisting of approximately 6,600 square feet currently occupied by Texas
Security Central, Inc. (the "Leased Premises") and not occupied by Nova Internet
Services, Inc. ("Nova") as of the date hereof commonly known as 9750 Brockbank,
Dallas, Dallas County, Texas 75220, being more particularly described in Exhibit
A. The Leased Premises include all appurtenances, easements, and rights of way
related thereto.
1.7. Lease Term: An initial term of five (5) years beginning on June 17,
1998, and ending on June 16, 2003 (the "Primary Term"), as the same may be
extended in accordance with Section 3.2 (the "Lease Term").
1.8. Option to Extend: Tenant has one (1) option to extend the Primary Term
for a period of five (5) years by giving written notice to Landlord at least six
(6) months prior to the expiration of the Primary Term in accordance with the
provisions of Section 3.2 and Exhibit B.
1.9. Base Rent: Ten Thousand and No/100 Dollars ($10,000.00) per month,
payable in accordance with Section 4.1.
1.10. Permitted Use: Business offices and/or central station for a
monitoring alarm business and related security services.
<PAGE> 2
Section 16.1 contains the definitions of certain capitalized terms used in this
Lease. When used in this Lease, the word "including" shall mean "including
without limitation" and references in this Lease to specific sections refer to
sections of this Lease unless otherwise stated.
ARTICLE 2
Grant of Lease
Subject to and upon the terms, provisions and conditions of this Lease, and
in consideration of the duties, covenants, and obligations of the other set
forth in this Lease, Landlord hereby leases the Leased Premises to Tenant and
Tenant hereby leases the Leased Premises from Landlord for the Lease Term.
ARTICLE 3
Term: Holdover
3.1. Term of Lease. Subject to and upon the terms and conditions set forth
in this Lease, this Lease shall continue in force for the Primary Term. The
Primary Term shall commence on the date specified in Section 1.7 for the
beginning of the Primary Term.
3.2. Option to Extend Term. Tenant shall have one (1) option to extend the
Primary Term for an additional term of five (5) years in accordance with the
provisions of Exhibit B.
3.3. Holding Over. Tenant shall, at the termination of this Lease by lapse
of time or otherwise, surrender immediate possession of the Leased Premises to
Landlord. If Tenant shall fail immediately to surrender possession of the Leased
Premises to Landlord upon termination of this Lease, by lapse of time or
otherwise, Tenant shall pay Landlord as Base Rent for the period of any such
holdover, an amount equal to one and one-half (1-1/2) times the Base Rent in
effect on the termination date, computed on a daily basis for each day of the
holdover period. No holding over by Tenant shall operate to extend this Lease
except as otherwise expressly agreed by the parties in writing. The preceding
provisions of this Section 3.3 shall not be construed as Landlord's consent for
Tenant to hold over.
ARTICLE 4
Rental
4.1. Base Rent. For each month during the Primary Term, Tenant agrees to
pay to Landlord the sum of Ten Thousand and No/100 Dollars ($10,000.00) (the
"Base Rent"). Base Rent shall be payable in advance on the first day of each
calendar month during the Lease Term, commencing on the Commencement Date,
without any prior demand or notice therefor and
2
<PAGE> 3
without any deduction or set off or abatement whatsoever, and as a fixed rent.
Base Rent shall be paid at Landlord's address appearing in Section 16.12. If the
Lease Term commences on a day other than the first day of a calendar month, or
if the Lease Term ends on a day other than the last day of a calendar month, the
Base Rent for such month shall be prorated by multiplying the monthly Base Rent
by a fraction, the numerator of which shall be the number of days of the partial
month included in the Lease Term and the denominator of which shall be the total
number of days in the full calendar month.
4.2. Additional Rent. During the Lease Term Tenant agrees to pay to
Landlord as additional rent hereunder ("Additional Rent") such other sums that
Tenant becomes obligated to pay to Landlord under this Lease, whether or not
designated as Additional Rent. Additional Rent shall be payable as and when
provided in this Lease, without any deduction or set off or abatement
whatsoever. Additional Rent shall be paid at Landlord's address appearing in
Section 16.12.
4.3. Interest. Other remedies for nonpayment of Rental notwithstanding, if
the monthly Base Rent payment is not received by Landlord on or before the tenth
(10th) day of the month for which such Base Rent is due, such past due amount
shall bear interest at the rate of ten percent (10%) per annum from the date
past due until paid.
ARTICLE 5
Taxes
5.1. Real Estate Taxes. Landlord shall promptly pay when due all real
estate taxes and assessments assessed, levied, confirmed or imposed on the
Leased Premises during the Lease Term.
5.2. Personal Property Taxes. Tenant shall be liable for all taxes levied
or assessed against personal property, furniture or fixtures placed by Tenant in
or on the Leased Premises.
ARTICLE 6
Insurance
6.1. Casualty Insurance. Landlord shall, at its expense, obtain and keep in
force insurance coverage for the Building. Tenant shall, at its expense, keep
its equipment, furniture, fixtures, and other personal property insured against
fire and other casualties, and agrees that Landlord, unless Landlord is grossly
negligent with respect to such fire or casualty, shall have no liability or
responsibility with respect to such equipment, furniture, or fixtures and its
other property.
6.2. Liability Insurance. Tenant shall procure and maintain throughout the
Lease Term a policy or policies of commercial general liability insurance, at
Tenant's expense, insuring
3
<PAGE> 4
Tenant and Landlord, as their respective interests may appear, against all
claims, demands or actions arising out of or in connection with (a) the Leased
Premises; (b) the condition of the Leased Premises; (c) Tenant's operations in
and maintenance and use of the Leased Premises; and (d) Tenant's liability
assumed under this Lease. The limits of such policy or policies shall not be
less than One Million and No/100 Dollars ($1,000,000.00) combined single limit
coverage per occurrence for injury to person (including death) and/or property
damage or destruction, including loss of use. Such policy or policies shall be
procured by Tenant from responsible insurance companies reasonably satisfactory
to Landlord. A certificate(s) of such policy, together with receipts for payment
of premiums, shall be delivered to Landlord upon request. All such original and
renewal policies shall provide for at least thirty (30) days' written notice to
Landlord before such policy may be canceled or changed to reduce insurance
coverage provided thereby.
6.3. Waiver of Subrogation. Whenever (a) any loss, cost, damage or expense
resulting from fire, explosion or any other casualty or occurrence is incurred
by either of the parties to this Lease in connection with the Leased Premises,
and (b) such party is then covered (or is required under this Lease to be
covered) in whole or in part by insurance with respect to such loss, cost,
damage or expense, then the party so insured (or required hereunder to be
insured) hereby releases the other party from any liability it may have on
account of such loss, cost, damage or expense to the extent of any amount
coverable by such insurance, and waives any right of subrogation which might
otherwise exist on account thereof, provided that such release of liability and
waiver of the right to subrogation shall not be operative in any case where the
effect thereof is to invalidate such insurance coverage or increase the cost
thereof (provided that in the case of increased cost, the other party shall have
the right, within thirty (30) days following written notice, to pay such
increased costs, thereupon keeping such release and waiver in full force and
effect). Landlord and Tenant agree immediately to give their respective
insurance carriers written notice of this Section and agree to use their
respective best efforts to obtain such a release and waiver of subrogation from
their respective insurance carriers and obtain any special endorsements, if
required by their insurer, to evidence compliance with the aforementioned
waiver.
6.4. Indemnity by Tenant. Except to the extent of injury, death or property
damage caused by the negligence or willful acts or omissions of Landlord or
Landlord's agents, employees, guests, patrons, invitees, or contractors, Tenant
agrees to indemnify and hold harmless Landlord from and against all Claims
arising from any occurrence in, upon, or at the Leased Premises or any part
thereof occasioned by any negligence or willful act or omission of Tenant, or of
Tenant's agents or employees acting within the scope of their employment or
agency relationship with Tenant, or of Tenant's guests, patrons, invitees, or
contractors permitted to be on the Leased Premises by Tenant.
6.5. Indemnity by Landlord. Except to the extent of injury, death or
property damage caused by the negligence or willful acts or omissions of Tenant
or Tenant's agents, employees, guests, patrons, invitees, or contractors,
Landlord agrees to indemnify and hold harmless Tenant from and against all
Claims arising from any occurrence in, upon, or at the Leased Premises or any
part thereof occasioned by any negligence or willful act or omission of
Landlord, or of Landlord's agents or employees acting within the scope of their
employment or agency
4
<PAGE> 5
relationship with Landlord, or of Landlord's guests, patrons, invitees, or
contractors permitted to be on the Leased Premises by Landlord.
ARTICLE 7
Utilities
Tenant shall contract with and pay the appropriate suppliers for all water,
gas, electricity, light, heat, telephone, power, and other utilities and
communications services used by Tenant on the Leased Premises during the Lease
Term.
ARTICLE 8
Repairs and Maintenance
8.1. Repairs and Maintenance by Tenant. During the Lease Term Tenant will,
at Tenant's sole cost and expense, keep and maintain the Leased Premises in good
order and condition, and make all needed repairs, restorations, and replacements
to the Leased Premises, including without limitation the heating, ventilating,
air conditioning, mechanical, electrical and plumbing systems, and the fixtures
and appurtenances to the Leased Premises as and when needed to preserve them in
good working order and condition, and regardless of whether the repairs,
restorations, and replacements are ordinary or extraordinary, foreseeable or
unforeseeable, capital or noncapital. In addition, Tenant shall be responsible
for yard maintenance for the Building and providing janitorial and waste removal
and pest control and extermination services for the Leased Premises. Nothing
contained herein shall entitle Tenant to make any repairs, alterations or
additions to the Leased Premises or the Building at Landlord's expense, or to
terminate the Lease based on the physical condition of the Leased Premises or
the Building. All repairs, restorations, and replacements will be in quality and
class equal to the original work or installations. If Tenant fails to make any
repairs, restorations, or replacements as provided by this Lease, Landlord may
make them at the expense of Tenant and such expense will be collectible as
Additional Rent and will be paid by Tenant within fifteen (15) days after
delivery of a statement for such expense. At the termination or expiration of
the term of this Lease, Tenant will deliver the Leased Premises in good repair
and condition, reasonable wear and tear excepted.
8.2. Repairs and Maintenance by Landlord. Landlord shall maintain the
foundation, roof and structural portions of the exterior walls of the Building
in good order, condition and repair, and be responsible for the general
maintenance of the parking lot. Landlord shall not be obligated, however, to
maintain or repair windows, doors, plate glass or the surfaces of walls or the
foundation, roof or structural portions of the exterior walls of the Building to
the extent caused by the negligence of Tenant, its employees, officers, invitees
or agents. All requests for repairs or maintenance that are the responsibility
of Landlord hereunder must be made in writing to Landlord, and Landlord shall
have a reasonable time within which to perform such repairs or maintenance.
Landlord shall not be liable to Tenant for any damage or inconvenience, and
5
<PAGE> 6
Tenant shall not be entitled to any damages nor to any abatement or reduction of
Rent by reason of any repairs, alterations or additions made by Landlord under
this Lease.
8.3. Access to Leased Premises. Landlord, its agents, employees, and
contractors may enter the Leased Premises at any time in response to an
emergency, and at reasonable hours to make repairs, restorations, or
replacements which Tenant has failed to make or which Landlord is required to
make; however, all such work will be done as promptly as reasonably possible and
so as to cause as little interference to Tenant as reasonably possible. Tenant
waives any claim on account of any injury or inconvenience to Tenant's business,
interference with Tenant's business, loss of occupancy or quiet enjoyment of the
Leased Premises, or any other loss occasioned by such entry.
8.4. Termination of Lease. At the termination of this Lease, Tenant shall
deliver the Leased Premises "broom clean" to Landlord in the same good order and
condition as existed at the commencement date of this Lease, ordinary wear and
tear and natural deterioration excepted.
ARTICLE 9
Alterations, Additions, and Improvements
9.1. Alterations and Improvements. Tenant will not make any structural
alterations, additions or improvements to the Leased Premises without the prior
written consent of Landlord. Tenant will have the right at a times to make any
nonstructural alterations, additions or improvements, and to erect or install
shelves, office supplies, movable office furniture, equipment, computers and
computer terminals, and trade fixtures, and will have the right to remove such
items so installed at the expiration or termination of the term of this Lease,
provided (a) Tenant is not in default in the timely performance of any material
obligation or covenant under this Lease, (b) such removal is made prior to the
termination or expiration of the term of this Lease as extended, and (c) Tenant
promptly repairs all damage to the Leased Premises caused by such removal. All
other property at the Leased Premises and any alteration or addition to the
Leased Premises and any other articles attached or affixed to the floor, wall,
or ceiling of the Leased Premises will become the property of Landlord at the
termination of this Lease, without payment or compensation therefor.
9.2. Construction Work. All construction work approved by Landlord to be
done by Tenant upon the Leased Premises will be performed in good and
workmanlike manner, in compliance with all Governmental Requirements.
9.3. Liens. Tenant will pay or cause to be paid all costs and charges for
work done by it or caused to he done by it, in or to the Leased Premises, and
for all materials furnished for or in connection with such work. Tenant will
indemnify Landlord against and hold Landlord harmless from all liabilities,
liens, claims, and demands on account of such work. If any such lien is filed
against the Leased Premises, Tenant will cause such lien to be discharged of
record within ten (10) days after the filing of such lien. Tenant has no
authority to subject Landlord's right, title or interest in the Building or the
Leased Premises to any lien.
6
<PAGE> 7
ARTICLE 10
Damage
10.1. Notice to Landlord. If the Leased Premises are damaged or destroyed
by fire, tornado, or other casualty, Tenant shall give immediate written notice
of the damage or destruction to Landlord, including a description of the damage
and, as far as known to Tenant, the cause of the damage.
10.2. Total Damage or Destruction. If the Leased Premises should be totally
destroyed or so substantially damaged by fire, tornado, or other casualty that
the Leased Premises cannot be repaired or restored within a period of one
hundred eighty (180) days after the destruction or damage, Landlord shall have
the option, by giving written notice to Tenant within thirty (30) days after the
destruction or damage occurs to terminate this Lease, in which case Tenant shall
vacate the Leased Premises as promptly as possible, and Rental shall be abated
for the unexpired portion of this Lease, effective as of the date of occurrence
of such casualty. If Landlord fails to exercise its option to terminate this
Lease, Landlord shall proceed with reasonable diligence to repair and restore
the Leased Premises to substantially the same condition in which it existed
prior to such damage. If the Leased Premises are untenantable in whole or in
part prior to or during such repair and restoration, the Rental payable
hereunder during the period in which the Leased Premises are untenantable shall
be reduced to such extent as may be fair and reasonable under all of the
circumstances.
10.3. Partial Damage or Destruction. If the Leased Premises should be
damaged by fire, tornado, or other casualty and can be repaired or restored
within one hundred and eighty (180) days, neither Landlord nor Tenant shall have
the option to terminate this Lease and Landlord shall, to the extent of
insurance proceeds received, then proceed with reasonable diligence to rebuild
and repair the Leased Premises to substantially the same condition in which the
Leased Premises existed prior to such damage so as to continue to be UL
certified. If the Leased Premises are untenantable in whole or in part prior to
or during such repair and restoration, the Rental payable hereunder during the
period in which the Leased Premises are untenantable shall be reduced to such
extent as may be fair and reasonable under all of the circumstances. If such
damage occurs during the last year of the Primary Term or any Extension, either
Landlord or Tenant may terminate this Lease by delivering written notice of
termination to the other.
10.4. Proceeds Unavailable. Notwithstanding anything herein to the
contrary, if the holder of any indebtedness secured by a mortgage or deed of
trust covering the Leased Premises requires that the insurance proceeds be
applied to such indebtedness or if the insurance proceeds are insufficient to
rebuild and repair the Leased Premises to substantially the same condition in
which they existed prior to such damage, then Landlord or Tenant may elect to
terminate this Lease, or if neither Landlord or Tenant elect to terminate this
Lease, Landlord may elect to rebuild and repair the Leased Premises, subject to
the execution by Tenant and Landlord prior to such work of an amendment to this
Lease fairly and equitably adjusting the Rental payable
7
<PAGE> 8
hereunder to reflect the expenses incurred by Landlord to rebuild or repair the
Leased Premises, and the loss of any part of the Leased Premises that is not
rebuilt by Landlord.
ARTICLE 11
Condemnation
11.1. Complete Condemnation. If the Leased Premises shall be appropriated
completely under the power of eminent domain, this Lease shall terminate and the
Rental shall be abated during the unexpired portion of this Lease effective on
the date physical possession is taken by the condemning authority or title vests
in the condemning authority, whichever occurs first.
11.2. Partial Condemnation. If only a portion of the Leased Premises shall
be so appropriated, but the remainder of the Leased Premises is not suitable for
the use then being made thereof or the appropriation would prevent or materially
interfere with the use of the Leased Premises for the purpose for which they are
then being used or prevent or materially interfere with Tenant's business
operations at the Leased Premises, either Landlord or Tenant shall have the
right to terminate this Lease as of the date of appropriation by giving written
notice to the other and this Lease shall terminate and the Rental payable under
this Lease shall be abated for the unexpired portion of this Lease effective on
the date physical possession is taken by the condemning authority or title vests
in the condemning authority, whichever occurs first. If neither Landlord nor
Tenant elects to so terminate this Lease or if only a portion of the Leased
Premises shall be so appropriated but not to the extent that the remainder of
the Leased Premises is unsuitable for the use then being made thereof, this
Lease shall continue but the Rental payable hereunder during the unexpired
portion of this Lease will be reduced, pro rata, based upon the portion of the
Leased Premises taken by the condemning authority. If such appropriation occurs
during the last year of the Primary Term or any Extension, either Landlord or
Tenant may terminate this Lease by delivering written notice of termination to
the other.
11.3. Separate Awards. Landlord and Tenant shall each be entitled to
receive and retain such separate awards and portions of lump sum awards as may
be allocated to their respective interests in any condemnation proceedings. If
there is any lump sum award as to which there is no allocation between the
interests of Landlord and Tenant in any condemnation proceedings, then Landlord
shall be entitled to receive the entire lump sum award. Termination of this
Lease shall not affect the rights of the respective parties to such awards.
11.4. Mortgage. Notwithstanding the foregoing, if any mortgage or deed of
trust affecting the Leased Premises shall require application of condemnation
awards to the indebtedness secured thereby, so long as Tenant shall receive any
award to which Tenant is entitled under Section 11.3, such mortgage or deed of
trust shall govern, and any condemnation proceeds in excess of such indebtedness
shall be administered in accordance with this Article 11.
8
<PAGE> 9
ARTICLE 12
Use of Leased Premises, Compliance with
Governmental Requirements: Environmental Matters
12.1. Use of Leased Premises. Tenant shall use the Leased Premises for
business offices and/or central station for a monitoring alarm business and
related security services. Tenant shall not (a) commit, or allow to be
committed, any waste in or upon the Leased Premises, (b) maintain, commit or
permit the maintenance or commission of any nuisance on the Leased Premises, or
(c) do or permit anything to be done in or about the Leased Premises that will
in any way increase the existing rate of any of insurance on the Leased Premises
or cause cancellation of such insurance.
12.2. Tenant's Compliance with Governmental Requirements. Tenant shall not
use or occupy, or permit the use or occupancy of, any portion of the Leased
Premises in violation of any Governmental Requirements. Tenant, at Tenant's
expense, shall comply and pay for compliance with all Governmental Requirements
relating to the use and occupancy of, and business conducted on, the Leased
Premises by Tenant.
12.3. Tenant's Representations, Warranties and Covenants as to
Environmental Matters. Tenant represents and warrants to and covenants with
Landlord that:
(a) Tenant will not use, place, hold, store, locate, dispose of or
release any Hazardous Substances on, under or at the Leased Premises except
in strict compliance with all Governmental Requirements, and will not use
any part of the Leased Premises for the disposal, storage, treatment,
processing or other handling of Hazardous Substances except in strict
compliance with all Governmental Requirements. Landlord acknowledges that
Tenant will have diesel fuel and certain solvents on the Leased Premises in
connection with its generator.
(b) Tenant shall promptly give Landlord written notice of any
investigation, claim, demand, lawsuit, or other action by any Governmental
Authority or private party involving the Leased Premises and any Hazardous
Substance or Environmental Law of which Tenant has actual knowledge. If
Tenant learns, or is notified by any Governmental Authority, that any
removal or other remediation of any Hazardous Substance affecting the
Leased Premises is necessary as a direct or indirect result of, the
presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission or release from, the Leased Premises of any Hazardous Substances
resulting from Tenant's activities, acts or omissions after the effective
date of this Lease, Tenant shall promptly take all necessary Remedial
Actions in accordance with Environmental Laws.
(c) Tenant shall defend, indemnify, and hold harmless Landlord from
and against any and all Claims of any `and every kind whatsoever which may
now or in the future be paid, incurred, or suffered by or asserted against
Landlord by any Governmental Authority or third party for, with respect to,
or as a direct or indirect result of, the presence on, or the escape,
seepage, leakage, spillage, discharge, emission or release
9
<PAGE> 10
from, the Leased Premises of any Hazardous Substances resulting from
Tenant's activities, acts or omissions after the effective date of this
Lease or the activities, acts or omissions of Tenant's employees, agents,
contractors, or invitees after the effective date of this Lease.
All representations, warranties, covenants and agreements contained in this
Section shall survive the termination of this Lease, the termination or
expiration of the Lease Term, and any assignment or subletting of the Leased
Premises.
ARTICLE 13
Assignment or Sublease
Tenant agrees not to assign, transfer, or mortgage this Lease or any right
or interest herein, or sublet the Leased Premises or any part thereof, without
the prior written consent of Landlord which consent may not be unreasonably
withheld if no Event of Default exists and if Tenant remains fully liable
hereunder notwithstanding such assignment or subletting. Landlord shall have the
right to transfer and assign, in whole or in part, Landlord's rights and
obligations with respect to the Leased Premises.
ARTICLE 14
Default
14.1. Tenant's Default. Each of the following shall be an event of default
by Tenant (an "Event of Default"):
(a) If Tenant fails to pay within five (5) days of when due any
installment of Rental due hereunder.
(b) If Tenant fails to comply with any material term, provision, or
covenant of this Lease, other than the payment of Rental, and does not cure
such failure within thirty (30) days after receipt by Tenant from Landlord
of written notice thereof (or such longer period as is reasonably necessary
to cure such failure provided Tenant shall continuously and diligently
pursue such cure at all times until such failure is cured, or in the event
of an emergency, such shorter period as is warranted by the nature of the
emergency).
(c) If Tenant files a petition under any section or chapter of the
federal Bankruptcy Code, as amended, or under any similar law or statute of
the United States or any state thereof; or if an order of relief is entered
against Tenant in a proceeding filed against Tenant thereunder.
10
<PAGE> 11
(d) If a receiver or trustee is appointed for all or substantially
all of the assets of Tenant and such receivership is not terminated or
stayed for a period of ninety (90) days after such appointment.
(e) If Tenant makes an assignment of substantially all of its assets
for the benefit of creditors.
14.2. Landlord's Remedies. Upon the occurrence of an Event of Default,
Landlord may, at Landlord's option, without further notice or demand of any kind
to Tenant or any person, do any one or more of the following:
(a) Landlord may, but shall not be obligated to, cure such Event of
Default on behalf of and at the expense of Tenant and do all necessary work
and make all necessary payments in connection therewith. Any and all
reasonable costs and expenses (including attorneys' fees) incurred by
Landlord in effecting compliance with Tenant's obligations under this Lease
shall be due and payable by Tenant to Landlord as Additional Rent on the
first day of the month following the month in which Tenant receives
Landlord's invoice for the same.
(b) Landlord may terminate this Lease by giving written notice of
termination to Tenant, in which event Tenant shall immediately surrender
the Leased Premises to Landlord and Rental shall abate effective as of the
date of termination.
(c) Landlord may enter upon and take possession of the Leased
Premises and expel or remove Tenant and any other person who may be
occupying the Leased Premises or any part thereof, with or without having
terminated the Lease.
If Landlord repossesses the Leased Premises without terminating this Lease, then
Tenant shall pay to Landlord all Rental and other indebtedness accrued to the
date of such repossession, plus Rental and other sums required to be paid by
Tenant during the remainder of the Lease Term, diminished by any net sums
thereafter received by Landlord through reletting the Leased Premises during
said period. Re-entry by Landlord shall not affect the obligations of Tenant for
the unexpired Lease Term. In the event that Landlord is successful in reletting
the Leased Premises at a rental in excess of that agreed to be paid by Tenant
pursuant to the terms of this Lease, Landlord and Tenant agree that Tenant shall
not be entitled to any such excess Rental. Actions to collect amounts due by
Tenant may be brought on one or more occasions, without the necessity of
Landlord's waiting until expiration of the Lease Term. Upon termination or
repossession of the Leased Premises for an Event of Default, Landlord shall use
reasonable efforts to relet or attempt to relet the Leased Premises, or any
portion thereof, and to collect rent after reletting. In the event of reletting,
Landlord may relet the whole or any portion of the Leased Premises for any
period, to any tenant, and for any use and purpose.
14.3. Rights and Remedies Cumulative. The rights and remedies provided by
this Lease are cumulative and the use of any one right or remedy by Landlord
shall not preclude or waive its right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the Landlord may
have by Governmental Requirement or otherwise. All such
11
<PAGE> 12
rights and remedies may be exercised and enforced concurrently and whenever, and
as often, as occasion for their exercise arises.
14.4. Waiver of Default or Remedy. Failure of Landlord to declare an Event
of Default immediately upon its occurrence, or delay in taking any action in
connection with an Event of Default, shall not be waiver of the Event of
Default. Landlord shall have the right to declare the Event of Default at any
time and take such action as is lawful or authorized under this Lease. Failure
by Landlord to enforce one or more of its remedies upon an Event of Default
shall not be construed as a waiver of the Event of Default or of any other
violation or breach of any of the terms contained in this Lease. No waiver of
any Event of Default or violation or breach of any of the terms, provisions and
covenants contained in this Lease will be deemed or construed to constitute a
waiver of any other violation or breach of any the terms, provisions and
covenants of this Lease.
ARTICLE 15
Subordination and Nondisturbance: Estoppel Certificates
15.1. Subordination. Tenant accepts this Lease subject and subordinate to
any recorded mortgage, deed of trust or other lien presently existing or
hereafter to exist with respect to the Leased Premises. Landlord is hereby
irrevocably vested with full power and authority to subordinate Tenant's
interest under this Lease to any mortgage, deed of trust or other lien hereafter
placed on the Leased Premises, and Tenant agrees upon demand to execute such
additional instruments subordinating this Lease as Landlord or the holder of any
such mortgage, deed of trust, or lien may require. If the interests of Landlord
under this Lease shall be transferred by reason of foreclosure or other
proceedings for enforcement of any mortgage on the Leased Premises, Tenant shall
be bound to the transferee (sometimes called the "Purchaser") under the terms
and conditions of this Lease for the balance of the remaining Lease Term with
the same force and effect as if the Purchaser were Landlord under this Lease.
Tenant further agrees to attorn to the Purchaser, including the mortgagee under
any such mortgage if it be the Purchaser, as its Landlord. Such attornment shall
be effective without the execution of any further instruments upon the Purchaser
succeeding to the interest of Landlord under this Lease. The respective rights
and obligations of Tenant and the Purchaser upon the attornment, to the extent
of the then remaining balance of the term of this Lease, and any extensions and
renewals, shall be and are the same as those set forth in this Lease. Each such
holder of any mortgage, deed of trust, or lien, and each such Purchaser, shall
be a third-party beneficiary of the provisions of this Section.
15.2. Estoppel Certificates. Tenant agrees to execute and deliver at any
time and from time to time, within ten (10) days after receiving a written
request from Landlord, an instrument or certificate regarding the status of this
Lease, consisting of statements, if true, or an explanation if not true, (a)
that this Lease is in full force and effect, (b) the date of the commencement of
the Lease Term, (c) the nature of any amendments or modifications to this Lease,
(d) the date through which Rentals have been paid, (e) the date on which the
next payment of Rental is due under the terms of the Lease, (f) that Tenant
claims no present charge, lien, or claim of offset against the Rental, (g) that
no default, or state of facts which with the passage of time or the
12
<PAGE> 13
giving of notice or both will constitute a default, exists on the part of either
Landlord or Tenant, and (h) such other information as may be reasonably
requested for the benefit of Landlord, any prospective purchaser or any current
or prospective mortgagee of all or any portion of the Leased Premises.
ARTICLE 16
Miscellaneous
16.1. Definitions. For the purposes of this Lease, unless the context
otherwise specifies or requires, the following terms shall have the meaning
herein specified:
"Claims" means any and all claims, demands, suits, actions, damages,
penalties, judgments, liabilities, losses, costs and expenses (including
attorneys' fees, accountants' fees, court costs and interest) of any kind
or nature arising, or alleged to have arisen, as a result of injury to or
death of any person or damage to or loss of any property.
"Environmental Law" means any Governmental Requirement pertaining to
health, industrial hygiene, or the environmental conditions on, under, or
about the Leased Premises, including the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, 42 U.S.C. ss.9601 et
seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C.
ss.6901, et seq. ("RCRA"), the Clean Water Act, 33 U.S.C. ss.1251 et seq.
("MA"), the Clean Air Act, 42 U.S.C. ss.7401 et seq. ("CAA"), the Federal
Water Pollution Control Act, 33 U.S.C. ss.1251 et seq. and any
corresponding state Governmental Requirements.
"Governmental Authority" means any and all applicable courts, boards,
agencies, commissions, offices, or authorities of any nature whatsoever for
any governmental unit (federal, state, county, district, municipal, city,
or otherwise), whether now or hereafter in existence.
"Governmental Requirements" means any and all present and future
judicial decisions, statutes, rulings, rules, regulations, permits,
certificates, or ordinances of any Governmental Authority in any way
applicable to Landlord, Tenant, the conduct of Tenant's business, or the
Leased Premises.
"Hazardous Substance" means any substance, product, waste, or other
material which is or becomes listed, regulated, or addressed as being a
toxic, hazardous, polluting, or similarly harmful substance under any
Environmental Law, including (i) any substance included within the
definition of "hazardous waste" pursuant to Section 1004 of RCRA; (ii) any
substance included within the definition of "hazardous substance" pursuant
to Section 101 of CERCLA; (iii) any substance included within the
definition of "hazardous substance" (or similar term) pursuant to any
applicable state Governmental Requirement; (iv) asbestos; (v)
polychlorinated biphenyls; (vi) petroleum products; (vii) underground
storage tanks, whether empty, filled or partially filled with any
substance; (viii) any radioactive materials, urea formaldehyde foam
insulation, radon; and (ix) any other
13
<PAGE> 14
chemical, material or substance the presence of or exposure to which is
prohibited, limited or regulated by any Governmental Authority on the
basis that such chemical, material or substance is toxic, hazardous or
harmful to human health or the environment or which by any Governmental
Requirements requires special handling or notification of any Governmental
Authority in its use, collection, storage, treatment, or disposal.
"Remedial Action" means any investigation, site monitoring,
containment, cleanup, removal, restoration, or other work of any kind or
nature reasonably necessary or desirable under any applicable Environmental
Law in connection with the current or future presence, suspected presence,
release, or suspected release of a Hazardous Substance in or into the air,
soil, ground water, surface water, or soil vapor at, on, about, under, or
within the Leased Premises or any part thereof.
"Rental" means Base Rent plus all Additional Rent payable under this
Lease.
16.2. Brokers. Neither Landlord nor Tenant has been represented by a real
estate broker or agent in connection with the negotiation of this Lease and
neither Landlord nor Tenant knows of any broker or agent who is entitled to a
commission in connection with this Lease. Landlord agrees to indemnify and hold
harmless Tenant from and against any and all claims for commissions of any
broker or similar parties claiming under Landlord in connection with this Lease,
and Tenant agrees to indemnify and hold harmless Landlord from and against any
and all claims for commissions of any broker or similar parties claiming under
Tenant in connection with this Lease.
16.3. Sign. Tenant shall have the right to place signs on the exterior of
the Building and at such other locations as Landlord and Tenant may agree upon.
Such signs shall conform in all respects to applicable Governmental
Requirements, and shall be subject to the approval of Landlord, which approval
shall not be unreasonably withheld.
16.4. Quiet Enjoyment. Landlord covenants that Landlord now has good title
to the Leased Premises, free and clear of all liens and encumbrances, excepting
only the lien for current real estate taxes not yet due, such recorded mortgage
or mortgages as presently exist, zoning ordinances and other building and fire
ordinances and Governmental Regulations relating to the use of the Leased
Premises, and casements, restrictions and other conditions of record. Landlord
represents and warrants that Landlord has full fight to execute and perform this
Lease and to grant the estate demised and that Tenant, upon paying the Rental
required and performing Tenant's other covenants and agreements under this
Lease, will peaceably and quietly have, hold and enjoy the Leased Premises for
the Lease Term, subject to the terms and conditions of this Lease.
16.5. Landlord's Lien. Landlord shall have, at all times, a valid security
interest to secure payment of all Rentals and other sums of money becoming due
under this Lease from Tenant, and to secure payment of any damages or loss that
Landlord may suffer by reason of the breach by Tenant of any covenant,
agreement, or condition contained in this Lease, upon all goods, wares,
equipment, fixtures, furniture, and other personal property of Tenant which is
now on the Leased Premises or which is placed on the Leased Premises at some
later date, and all
14
<PAGE> 15
proceeds thereof. Such property shall not be removed from the Leased Premises
without the consent of Landlord until all arrearages in Rentals and all other
sums of money then due to Landlord under this Lease have been paid and
discharged, and all the covenants, agreements, and conditions of this Lease have
been fully complied with and performed by Tenant. Upon the occurrence of an
Event of Default, Landlord may, in addition to any other remedies provided in
this Lease or by law, after giving reasonable notice of Landlord's intent to
take possession and giving an opportunity for hearing on the issue, enter upon
the Leased- Premises and take possession of any and all goods, wares, equipment,
fixtures, furniture, and other personal property of the Tenant situated on the
Leased Premises, without liability for trespass or conversion, and sell the same
at public or private sale, with or without having such property at the sale,
after giving Tenant reasonable notice of the time and place of any public sale
or of the time after which any private sale is to be made. Landlord or its
assigns may purchase any items to be sold at such a sale unless they are
prohibited from doing so by law. Unless otherwise provided by law, and without
intending to exclude any other manner or giving Tenant reasonable notice, the
requirement of reasonable notice shall be met if such notice is given at lease
ten (10) days before the time of sale. The proceeds from any such disposition,
less any and all expenses connected with the taking of possession, holding and
selling of the property (including reasonable attorneys' fees and expenses)
shall be applied as a credit against the indebtedness secured by the security
interest granted in this Section 16.5. Any surplus shall be paid to Tenant or as
otherwise required by law; and Tenant shall pay any deficiencies immediately.
Upon request by Landlord, Tenant agrees to execute and deliver to Landlord a
financing statement in a form sufficient to perfect the security interest of
Landlord in the aforementioned property and proceeds under the provisions of the
Uniform Commercial Code in force in the State of Texas. The statutory lien for
rent is not waived, the security interest granted in this Section 16.5 being in
addition, and supplementary, to that lien.
16.6. Liability. Notwithstanding anything to the contrary contained herein,
no personal liability of any kind or character whatsoever now or shall at any
time hereafter attach to Landlord or Landlord's partners under any of the terms,
covenants, and conditions contained in this Lease for the payment of any amount
payable under this Lease or for the performance of any obligation under this
Lease. The exclusive remedy of Tenant for the failure of Landlord to perform any
of Landlord's obligations under this Lease will be to proceed against the
interest of Landlord in and to the Leased Premises.
16.7. Landlord's Right of Entry. Landlord and Landlord's agents and
representatives shall have the right to enter the Leased Premises at any
reasonable time during business hours for any reasonable purpose, including the
purpose of showing the Leased Premises to prospective purchasers and lenders'
and to access the telephone lines, switch room and equipment, and, during the
four (4) months prior to the end of the Primary Term or any Extension Term, to
prospective tenants; provided that in so entering the Leased Premises Landlord
and such other persons do not unreasonably interview with or interrupt Tenant's
business operations in the Leased Premises. Tenant shall give written notice to
Landlord at least thirty (30) days prior to vacating the Leased Premises and
shall arrange to meet with Landlord for a joint inspection of the Leased
Premises prior to vacating. In the event of Tenant's failure to arrange such
Joint inspection, Landlord's inspection at or after Tenant's vacating the Leased
Premises shall be
15
<PAGE> 16
conclusively deemed correct for purposes of determining Tenant's responsibility
for repairs and restoration.
16.8. Authority. Each party agrees to furnish to the other, promptly upon
demand, a corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization and power of such
party to enter into this Lease.
16.9. Recordation. Neither Landlord nor Tenant shall record this Lease
without the prior written consent of the other.
16.10. Limitation of Warranties. EXCEPT AS OTHERWISE PROVIDED HEREIN OR IN
ANY EXHIBIT OR ADDENDUM HERETO, LANDLORD AND TENANT EXPRESSLY AGREE THAT THERE
ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS OR
SUITABILITY OR OF ANY OTHER KIND. TENANT HAS INSPECTED THE LEASED PREMISES AND
ACCEPTS THE LEASED PREMISES "AS IS."
16.11. Waiver of DTPA. On advice of legal counsel, each of Landlord and
Tenant hereby waives the provisions of Subchapter E, Chapter 17, Title 2, Texas
Business and Commerce Code, ss.17.41 et seq., other than ss.17.555 thereof.
16.12. Notices. All notices, consents, requests, instructions, approvals,
demands and other communications provided for herein shall be validly given,
made or served if in writing and delivered personally by hand, facsimile
transmission (if a facsimile transmission number is specified in this Section
16.12 or is later provided in writing in accordance with this Section 16.12), by
nationally recognized overnight courier service (e.g., Federal Express or United
Parcel Service), or by United States certified or registered first class mail,
postage prepaid and return receipt requested. Each such notice, consent,
request, instruction, approval, demand or other communication shall be effective
(a) if delivered by hand or nationally recognized overnight courier service,
when delivered at the address specified in this Section 16.12; (b) if given by
facsimile transmission, when such facsimile transmission is transmitted to the
facsimile number specified in this Section 16.12 and the appropriate
confirmation is received; and (c) if given by United States certified or
registered first class mail, on the date appearing on the return receipt
therefor. In the event that a party is unable to deliver a notice, request,
demand or other communication due to the inaccuracy of the address and/or
facsimile transmission number provided by the other party pursuant to this
Section 16.12, or the other party's failure to notify the party of a change of
its address and/or facsimile transmission number as specified pursuant to this
Section 16.12, such notice, request, demand or other communication shall be
deemed to be effective upon confirmation by a nationally recognized overnight
courier service of its failure to complete delivery to the other party's address
as set forth in this Section 16.12 (or other address duly given to the party by
the other party in accordance with this Section 16.12).
Addresses and facsimile transmission numbers for notices (unless and until
written notice is given of any other address and/or facsimile transmission
number):
16
<PAGE> 17
If to Landlord:
GHT Joint Venture
4432 Walnut Hill Lane
Dallas, Texas 75229
Fax: 214-357-1431
If to Tenant:
Texas Security Central, Inc.
9750 Brockbank
Dallas, Texas 75220
Fax: 214-358-8007
Security Associates International, Inc.
Attn: President
2101 S. Arlington Heights Road, Suite 100
Arlington Heights, IL. 60005
Any notice of change of address or fax number shall not be effective until
actually received.
16.13. Parties Bound. This Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and assigns where permitted
by this Agreement.
16.14. Applicable Law. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS WHOLLY
NEGOTIATED, EXECUTED, AND PERFORMABLE IN SUCH STATE. ALL OBLIGATIONS PERFORMABLE
BY THE PARTIES HERETO WILL BE DEEMED PERFORMABLE IN DALLAS COUNTY, TEXAS.
16.15. Severability. The provisions of this Lease are severable, and the
invalidity, illegality, or unenforceability of any particular provision of this
Lease shall not affect the other provisions hereof, and this Lease shall be
construed in all respects as if such invalid, illegal, or unenforceable
provisions. were omitted; and it is also the intention of the parties to this
Lease that in lieu of each clause or provision of this Lease that is illegal,
invalid, or unenforceable there be added as a part of this Lease a clause as
similar in terms to such illegal, invalid or unenforceable clause or provision
as may be possible and be legal, valid and enforceable.
16.16. Attorneys' Fees. If any action, at law or in equity, is necessary to
enforce or interpret the terms of this Lease, the prevailing party shall be
entitled to recover its reasonable attorneys' fees, costs and other necessary
disbursements from the losing party in addition to any other relief to which it
may be entitled.
17
<PAGE> 18
16.17. Force Majeure. Notwithstanding Section 16.18, whenever a period of
time is prescribed in this Lease for the taking of any action (other than
monetary obligations) by Landlord or Tenant, neither Landlord nor Tenant shall
be liable or responsible for, and there shall be excluded from the computation
of such period of time, any delays due to force majeure, which means acts of
God, strikes, lockouts, material or labor restrictions by any governmental
authority, riots, floods, washouts, sinkholes, explosions, earthquakes, fire,
storms, acts of the public enemy, wars, insurrections, and any other cause not
reasonably within the control of Landlord or Tenant and which by the exercise of
due diligence Landlord or Tenant is unable, wholly or in part, to prevent or
overcome.
16.18. Time of Essence. Time is of the essence in the performance of all
the covenants, conditions, and agreements contained in this Lease.
16.19. Captions. The captions used in this Lease are for convenience only
and in no way define, limit or otherwise describe the scope or intent of this
Lease or any provision hereof, or in any way affect the interpretation of this
Lease.
16.20. Counterparts. This Lease may be executed in multiple counterparts,
each of which shall for all purposes be deemed to be an original; but all of
such counterparts together shall constitute but one and the same agreement.
16.21. Survival. All indemnity obligations of Tenant hereunder and all
obligations of Landlord and Tenant hereunder not fully performed as of the
expiration or earlier termination of the Lease Term shall survive the expiration
or earlier termination of the Lease Term, including without limitation all
Tenant's payment obligations with respect to Rental, and all obligations
concerning the physical condition of the Leased Premises.
16.22. Amendment and Modification. No amendment to or modification of this
Lease will be binding upon either party hereto unless such amendment or
modification is reduced to writing, dated, and executed by both parties to this
Lease.
16.23. Entire Agreement. This Lease constitutes and expresses the entire
agreement and understanding between Landlord and Tenant in reference to all of
the matters herein referred to, and all discussions, promises, representations
and understandings relative thereto, if any, between Landlord and Tenant are
merged herein and superseded hereby. The following exhibits are attached to and
incorporated in this Lease:
Exhibit A -- Description of Land and Leased Premises
Exhibit B -- Extension Option
16.24. Parking Spaces. Tenant shall have the right to use the 24 parking
spaces in the parking lot adjacent to the Building accessible from Brockbank
Avenue.
16.25. Warranties. To the extent any such warranties allow, Tenant shall be
entitled to use and invoke the remaining warranties available on any equipment
for which Tenant is responsible hereunder.
18
<PAGE> 19
16.26. Firewall. Within thirty (30) days of the date of this Lease,
Landlord agrees to build a firewall for the Leased Premises at its cost not to
exceed $5,000 so the Leased Premises will become UL certified.
EXECUTED as of the day, month and year first above written.
LANDLORD
GHT JOINT VENTURE
By: /s/ Ray E. Hooker
-------------------------
Name:
-----------------------
Title:
-----------------------
TENANT
TEXAS SECURITY CENTRAL, INC.
By: /s/ Ronald J. Carr
---------------------------
Ronald Carr, Vice President
19
<PAGE> 20
EXECUTED as of the day, month and year first above written.
LANDLORD
GHT JOINT VENTURE
By: /s/ Willis M. Tate, Jr.
---------------------------------
Name:
-------------------------------
Title:
-------------------------------
TENANT
TEXAS SECURITY CENTRAL, INC.
By:
---------------------------------
Ronald Carr, Vice President
20
<PAGE> 21
Exhibit B
EXTENSION OPTION
1. Option. Landlord grants to Tenant one (1) option (the "Extension
Option") to extend the Primary Term for an additional term of five (5) years
(the "Extension"), on the same terms, conditions and covenants set forth in this
Lease, except as provided in this Exhibit B. The Extension Option shall be
exercised only by Tenant's giving written notice to Landlord at least six (6)
months before the expiration of the Primary Term. If Tenant fails to deliver to
Landlord written notice of the exercise of the Extension Option within the
prescribed time period, the Extension Option will lapse, and there will be no
further right to extend. The Extension Option shall be exercisable by Tenant on
the express condition that at the time of the exercise, no Event of Default
shall exist and be continuing unremedied. The Extension Option may be exercised
by any permitted assignee of Tenant, but not by any subtenant.
2. Calculation of Base Rent. The Base Rent will be increased on the first
day of the Extension to the fair rental value of the Leased Premises (the "Fair
Rental Value"), determined in the following manner:
(a) The Fair Rental Value shall be the value agreed on by Landlord
and Tenant prior to the date the Extension Option is required to be
exercised, if Landlord and Tenant are able to agree.
(b) If Landlord and Tenant have not been able to agree on the Fair
Rental Value prior to the date the Extension Option is required to be
exercised, the Base Rent for the Extension shall be determined in
accordance with this subparagraph (b). Within fifteen (15) days following
the exercise of the Extension Option, Landlord and Tenant each shall
appoint one appraiser. Within ten (10) days after the two appraisers are
appointed, they will appoint a third appraiser. If either Landlord or
Tenant fails to appoint its appraiser within the prescribed time period,
the single appraiser appointed will determine the Fair Rental Value of the
Leased Premises in accordance with Section 2(c) below and such other
standards used by qualified appraisers in the Dallas-Fort Worth area as may
be appropriate. If the two appointed appraisers fail to agree on the third
appraiser, the third appraiser will be appointed by the then president of
the Greater Dallas Board of Realtors, and all three appraisers will
determine the Fair Rental Value of the Leased Premises in accordance with
Section 2(c) below and such other standards used by qualified appraisers in
the Dallas-Fort Worth area as may be appropriate. Each party will bear the
cost of the appraiser appointed by it and the parties will share equally
the cost of the third appraiser. All appraisers will be qualified to
determine the Fair Rental Value of the Leased Premises.
(c) The "Fair Rental Value" of the Leased Premises shall mean the
price that a ready and willing tenant would pay as of the commencement of
the Extension as monthly base rent to a ready and willing landlord of
property comparable to the Leased Premises if such property were exposed
for lease on the open market for a reasonable period of time and taking
into account the use proposed to be made of the Leased Premises by Tenant.
The Fair Rental Value of the Leased Premises will be the value
B-1
<PAGE> 22
determined by the single appraiser if only one appraiser is appointed, or
if three appraisers are appointed, the Fair Market Value will be the
average of the two of the three appraisals which are closest in amount,
with the third appraisal being disregarded. In no event shall the Base Rent
be reduced by reason of such computation. If the Fair Rental Value is not
determined prior to the commencement of the Extension, then Tenant shall
continue to pay to Landlord the Base Rent applicable to the Leased Premises
immediately prior to such Extension until the Fair Rental Value is
determined, and when it is determined, Tenant shall pay to Landlord within
thirty (30) days after receipt of a notice from Landlord the difference
between the Base Rent actually paid by Tenant during the Extension prior to
the determination and the new Base Rent determined hereunder.
B-2
<PAGE> 1
EXHIBIT 10.59
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into June 17,
1998, by and between RAY E. HOOKER and WILLIS M. TATE, JR., as landlord, and
TEXAS SECURITY CENTRAL, INC., as tenant.
ARTICLE 1
Basic Lease Information
The following basic lease information is part of this Lease, but if any
conflict exists between the basic lease information and any other provisions of
this Lease, the other provisions of this Lease will control.
1.1. Landlord: Ray E. Hooker and Willis M. Tate, Jr. (collectively
"Landlord").
1.2. Landlord's Address: 4432 Walnut Hill Lane, Dallas, Texas 75229.
1.3. Tenant: Texas Security Central, Inc., a Texas corporation
("Tenant").
1.4. Tenant's Address: 12610 Richmond Avenue, Houston, Texas 77082.
1.5. Lease: This Lease Agreement, including all exhibits and addenda
hereto, as amended or modified from time to time (this "Lease").
1.6. Leased Premises: The land (the "Land") and all of the building
(the "Building") consisting of approximately 3, 100 square feet currently
occupied by Texas Security Central, Inc. (the "Leased Premises") commonly known
as 12610 Richmond Avenue, Houston, Texas 77082, being more particularly
described in Exhibit A. The Leased Premises include all appurtenances,
easements, and rights of way related thereto.
1.7. Lease Term: An initial term of five (5) years beginning on June
17, 1998, and ending on June 16, 2003 (the "Primary Term"), as the same may be
extended in accordance with Section 3.2 (the "Lease Term").
1.8. Option to Extend: Tenant has one (1) option to extend the Primary
Term for a period of five (5) years by giving written notice to Landlord at
least six (6) months prior to the expiration of the Primary Term in accordance
with the provisions of Section 3.2 and Exhibit B.
1.9. Base Rent: Five Thousand and No/100 Dollars ($5,000.00) per month,
payable in accordance with Section 4. 1.
1.10. Permitted Use: Business offices and/or central station for a
monitoring alarm business and related security services.
<PAGE> 2
Section 16.1 contains the definitions of certain capitalized terms used in this
Lease. When used in this Lease, the word "including" shall mean "including
without limitation" and references in this Lease to specific sections refer to
sections of this Lease unless otherwise stated.
ARTICLE 2
Grant of Lease
Subject to and upon the terms, provisions and conditions of this Lease,
and in consideration of the duties, covenants, and obligations of the other set
forth in this Lease, Landlord hereby leases the Leased Premises to Tenant and
Tenant hereby leases the Leased Premises from Landlord for the Lease Term.
ARTICLE 3
Term; Holdover
3.1. Term of Lease. Subject to and upon the terms and conditions set
forth in this Lease, this Lease shall continue in force for the Primary Term.
The Primary Term shall commence on the date specified in Section 1.7 for the
beginning of the Primary Term.
3.2. Option to Extend Term. Tenant shall have one (1) option to extend
the Primary Term for an additional term of five (5) years in accordance with the
provisions of Exhibit B.
3.3. Holding Over. Tenant shall, at the termination of this Lease by
lapse of time or otherwise, surrender immediate possession of the Leased
Premises to Landlord. If Tenant shall fail immediately to surrender possession
of the Leased Premises to Landlord upon termination of this Lease, by lapse of
time or otherwise, Tenant shall pay Landlord as Base Rent for the period of any
such holdover, an amount equal to one and one-half (1-1/2) times the Base Rent
in effect on the termination date, computed on a daily basis for each day of the
holdover period. No holding over by Tenant shall operate to extend this Lease
except as otherwise expressly agreed by the parties in writing. The preceding
provisions of this Section 3.3 shall not be construed as Landlord's consent for
Tenant to hold over.
ARTICLE 4
Rental
4.1. Base Rent. For each month during the Primary Term, Tenant agrees
to pay to Landlord the sum of Five Thousand and No/100 Dollars ($5,000.00) (the
"Base Rent"). Base Rent shall be payable in advance on the first day of each
calendar month during the Lease Term, commencing on the Commencement Date,
without any prior demand or notice therefor and without any deduction or set off
or abatement whatsoever, and as a fixed rent. Base Rent shall be paid at
Landlord's address appearing in Section 16.12. If the Lease Term commences on a
-2-
<PAGE> 3
day other than the first day of a calendar month, or if the Lease Term ends on a
day other than the last day of a calendar month, the Base Rent for such month
shall be prorated by multiplying the monthly Base Rent by a fraction, the
numerator of which shall be the number of days of the partial month included in
the Lease Term and the denominator of which shall be the total number of days in
the full calendar month.
4.2. Additional Rent. During the Lease Term Tenant agrees to pay to
Landlord as additional rent hereunder ("Additional Right") such other sums that
Tenant becomes obligated to pay to Landlord under this Lease, whether or not
designated as Additional Rent. Additional Rent shall be payable as and when
provided in this Lease, without any deduction or set off or abatement
whatsoever. Additional Rent shall be paid at Landlord's address appearing in
Section 16.12.
4.3. Interest. Other remedies for nonpayment of Rental notwithstanding,
if the monthly Base Rent payment is not received by Landlord on or before the
tenth (10th) day of the month for which such Base Rent is due, such past due
amount shall bear interest at the rate of ten percent (10%) per annum from the
date past due until paid.
ARTICLE 5
Taxes
5.1. Real Estate Taxes. Landlord shall promptly pay when due all real
estate taxes and assessments assessed, levied, confirmed or imposed on the
Leased Premises during the Lease Term.
5.2. Personal Property Taxes. Tenant shall be liable for all taxes
levied or assessed against personal property, furniture or fixtures placed by
Tenant in or on the Leased premises.
ARTICLE 6
Insurance
6.1. Casualty Insurance. Landlord shall, at its expense, obtain and
keep in force insurance coverage for the Building. Tenant shall, at its expense,
keep its equipment, furniture, fixtures, and other personal property insured
against fire and other casualties, and agrees that Landlord, unless Landlord is
grossly negligent with respect to such fire or casualty, shall have no liability
or responsibility with respect to such equipment, furniture, or fixtures and its
other property.
6.2. Liability Insurance. Tenant shall procure and maintain throughout
the Lease Term a policy or policies of commercial general liability insurance,
at Tenant's expense, insuring Tenant and Landlord, as their respective interests
may appear, against all claims, demands or actions arising out of or in
connection with (a) the Leased Premises; (b) the condition of the
-3-
<PAGE> 4
Leased Premises; (c) Tenant's operations in and maintenance and use of the
Leased Premises; and (d) Tenant's liability assumed under this Lease. The limits
of such policy or policies shall not be less than One Million and No/100 Dollars
($1,000,000.00) combined single limit coverage per occurrence for injury to
person (including death) and/or property damage or destruction, including loss
of use. Such policy or policies shall be procured by Tenant from responsible
insurance companies reasonably satisfactory to Landlord. A certificate(s) of
such policy, together with receipts for payment of premiums, shall be delivered
to Landlord upon request. All such original and renewal policies shall provide
for at least thirty (30) days' written notice to Landlord before such policy may
be canceled or changed to reduce insurance coverage provided thereby.
6.3. Waiver of Subrogation. Whenever (a) any loss, cost, damage or
expense resulting from fire, explosion or any other casualty or occurrence is
incurred by either of the parties to this Lease in connection with the Leased
Premises, and (b) such party is then covered (or is required under this Lease to
be covered) in whole or in part by insurance with respect to such loss, cost,
damage or expense, then the party so insured (or required hereunder to be
insured) hereby releases the other party from any liability it may have on
account of such loss, cost, damage or expense to the extent of any amount
coverable by such insurance, and waives any right of subrogation which might
otherwise exist on account thereof, provided that such release of liability and
waiver of the night to subrogation shall not be operative in any case where the
effect thereof is to invalidate such insurance coverage or increase the cost
thereof (provided that in the case of increased cost, the other party shall have
the right, within thirty (30) days following written notice, to pay such
increased costs, thereupon keeping such release and waiver in full force and
effect). Landlord and Tenant agree immediately to give their respective
insurance carriers written notice of this Section and agree to use their
respective best efforts to obtain such a release and waiver of subrogation from
their respective insurance carriers and obtain any special endorsements, if
required by their insurer, to evidence compliance with the aforementioned
waiver.
6.4. Indemnity by Tenant. Except to the extent of injury, death or
property damage caused by the negligence or willful acts or omissions of
Landlord or Landlord's agents, employees, guests, patrons, invitees, or
contractors, Tenant agrees to indemnify and hold harmless Landlord from and
against all Claims arising from any occurrence in, upon, or at the Leased
Premises or any part thereof occasioned by any negligence or willful act or
omission of Tenant, or of Tenant's agents or employees acting within the scope
of their employment or agency relationship with Tenant, or of Tenant's guests,
patrons, invitees, or contractors permitted to be on the Leased Premises by
Tenant.
6.5. Indemnity by Landlord. Except to the extent of injury, death or
property damage caused by the negligence or willful acts or omissions of Tenant
or Tenant's agents, employees, guests, patrons, invitees, or contractors,
Landlord agrees to indemnify and hold harmless Tenant from and against all
Claims arising from any occurrence in, upon, or at the Leased Premises or any
part thereof occasioned by any negligence or willful act or omission of
Landlord, or of Landlord's agents or employees acting within the scope of their
employment or agency
-4-
<PAGE> 5
relationship with Landlord, or of Landlord's guests, patrons, invitees, or
contractors permitted to be on the Leased Premises by Landlord.
ARTICLE 7
Utilities
Tenant shall contract with and pay the appropriate suppliers for all
water, gas, electricity, light, heat, telephone, power, and other utilities and
communications services used by Tenant on the Leased Premises during the Lease
Term.
ARTICLE 8
Repairs and Maintenance
8.1. Repairs and Maintenance by Tenant. During the Lease Term Tenant
will, at Tenant's sole cost and expense, keep and maintain the Leased Premises
in good order and condition, and make all needed repairs, restorations, and
replacements to the Leased Premises, including without limitation the heating,
ventilating, air conditioning, mechanical, electrical and plumbing systems, and
the fixtures and appurtenances to the Leased Premises as and when needed to
preserve them in good working order and condition, and regardless of whether the
repairs, restorations, and replacements are ordinary or extraordinary,
foreseeable or unforeseeable, capital or noncapital. In addition, Tenant shall
be responsible for yard maintenance for the Building and providing janitorial
and waste removal and pest control and extermination services for the Leased
Premises. Nothing contained herein shall entitle Tenant to make any repairs,
alterations or additions to the Leased Premises or the Building at Landlord's
expense, or to terminate the Lease based on the physical condition of the Leased
Premises or the Building. All repairs, restorations, and replacements will be in
quality and class equal to the original work or installations. If Tenant fails
to make any repairs, restorations, or replacements as provided by this Lease,
Landlord may make them at the expense of Tenant and such expense will be
collectible as Additional Rent and will be paid by Tenant within fifteen (15)
days after delivery of a statement for such expense. At the termination or
expiration of the term of this Lease, Tenant will deliver the Leased Premises in
good repair and condition, reasonable wear and tear excepted.
8.2. Repairs and Maintenance by Landlord. Landlord shall maintain the
foundation, roof and structural portions of the exterior walls of the Building
in good order, condition and repair, and be responsible for the general
maintenance of the parking lot. Landlord shall not be obligated, however, to
maintain or repair windows, doors, plate glass or the surfaces of walls or the
foundation, roof or structural portions of the exterior walls of the Building to
the extent caused by the negligence of Tenant, its employees, officers, invitees
or agents. All requests for repairs or maintenance that are the responsibility
of Landlord hereunder must be made in writing to Landlord, and Landlord shall
have a reasonable time within which to perform such repairs or
-5-
<PAGE> 6
maintenance. Landlord shall not be liable to Tenant for any damage or
inconvenience, and Tenant shall not be entitled to any damages nor to any
abatement or reduction of Rent by reason of any repairs, alterations or
additions made by Landlord under this Lease.
8.3. Access to Leased Premises. Landlord, its agents, employees, and
contractors may enter the Leased Premises at any time in response to an
emergency, and at reasonable hours to make repairs, restorations, or
replacements which Tenant has failed to make or which Landlord is required to
make; however, all such work will be done as promptly as reasonably possible and
so as to cause as little interference to Tenant as reasonably possible. Tenant
waives any claim on account of any injury or inconvenience to Tenant's business,
interference with Tenant's business, loss of occupancy or quiet enjoyment of the
Leased Premises, or any other loss occasioned by such entry.
8.4. Termination of Lease. At the termination of this Lease, Tenant
shall deliver the Leased Premises "broom clean" to Landlord in the same good
order and condition as existed at the commencement date of this Lease, ordinary
wear and tear and natural deterioration excepted.
ARTICLE 9
Alterations, Additions, and Improvements
9.1. Alterations and Improvements. Tenant will not make any structural
alterations, additions or improvements to the Leased Premises without the prior
written consent of Landlord. Tenant will have the right at all times to make any
nonstructural alterations, additions or improvements, and to erect or install
shelves, office supplies, movable office furniture, equipment, computers and
computer terminals, and trade fixtures, and will have the night to remove such
items so installed at the expiration or termination of the term of this Lease,
provided (a) Tenant is not in default in the timely performance of any material
obligation or covenant under this Lease, (b) such removal is made prior to the
termination or expiration of the term of this Lease as extended, and (c) Tenant
promptly repairs all damage to the Leased Premises caused by such removal. All
other property at the Leased Premises and any alteration or addition to the
Leased Premises and any other articles attached or affixed to the floor, wall,
or ceiling of the Leased Premises will become the property of Landlord at the
termination of this Lease, without payment or compensation therefor.
9.2. Construction Work. All construction work approved by Landlord to
be done by Tenant upon the Leased Premises will be performed in good and
workmanlike manner, in compliance with all Governmental Requirements.
9.3. Liens. Tenant will pay or cause to be paid all costs and charges
for work done by it or caused to be done by it, in or to the Leased Premises,
and for all materials furnished for or in connection with such work. Tenant will
indemnify Landlord against and hold Landlord harmless from all liabilities,
liens, claims, and demands on account of such work. If any such lien is filed
against the Leased Premises, Tenant will cause such lien to be discharged of
record
-6-
<PAGE> 7
within ten (10) days after the filing of such lien. Tenant has no authority to
subject Landlord's right, title or interest in the Building or the Leased
Premises to any lien.
ARTICLE 10
Damage
10.1. Notice to Landlord. If the Leased Premises are damaged or
destroyed by fire, tornado, or other casualty, Tenant shall give immediate
written notice of the damage or destruction to Landlord, including a description
of the damage and, as far as known to Tenant, the cause of the damage.
10.2. Total Damage or Destruction. If the Leased Premises should be
totally destroyed or so substantially damaged by fire, tornado, or other
casualty that the Leased Premises cannot be repaired or restored within a period
of one hundred eighty (180) days after the destruction or damage, Landlord shall
have the option, by giving written notice to Tenant within thirty (30) days
after the destruction or damage occurs to terminate this Lease, in which case
Tenant shall vacate the Leased Premises as promptly as possible, and Rental
shall be abated for the unexpired portion of this Lease, effective as of the
date of occurrence of such casualty. If Landlord fails to exercise its option to
terminate this Lease, Landlord shall proceed with reasonable diligence to repair
and restore the Leased Premises to substantially the same condition in which it
existed prior to such damage. If the Leased Premises are untenantable in whole
or in part prior to or during, such repair and restoration, the Rental payable
hereunder during the period in which the Leased Premises are untenantable shall
be reduced to such extent as may be fair and reasonable under all of the
circumstances.
10.3. Partial Damage or Destruction. If the Leased Premises should be
damaged by fire, tornado, or other casualty and can be repaired or restored
within one hundred and eighty (180) days, neither Landlord nor Tenant shall have
the option to terminate this Lease and Landlord shall, to the extent of
insurance proceeds received, then proceed with reasonable diligence to rebuild
and repair the Leased Premises to substantially the same condition in which the
Leased Premises existed prior to such damage so as to continue to be UL
certified. If the Leased Premises are untenantable in whole or in part prior to
or during such repair and restoration, the Rental payable hereunder during the
period in which the Leased Premises are untenantable shall be reduced to such
extent as may be fair and reasonable under all of the circumstances. If such
damage occurs during the last year of the Primary Term or any Extension, either
Landlord or Tenant may terminate this Lease by delivering written notice of
termination to the other.
10.4. Proceeds Unavailable. Notwithstanding anything herein to the
contrary, if the holder of any indebtedness secured by a mortgage or deed of
trust covering the Leased Premises requires that the insurance proceeds be
applied to such indebtedness or if the insurance proceeds are insufficient to
rebuild and repair the Leased Premises to substantially the same condition in
which they existed prior to such damage, then Landlord or Tenant may elect to
terminate this
-7-
<PAGE> 8
Lease, or if neither Landlord or Tenant elect to terminate this Lease, Landlord
may elect to rebuild and repair the Leased Premises, subject to the execution by
Tenant and Landlord prior to such work of an amendment to this Lease fairly and
equitably adjusting the Rental payable hereunder to reflect the expenses
incurred by Landlord to rebuild or repair the Leased Premises, and the loss of
any part of the Leased Premises that is not rebuilt by Landlord.
ARTICLE 11
Condemnation
11.1. Complete Condemnation. If the Leased Premises shall be
appropriated completely under the power of eminent domain, this Lease shall
terminate and the Rental shall be abated during the unexpired portion of this
Lease effective on the date physical possession is taken by the condemning
authority or title vests in the condemning authority, whichever occurs first.
11.2. Partial Condemnation. If only a portion of the Leased Premises
shall be so appropriated, but the remainder of the Leased Premises is not
suitable for the use then being made thereof or the appropriation would prevent
or materially interfere with the use of the Leased Premises for the purpose for
which they are then being used or prevent or materially interfere with Tenant's
business operations at the Leased Premises, either Landlord or Tenant shall have
the right to terminate this Lease as of the date of appropriation by giving
written notice to the other and this Lease shall terminate and the Rental
payable under this Lease shall be abated for the unexpired portion of this Lease
effective on the date physical possession is taken by the condemning authority
or title vests in the condemning authority, whichever occurs first. If neither
Landlord nor Tenant elects to so terminate this Lease or if only a portion of
the Leased Premises shall be so appropriated but not to the extent that the
remainder of the Leased Premises is unsuitable for the use then being made
thereof, this Lease shall continue but the Rental payable hereunder during the
unexpired portion of this Lease will be reduced, pro rata, based upon the
portion of the Leased Premises taken by the condemning authority. If such
appropriation occurs during the last year of the Primary Term or any Extension,
either Landlord or Tenant may terminate this Lease by delivering written notice
of termination to the other.
11.3. Separate Awards. Landlord and Tenant shall each be entitled to
receive and retain such separate awards and portions of lump sum awards as may
be allocated to their respective interests in any condemnation proceedings. If
there is any lump sum award as to which there is no allocation between the
interests of Landlord and Tenant in any condemnation proceedings, then Landlord
shall be entitled to receive the entire lump sum award. Termination of this
Lease shall not affect the rights of the respective parties to such awards.
11.4. Mortgage. Notwithstanding the foregoing, if any mortgage or deed
of trust affecting the Leased Premises shall require application of condemnation
awards to the indebtedness secured thereby, so long as Tenant shall receive any
award to which Tenant is entitled under Section 11.3, such mortgage or deed of
trust shall govern, and any condemnation proceeds in excess of such indebtedness
shall be administered in accordance with this Article 11.
-8-
<PAGE> 9
ARTICLE 12
Use of Leased Premises: Compliance with
Governmental Requirements; Environmental Matters
12.1. Use of Leased Premises. Tenant shall use the Leased Premises for
business offices and/or central station for a monitoring alarm business and
related security services. Tenant shall not (a) commit, or allow to be
committed, any waste in or upon the Leased Premises, (b) maintain, commit or
permit the maintenance or commission of any nuisance on the Leased Premises, or
(c) do or permit anything to be done in or about the Leased Premises that will
in any way increase the existing rate of any of insurance on the Leased Premises
or cause cancellation of such insurance.
12.2. Tenant's Compliance with Governmental Requirements. Tenant shall
not use or occupy, or permit the use or occupancy of, any portion of the Leased
Premises in violation of any Governmental Requirements. Tenant, at Tenant's
expense, shall comply and pay for compliance with all Governmental Requirements
relating to the use and occupancy of, and business conducted on, the Leased
Premises by Tenant.
12.3. Tenant's Representations, Warranties and Covenants as to
Environmental Matters. Tenant represents and warrants to and covenants with
Landlord that:
(a) Tenant will not use, place, hold, store, locate, dispose of or
release any Hazardous Substances on, under or at the Leased Premises except in
strict compliance with all Governmental Requirements, and will not use any part
of the Leased Premises for the disposal, storage, treatment, processing or other
handling of Hazardous Substances except in strict compliance with all
Governmental Requirements. Landlord acknowledges that Tenant will have diesel
fuel and certain solvents on the Leased Premises in connection with its
generator.
(b) Tenant shall promptly give Landlord written notice of any
investigation, claim, demand, lawsuit, or other action by any Governmental
Authority or private party involving the Leased Premises and any Hazardous
Substance or Environmental Law of which Tenant has actual knowledge. If Tenant
learns, or is notified by any Governmental Authority, that any removal or other
remediation of any Hazardous Substance affecting the Leased Premises is
necessary as a direct or indirect result of, the presence on or under, or the
escape, seepage, leakage, spillage, discharge, emission or release from, the
Leased Premises of any Hazardous Substances resulting from Tenant's activities,
acts or omissions after the effective date of this Lease, Tenant shall promptly
take all necessary Remedial Actions in accordance with Environmental Laws.
(c) Tenant shall defend, indemnify, and hold harmless Landlord from and
against any and all Claims of any and every kind whatsoever which may now or in
the future be paid, incurred, or suffered by or asserted against Landlord by any
Governmental Authority or third party for, with respect to, or as a direct or
indirect result of, the presence on, or the escape, seepage, leakage, spillage,
discharge, emission or release from, the Leased Premises of any
-9-
<PAGE> 10
Hazardous Substances resulting from Tenant's activities, acts or omissions after
the effective date of this Lease or the activities, acts or omissions of
Tenant's employees, agents, contractors, or invitees after the effective date of
this Lease.
All representations, warranties, covenants and agreements contained in this
Section shall survive the termination of this Lease, the termination or
expiration of the Lease Term, and any assignment or subletting of the Leased
Premises.
ARTICLE 13
Assignment or Sublease
Tenant agrees not to assign, transfer, or mortgage this Lease or any
right or interest herein, or sublet the Leased Premises or any part thereof,
without the prior written consent of Landlord which consent may not be
unreasonably withheld if no Event of Default exists and if Tenant remains fully
liable hereunder notwithstanding such assignment or subletting. Landlord shall
have the right to transfer and assign, in whole or in part, Landlord's rights
and obligations with respect to the Leased Premises.
ARTICLE 14
Default
14.1. Tenant's Default. Each of the following shall be an event of
default by Tenant (an "Event of Default"):
(a) If Tenant fails to pay within five (5) days of when due any
installment of Rental due hereunder.
(b) If Tenant fails to comply with any material term, provision, or
covenant of this Lease, other than the payment of Rental, and does not cure such
failure within thirty (30) days after receipt by Tenant from Landlord of written
notice thereof (or such longer period as is reasonably necessary to cure such
failure provided Tenant shall continuously and diligently pursue such cure at
all times until such failure is cured, or in the event of an emergency, such
shorter period as is warranted by the nature of the emergency).
(c) If Tenant files a petition under any section or chapter of the
federal Bankruptcy Code, as amended, or under any similar law or statute of the
United States or any state thereof; or if an order of relief is entered against
Tenant in a proceeding filed against Tenant thereunder.
(d) If a receiver or trustee is appointed for all or substantially all
of the assets of Tenant and such receivership is not terminated or stayed for a
period of ninety (90) days after such appointment.
-10-
<PAGE> 11
(e) If Tenant makes an assignment of substantially all of its
assets for the benefit of creditors.
14.2. Landlord's Remedies. Upon the occurrence of an Event of Default,
Landlord may, at Landlord's option, without further notice or demand of
any kind to Tenant or any person, do any one or more of the following:
(a) Landlord may, but shall not be obligated to, cure such Event
of Default on behalf of and at the expense of Tenant and do all
necessary work and make all necessary payments in connection therewith.
Any and all reasonable costs and expenses (including attorneys' fees)
incurred by Landlord in effecting compliance with Tenant's obligations
under this Lease shall be due and payable by Tenant to Landlord as
Additional Rent on the first day of the month following the month in
which Tenant receives Landlord's invoice for the same.
(b) Landlord may terminate this Lease by giving written notice of
termination to Tenant, in which event Tenant shall immediately
surrender the Leased Premises to Landlord and Rental shall abate
effective as of the date of termination.
(c) Landlord may enter upon and take possession of the Leased
Premises and expel or remove Tenant and any other person who may be
occupying the Leased Premises or any part thereof, with or without
having terminated the Lease.
If Landlord repossesses the Leased Premises without terminating this Lease, then
Tenant shall pay to Landlord all Rental and other indebtedness accrued to the
date of such repossession, plus Rental and other sums required to be paid by
Tenant during the remainder of the Lease Term, diminished by any net sums
thereafter received by Landlord through reletting the Leased Premises during
said period. Re-entry by Landlord shall not affect the obligations of Tenant for
the unexpired Lease Term. In the event that Landlord is successful in reletting
the Leased Premises at a rental in excess of that agreed to be paid by Tenant
pursuant to the terms of this Lease, Landlord and Tenant agree that Tenant shall
not be entitled to any such excess Rental. Actions to collect amounts due by
Tenant may be brought on one or more occasions, without the necessity of
Landlord's waiting until expiration of the Lease Term. Upon termination or
repossession of the Leased Premises for an Event of Default, Landlord shall use
reasonable efforts to relet or attempt to relet the Leased Premises, or any
portion thereof, and to collect rent after reletting. In the event of reletting,
Landlord may relet the whole or any portion of the Leased Premises for any
period, to any tenant, and for any use and purpose.
14.3. Rights and Remedies Cumulative. The rights and remedies provided
by this Lease are cumulative and the use of any one right or remedy by Landlord
shall not preclude or waive its right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the Landlord may
have by Governmental Requirement or otherwise. All such rights and remedies may
be exercised and enforced concurrently and whenever, and as often, as occasion
for their exercise arises.
-11-
<PAGE> 12
14.4. Waiver of Default or Remedy. Failure of Landlord to declare an
Event of Default immediately upon its occurrence, or delay in taking any action
in connection with an Event of Default, shall not be waiver of the Event of
Default. Landlord shall have the right to declare the Event of Default at any
time and take such action as is lawful or authorized under this Lease. Failure
by Landlord to enforce one or more of its remedies upon an Event of Default
shall not be construed as a waiver of the Event of Default or of any other
violation or breach of any of the terms contained in this Lease. No waiver of
any Event of Default or violation or breach of any of the terms, provisions and
covenants contained in this Lease will be deemed or construed to constitute a
waiver of any other violation or breach of any the terms, provisions and
covenants of this Lease.
ARTICLE 15
Subordination and Nondisturbance; Estoppel Certificates
15.1. Subordination. Tenant accepts this Lease subject and subordinate
to any recorded mortgage, deed of trust or other lien presently existing or
hereafter to exist with respect to the Leased Premises. Landlord is hereby
irrevocably vested with full power and authority to subordinate Tenant's
interest under this Lease to any mortgage, deed of trust or other lien hereafter
placed on the Leased Premises, and Tenant agrees upon demand to execute such
additional instruments subordinating this Lease as Landlord or the holder of any
such mortgage, deed of trust, or lien may require. If the interests of Landlord
under this Lease shall be transferred by reason of foreclosure or other
proceedings for enforcement of any mortgage on the Leased Premises, Tenant shall
be bound to the transferee (sometimes called the "Purchaser") under the terms
and conditions of this Lease for the balance of the remaining Lease Term with
the same force and effect as if the Purchaser were Landlord under this Lease.
Tenant further agrees to attorn to the Purchaser, including the mortgagee under
any such mortgage if it be the Purchaser, as its Landlord. Such attornment shall
be effective without the execution of any further instruments upon the Purchaser
succeeding to the interest of Landlord under this Lease. The respective rights
and obligations of Tenant and the Purchaser upon the attornment, to the extent
of the then remaining balance of the term of this Lease, and any extensions and
renewals, shall be and are the same as those set forth in this Lease. Each such
holder of any mortgage, deed of trust, or lien, and each such Purchaser, shall
be a third-party beneficiary of the provisions of this Section.
15.2. Estoppel Certificates. Tenant agrees to execute and deliver at
any time and from time to time, within ten (10) days after receiving a written
request from Landlord, an instrument or certificate regarding the status of this
Lease, consisting of statements, if true, or an explanation if not true, (a)
that this Lease is in full force and effect, (b) the date of the commencement of
the Lease Term, (c) the nature of any amendments or modifications to this Lease,
(d) the date through which Rentals have been paid, (e) the date on which the
next payment of Rental is due under the terms of the Lease, (f) that Tenant
claims no present charge, lien, or claim of offset against the Rental, (g) that
no default, or state of facts which with the passage of time or the giving of
notice or both will constitute a default, exists on the part of
-12-
<PAGE> 13
either Landlord or Tenant, and (h) such other information as may be reasonably
requested for the benefit of Landlord, any prospective purchaser or any current
or prospective mortgagee of all or any portion of the Leased Premises.
ARTICLE 16
Miscellaneous
16.1. Definitions. For the purposes of this Lease, unless the context
otherwise specifies or requires, the following terms shall have the meaning
herein specified:
"Claims" means any and all claims, demands, suits, actions,
damages, penalties, judgments, liabilities, losses, costs and expenses
(including attorneys' fees, accountants' fees, court costs and
interest) of any kind or nature arising, or alleged to have arisen, as
a result of injury to or death of any person or damage to or loss of
any property.
"Environmental Law" means any Governmental Requirement
pertaining to health, industrial hygiene, or the environmental
conditions on, under, or about the Leased Premises, including the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 42 U.S.C.ss.9601 et seq. ("CERCLA"), the Resource Conservation
and Recovery Act, 42 U.S.C.ss.6901, et seq. ("RCRA"), the Clean Water
Act, 33 U.S.C.ss. 1251 et seq. ("CWA"), the Clean Air Act, 42
U.S.C.ss.7401 et seq. ("CAA"), the Federal Water Pollution Control Act,
33 U.S.C.ss.1251 et seq. and any corresponding state Governmental
Requirements.
"Governmental Authority" means any and all applicable courts,
boards, agencies, commissions, offices, or authorities of any nature
whatsoever for any governmental unit (federal, state, county, district,
municipal, city, or otherwise), whether now or hereafter in existence.
"Governmental Requirements" means any and all present and
future judicial decisions, statutes, rulings, rules, regulations,
permits, certificates, or ordinances of any Governmental Authority in
any way applicable to Landlord, Tenant, the conduct of Tenant's
business, or the Leased Premises.
"Hazardous Substance" means any substance, product, waste, or
other material which is or becomes listed, regulated, or addressed as
being a toxic, hazardous, polluting, or similarly harmful substance
under any Environmental Law, including (i) any substance included
within the definition of "hazardous waste" pursuant to Section 1004 of
RCRA; (ii) any substance included within the definition of "hazardous
substance" pursuant to Section 101 of CERCLA; (iii) any substance
included within the definition of "hazardous substance" (or similar
term) pursuant to any applicable state Governmental Requirement; (iv)
asbestos; (v) polychlorinated biphenyls; (vi) petroleum products; (vii)
underground storage tanks, whether empty, filled or partially filled
with any substance; (viii) any
-13-
<PAGE> 14
radioactive materials, urea formaldehyde foam insulation, radon; and
(ix) any other chemical, material or substance the presence of or
exposure to which is prohibited, limited or regulated by any
Governmental Authority on the basis that such chemical, material or
substance is toxic, hazardous or harmful to human health or the
environment or which by any Governmental Requirements requires special
handling or notification of any Governmental Authority in its use,
collection, storage, treatment, or disposal.
"Remedial Action" means any investigation, site monitoring,
containment, cleanup, removal, restoration, or other work of any kind
or nature reasonably necessary or desirable under any applicable
Environmental Law in connection with the current or future presence,
suspected presence, release, or suspected release of a Hazardous
Substance in or into the air, soil, ground water, surface water, or
soil vapor at, on, about, under, or within the Leased Premises or any
part thereof.
"Rental" means Base Rent plus all Additional Rent payable
under this Lease.
16.2. Brokers. Neither Landlord nor Tenant has been represented by a
real estate broker or agent in connection with the negotiation of this Lease and
neither Landlord nor Tenant knows of any broker or agent who is entitled to a
commission in connection with this Lease. Landlord agrees to indemnify and hold
harmless Tenant from and against any and all claims for commissions of any
broker or similar parties claiming under Landlord in connection with this Lease,
and Tenant agrees to indemnify and hold harmless Landlord from and against any
and all claims for commissions of any broker or similar parties claiming under
Tenant in connection with this Lease.
16.3. Signs. Tenant shall have the right to place signs on the exterior
of the Building and at such other locations as Landlord and Tenant may agree
upon. Such signs shall conform in all respects to applicable Governmental
Requirements, and shall be subject to the approval of Landlord, which approval
shall not be unreasonably withheld.
16.4. Quiet Enjoyment. Landlord covenants that Landlord now has good
title to the Leased Premises, free and clear of all liens and encumbrances,
excepting only the lien for current real estate taxes not yet due, such recorded
mortgage or mortgages as presently exist, zoning ordinances and other building
and fire ordinances and Governmental Regulations relating to the use of the
Leased Premises, and easements, restrictions and other conditions of record.
Landlord represents and warrants that Landlord has full right to execute and
perform this Lease and to grant the estate demised and that Tenant, upon paying
the Rental required and performing Tenant's other covenants and agreements under
this Lease, will peaceably and quietly have, hold and enjoy the Leased Premises
for the Lease Term, subject to the terms and conditions of this Lease.
16.5. Landlord's Lien. Landlord shall have, at all times, a valid
security interest to secure payment of all Rentals and other sums of money
becoming due under this Lease from Tenant, and to secure payment of any damages
or loss that Landlord may suffer by reason of the
-14-
<PAGE> 15
breach by Tenant of any covenant, agreement, or condition contained in this
Lease, upon all goods, wares, equipment, fixtures, furniture, and other personal
property of Tenant which is now on the Leased Premises or which is placed on the
Leased Premises at some later date, and all proceeds thereof. Such property
shall not be removed from the Leased Premises without the consent of Landlord
until all arrearages in Rentals and all other sums of money then due to Landlord
under this Lease have been paid and discharged, and all the covenants,
agreements, and conditions of this Lease have been fully complied with and
performed by Tenant. Upon the occurrence of an Event of Default, Landlord may,
in addition to any other remedies provided in this Lease or by law, after giving
reasonable notice of Landlord's intent to take possession and giving an
opportunity for hearing on the issue, enter upon the Leased Premises and take
possession of any and all goods, wares, equipment, fixtures, furniture, and
other personal property of the Tenant situated on the Leased Premises, without
liability for trespass or conversion, and sell the same at public or private
sale, with or without having such property at the sale, after giving Tenant
reasonable notice of the time and place of any public sale or of the time after
which any private sale is to be made. Landlord or its assigns may purchase any
items to be sold at such a sale unless they are prohibited from doing so by law.
Unless otherwise provided by law, and without intending to exclude any other
manner or giving Tenant reasonable notice, the requirement of reasonable notice
shall be met if such notice is given at lease ten (10) days before the time of
sale. The proceeds from any such disposition, less any and all expenses
connected with the taking of possession, holding and selling of the property
(including reasonable attorneys' fees and expenses) shall be applied as a credit
against the indebtedness secured by the security interest granted in this
Section 16.5. Any surplus shall be paid to Tenant or as otherwise required by
law; and Tenant shall pay any deficiencies immediately. Upon request by
Landlord, Tenant agrees to execute and deliver to Landlord a financing statement
in a form sufficient to perfect the security interest of Landlord in the
aforementioned property and proceeds under the provisions of the Uniform
Commercial Code in force in the State of Texas. The statutory lien for rent is
not waived, the security interest granted in this Section 16.5 being in
addition, and supplementary, to that lien.
16.6. Liability. Notwithstanding anything to the contrary contained
herein, no personal liability of any kind or character whatsoever now or shall
at any time hereafter attach to Landlord or Landlord's partners under any of the
terms, covenants, and conditions contained in this Lease for the payment of any
amount payable under this Lease or for the performance of any obligation under
this Lease. The exclusive remedy of Tenant for the failure of Landlord to
perform any of Landlord's obligations under this Lease will be to proceed
against the interest of Landlord in and to the Leased Premises.
16.7. Landlord's Right of Entry. Landlord and Landlord's agents and
representatives shall have the right to enter the Leased Premises at any
reasonable time during business hours for any reasonable purpose, including the
purpose of showing the Leased Premises to prospective purchasers and lenders and
to access the telephone lines, switch room and equipment, and, during the four
(4) months prior to the end of the Primary Term or any Extension Term, to
prospective tenants; provided that in so entering the Leased Premises Landlord
and such other persons do not unreasonably interfere with or interrupt Tenant's
business operations in the Leased
-15-
<PAGE> 16
Premises. Tenant shall give written notice to Landlord at least thirty (30) days
prior to vacating the Leased premises and shall arrange to meet with Landlord
for a joint inspection of the Leased Premises prior to vacating. In the event of
Tenant's failure to arrange such joint inspection, Landlord's inspection at or
after Tenant's vacating the Leased Premises shall be conclusively deemed correct
for purposes of determining Tenant's responsibility for repairs and restoration.
16.8. Authority. Each party agrees to furnish to the other, promptly
upon demand, a corporate resolution, proof of due authorization by partners, or
other appropriate documentation evidencing the due authorization and power of
such party to enter into this Lease.
16.9. Recordation. Neither Landlord nor Tenant shall record this Lease
without the prior written consent of the other.
16.10. Limitation of Warranties. EXCEPT AS OTHERWISE PROVIDED HEREIN OR
IN ANY EXHIBIT OR ADDENDUM HERETO, LANDLORD AND TENANT EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS OR
SUITABILITY OR OF ANY OTHER KIND. TENANT HAS INSPECTED THE LEASED PREMISES AND
ACCEPTS THE LEASED PREMISES "AS IS."
16.11. Waiver of DTPA. On advice of legal counsel, each of Landlord and
Tenant hereby waives the provisions of Subchapter E, Chapter 17, Title 2, Texas
Business and Commerce Code, ss.17.41 et seq., other than ss.17.555 thereof.
16.12. Notices. All notices, consents, requests, instructions,
approvals, demands and other communications provided for herein shall be validly
given, made or served if in writing and delivered personally by hand, facsimile
transmission (if a facsimile transmission number is specified in this Section
16.12 or is later provided in writing in accordance with this Section 16.12), by
nationally recognized overnight courier service (e.g., Federal Express or United
Parcel Service), or by United States certified or registered first class mail,
postage prepaid and return receipt requested. Each such notice, consent,
request, instruction, approval, demand or other communication shall be effective
(a) if delivered by hand or nationally recognized overnight courier service,
when delivered at the address specified in this Section 16.12; (b) if given by
facsimile transmission, when such facsimile transmission is transmitted to the
facsimile number specified in this Section 16.12 and the appropriate
confirmation is received; and (c) if given by United States certified or
registered first class mail, on the date appearing on the return receipt
therefor. In the event that a party is unable to deliver a notice, request,
demand or other communication due to the inaccuracy of the address and/or
facsimile transmission number provided by the other party pursuant to this
Section 16.12, or the other party's failure to notify the party of a change of
its address and/or facsimile transmission number as specified pursuant to this
Section 16.12, such notice, request, demand or other communication shall be
deemed to be effective upon confirmation by a nationally recognized overnight
courier service of its failure
-16-
<PAGE> 17
to complete delivery to the other party's address as set forth in this Section
16.12 (or other address duly given to the party by the other party in accordance
with this Section 16.12).
Addresses and facsimile transmission numbers for notices (unless and
until written notice is given of any other address and/or facsimile transmission
number):
If to Landlord:
Ray E. Hooker and Willis M. Tate, Jr.
4432 Walnut Hill Lane
Dallas, Texas 75229
Fax: 214-357-1431
If to Tenant:
Texas Security Central, Inc.
12610 Richmond Avenue
Houston, Texas 77082
Fax: 281-584-5992
Security Associates International, Inc.
Attn: President
2101 S. Arlington Heights Road, Suite 100
Arlington Heights, IL 60005
Any notice of change of address or fax number shall not be effective until
actually received.
16.13. Parties Bound. This Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and assigns where permitted
by this Agreement.
16.14. Applicable Law. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS WHOLLY
NEGOTIATED, EXECUTED, AND PERFORMABLE IN SUCH STATE. ALL OBLIGATIONS PERFORMABLE
BY THE PARTIES HERETO WILL BE DEEMED PERFORMABLE IN DALLAS COUNTY, TEXAS.
16.15. Severability. The provisions of this Lease are severable, and
the invalidity, illegality, or unenforceability of any particular provision of
this Lease shall not affect the other provisions hereof, and this Lease shall be
construed in all respects as if such invalid, illegal, or unenforceable
provisions were omitted; and it is also the intention of the parties to this
Lease that in lieu of each clause or provision of this Lease that is illegal,
invalid, or unenforceable there
-17-
<PAGE> 18
be added as a part of this Lease a clause as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
16.16. Attorneys' Fees. If any action, at law or in equity, is
necessary to enforce or interpret the terms of this Lease, the prevailing party
shall be entitled to recover its reasonable attorneys' fees, costs and other
necessary disbursements from the losing party in addition to any other relief to
which it may be entitled.
16.17. Force Majeure. Notwithstanding Section 16.18, whenever a period
of time is prescribed in this Lease for the taking of any action (other than
monetary obligations) by Landlord or Tenant, neither Landlord nor Tenant shall
be liable or responsible for, and there shall be excluded from the computation
of such period of time, any delays due to force majeure, which means acts of
God, strikes, lockouts, material or labor restrictions by any governmental
authority, riots, floods, washouts, sinkholes, explosions, earthquakes, fire,
storms, acts of the public enemy, wars, insurrections, and any other cause not
reasonably within the control of Landlord or Tenant and which by the exercise of
due diligence Landlord or Tenant is unable, wholly or in part, to prevent or
overcome.
16.18. Time of Essence. Time is of the essence in the performance of
all the covenants, conditions, and agreements contained in this Lease.
16.19. Captions. The captions used in this Lease are for convenience
only and in no way define, limit or otherwise describe the scope or intent of
this Lease or any provision hereof, or in any way affect the interpretation of
this Lease.
16.20. Counterparts. This Lease may be executed in multiple
counterparts, each of which shall for all purposes be deemed to be an original;
but all of such counterparts together shall constitute but one and the same
agreement.
16.21. Survival. All indemnity obligations of Tenant hereunder and all
obligations of Landlord and Tenant hereunder not fully performed as of the
expiration or earlier termination of the Lease Term shall survive the expiration
or earlier termination of the Lease Term, including without limitation all
Tenant's payment obligations with respect to Rental, and all obligations
concerning the physical condition of the Leased Premises.
16.22. Amendment and Modification. No amendment to or modification of
this Lease will be binding upon either party hereto unless such amendment or
modification is reduced to writing, dated, and executed by both parties to this
Lease.
16.23. Entire Agreement. This Lease constitutes and expresses the
entire agreement and understanding between Landlord and Tenant in reference to
all of the matters herein referred to, and all discussions, promises,
representations and understandings relative thereto, if any, between Landlord
and Tenant are merged herein and superseded hereby. The following exhibits are
attached to and incorporated in this Lease:
-18-
<PAGE> 19
Exhibit A -- Description of Land and Leased Premises
Exhibit B -- Extension Option
16.24. Parking Spaces. Tenant shall have the right to use the parking
spaces in the parking lot adjacent to the Building.
16.25. Warranties. To the extent any such warranties allow, Tenant
shall be entitled to use and invoke the remaining warranties available on any
equipment for which Tenant is responsible hereunder.
EXECUTED as of the day, month and year first above written.
LANDLORD
/s/ RAY E. HOOKER
---------------------------------
Ray E. Hooker
---------------------------------
Willis M. Tate, Jr.
TENANT
TEXAS SECURITY CENTRAL, INC.
By: /s/ RONALD CARR
------------------------------
Ronald Carr, Vice President
-19-
<PAGE> 20
16.24 Parking Spaces. Tenant shall have the right to use the parking
spaces in the parking lot adjacent to the Building.
16.25 Warranties. To the extent any such warranties allow, Tenant shall
be entitled to use and invoke the remaining warranties available on any
equipment for which Tenant is responsible hereunder.
EXECUTED as of the day, month and year first above written.
LANDLORD
---------------------------------
Ray E. Hooker
/s/ WILLIS M. TATE, JR.
---------------------------------
Willis M. Tate, Jr.
TENANT
TEXAS SECURITY CENTRAL, INC.
By:
------------------------------
Ronald Carr, Vice President
-19-
<PAGE> 21
EXHIBIT A
DESCRIPTION OF LAND
A-1
<PAGE> 22
EXHIBIT B
EXTENSION OPTION
1. Option. Landlord grants to Tenant one (1) option (the "Extension
Option") to extend the Primary Term for an additional term of five (5) years
(the "Extension"), on the same terms, conditions and covenants set forth in this
Lease, except as provided in this Exhibit B. The Extension Option shall be
exercised only by Tenant's giving written notice to Landlord at least six (6)
months before the expiration of the Primary Tenn. If Tenant fails to deliver to
Landlord written notice of the exercise of the Extension Option within the
prescribed time period, the Extension Option will lapse, and there will be no
further night to extend. The Extension Option shall be exercisable by Tenant on
the express condition that at the time of the exercise, no Event of Default
shall exist and be continuing unremedied. The Extension Option may be exercised
by any permitted assignee of Tenant, but not by any subtenant.
2. Calculation of Base Rent. The Base Rent will be increased on the
first day of the Extension to the fair rental value of the Leased Premises (the
"Fair Rental Value"), determined in the following manner:
(a) The Fair Rental Value shall be the value agreed on by Landlord
and Tenant prior to the date the Extension Option is required to be
exercised, if Landlord and Tenant are able to agree.
(b) If Landlord and Tenant have not been able to agree on the Fair
Rental Value prior to the date the Extension Option is required to be
exercised, the Base Rent for the Extension shall be determined in
accordance with this subparagraph (b). Within fifteen (15) days
following the exercise of the Extension Option, Landlord and Tenant
each shall appoint one appraiser. Within ten (10) days after the two
appraisers are appointed, they will appoint a third appraiser. If
either Landlord or Tenant fails to appoint its appraiser within the
prescribed time period, the single appraiser appointed will determine
the Fair Rental Value of the Leased Premises in accordance with Section
2(c) below and such other standards used by qualified appraisers in the
Dallas-Fort Worth area as may be appropriate. If the two appointed
appraisers fail to agree on the third appraiser, the third appraiser
will be appointed by the then president of the Greater Dallas Board of
Realtors, and all three appraisers will determine the Fair Rental Value
of the Leased Premises in accordance with Section 2(c) below and such
other standards used by qualified appraisers in the Dallas-Fort Worth
area as may be appropriate. Each party will bear the cost of the
appraiser appointed by it and the parties will share equally the cost
of the third appraiser. All appraisers will be qualified to determine
the Fair Rental Value of the Leased Premises.
(c) The "Fair Rental Value" of the Leased Premises shall mean the
price that a ready and willing tenant would pay as of the commencement
of the Extension as monthly base rent to a ready and willing landlord
of property comparable to the Leased Premises if such property were
exposed for lease on the open market for a reasonable
B-1
<PAGE> 23
period of time and taking into account the use proposed to be made of
the Leased Premises by Tenant. The Fair Rental Value of the Leased
Premises will be the value determined by the single appraiser if only
one appraiser is appointed, or if three appraisers are appointed, the
Fair Market Value will be the average of the two of the three
appraisals which are closest in amount, with the third appraisal being
disregarded. In no event shall the Base Rent be reduced by reason of
such computation. If the Fair Rental Value is not determined prior to
the commencement of the Extension, then Tenant shall continue to pay to
Landlord the Base Rent applicable to the Leased Premises immediately
prior to such Extension until the Fair Rental Value is determined, and
when it is determined, Tenant shall pay to Landlord within thirty (30)
days after receipt of a notice from Landlord the difference between the
Base Rent actually paid by Tenant during the Extension prior to the
determination and the new Base Rent determined hereunder.
B-2
<PAGE> 1
[ARTHUR ANDERSEN LOGO]
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Re: Security Associates International, Inc.
Form S-1 Registration Statement
As independent public accountants, we hereby consent to the use of our
report dated February 2, 2000 and to all references to our Firm included in or
made a part of this Registration Statement.
/s/ Arthur Andersen LLP
- -----------------------------
Chicago, Illinois
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 631,521
<SECURITIES> 0
<RECEIVABLES> 2,327,895
<ALLOWANCES> (499,000)
<INVENTORY> 0
<CURRENT-ASSETS> 3,010,425
<PP&E> 5,613,263
<DEPRECIATION> (1,567,739)
<TOTAL-ASSETS> 33,340,650
<CURRENT-LIABILITIES> 6,859,791
<BONDS> 0
0
1,363,590
<COMMON> 7,145
<OTHER-SE> 12,795,664
<TOTAL-LIABILITY-AND-EQUITY> 33,340,650
<SALES> 0
<TOTAL-REVENUES> 22,689,132
<CGS> 0
<TOTAL-COSTS> 25,620,357
<OTHER-EXPENSES> 1,899,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,564,565
<INCOME-PRETAX> (3,596,635)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,596,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,596,635)
<EPS-BASIC> (.59)
<EPS-DILUTED> 0
</TABLE>
