<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14502
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HOME SECURITY INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 98-0169495
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
LEVEL 7, 77 PACIFIC HIGHWAY 2060
NORTH SYDNEY, NSW (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(011) (612) 9936-2424
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
$.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
AGGREGATE MARKET VALUE, AS OF OCTOBER 28, 1998, OF COMMON STOCK HELD BY NON-
AFFILIATES OF THE REGISTRANT: $27,328,125 BASED ON THE LAST REPORTED SALE
PRICE ON THE AMERICAN STOCK EXCHANGE.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON OCTOBER 28, 1998: 5,550,500
SHARES
DOCUMENTS INCORPORATED BY REFERENCE
This amendment is filed solely to include Items 10 through 13.
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<PAGE>
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company and their ages as of
June 30, 1998 are as follows:
NAME AGE POSITION
-------------------- --- ------------------------------------------
Bradley D. Cooper 39 Chairman of the Board of Directors, Chief
Executive Officer
Terrence J. Youngman 44 President
Robert D. Appleby 47 Executive Vice President of International
Business Development
Mark Whitaker 32 Chief Financial Officer, Treasurer,
Executive Vice President of Finance
Geoffrey D. Knowles 33 Executive Vice President of Marketing
Felicity A. Hilbert 29 Executive Vice President of Operations
Timothy M. Mainprize(1) 48 Director
Steven A. Rothstein 47 Director
Steven Rabinovici(1)(2) 46 Director
Dennis J. Puleo(1)(2) 52 Director
Paul Brown 38 Director
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(1) Member of Audit Committee
(2) Member of Compensation Committee
Mr. Bradley D. Cooper is the founder of the Company and has been its Chief
Executive Officer since its inception in 1988. Mr. Cooper became Chairman of the
Board of the Company on May 1, 1997. Mr. Cooper is also a director and major
shareholder of the Phoenix Leisure Group Pty Ltd, which holds the Australian
license for Rossignol Skis. He is the founding director and major shareholder of
Theme Products Pty Ltd, which holds exclusive licenses to manufacture, market
and distribute children's furniture in Australia for such childhood favorites as
Warner Bros. (Looney Tunes), Sesame Street, and Thomas the Tank Engine and is
Chairman of Vision Publishing Pty Ltd, a business publishing and conference
company. Mr. Cooper is also a director of the Elizabethan Theatre Trust.
Mr. Terrence J. Youngman is the President of the Company and is responsible
for management of all senior departmental managers and overall Company
operations, a position he has held since 1996. Mr. Youngman has been employed by
the Company since 1992, serving as General Manager from 1995 to 1996 and Finance
Administration Manager from 1992 to 1995. In 1991 and 1992 Mr. Youngman served
as a Finance Accountant for Furniture Australia (BTS Subsidiaries).
Mr. Robert D. Appleby is the Executive Vice President of International
Business Development for the Company and has served in this position since 1993.
His responsibilities include the recruitment, training, development and
motivation of the Company's distributors in Australia and overseas. Prior to his
present position, Mr. Appleby served as the Company's International Sales
Director.
Mr. Mark Whitaker is the Company's Chief Financial Officer, Treasurer and
Executive Vice President of Finance and has served in this capacity since
December 1996. Mr. Whitaker has been employed by the Company since 1992, serving
as Assistant General Manager in 1995 and 1996, as Group Accountant from 1993 to
1995 and
<PAGE>
as a Financial Accountant from 1992 to 1993. Prior to his employment with the
Company, Mr. Whitaker was employed by Hewlett Packard (in England) as a
financial accountant from 1991 to 1992.
Mr. Geoffrey D. Knowles has served as Executive Vice President of Marketing
for the Company since 1994. Mr. Knowles is responsible for the development and
implementation of all sales and marketing material, training programs and
internal competitions for all sales personnel. Mr. Knowles has been employed by
the Company since 1993, serving as Assistant General Manager of the Company from
1993 to 1994 and National Sales Manager during 1993. From 1986 to 1992 Mr.
Knowles was the Managing Director of Knowles Enterprises Pty Ltd., a company
which sold electrical appliances.
Ms. Felicity A. Hilbert has served as the Company's Executive Vice
President of Operations, responsible for the operational management of the
Company, the Customer Service department and the Extended Services department in
Australia and overseas, since 1996. Ms. Hilbert has been employed by the Company
since 1992, serving as the International Operations Manager from 1994 to 1996,
as Distributor Relations Manager and National Administration Manager from 1993
to 1994 and as an Administrative Assistant for the Company's Melbourne branch
from 1992 to 1993. Ms. Hilbert was employed by Tilt Lift Equipment Pty Ltd., a
company which specializes in providing commercial construction products and
services, from 1988 to 1992.
Mr. Timothy M. Mainprize was elected a director of the Company in April
1997. Mr. Mainprize is Chief Financial Officer of FAI Insurances, where he is
also responsible for its Information Technology and is a member of the
Investment Committee. Mr. Mainprize had been with FAI Insurances since 1988 and
was appointed a director of FAI Insurances in 1993.
Mr. Steven Rothstein was elected a director of the Company in April 1997.
He became a member of the Board of Directors of National Securities Corporation
("National Securities") in May 1995 and was appointed Chairman on August 1,
1995. He is also the Chairman, Chief Executive Officer, President and a director
of Olympic Cascade Financial Corporation, the parent company of National
Securities and L.H. Friend. From 1979 through 1989, Mr. Rothstein was a
registered representative and limited partner at Bear Stearns and Company, Inc.
in Chicago, Illinois and Los Angeles, California. From 1989 to 1992, Mr.
Rothstein was a Senior Vice President in the Chicago office of Oppenheimer and
Company, Inc. In December 1992 he joined Rodman and Renshaw, Inc., a Chicago-
based broker/dealer, serving as Managing Director, and joined H.J. Meyers, Inc.,
a New York Stock Exchange member firm in March 1994. Mr. Rothstein is a 1972
graduate of Brown University, Providence, Rhode Island. Presently, Mr. Rothstein
is a board member of SigmaTron International, Inc. and Vita Food Products, Inc.
and a board member and chairman of the board of Shampan Lamport Holdings
Limited. National Securities was one of the IPO Representatives and Mr.
Rothstein has been designated by National Securities as its director nominee
pursuant to rights granted to it in the Underwriting Agreement relating to the
IPO.
Mr. Steven Rabinovici was elected a director of the Company in April 1997.
He has been Chairman of the Board and Chief Executive Officer of Complete
Management, Inc. ("CMI") since December 28, 1995. From December 31, 1992 through
December 27, 1995 he was the President, Chief Executive Officer and a director
of CMI. From July 1990 through December 31, 1992, he was an independent health
care and business consultant. Earlier in his career, Mr. Rabinovici had more
than 10 years experience in hospital administration, including approximately two
years as associate administrator of Brookdale Hospital Medical Center, a 1,000
bed teaching hospital, and two years as the administrator of the Division of
Psychiatry, Cornell University New York Hospital. Mr. Rabinovici has a Bachelors
degree from City University of New York, Brooklyn College, a Masters degree in
Public Health from Columbia University School of Public Health and a Juris
Doctorate degree from New York Law School.
Mr. Dennis Puleo was elected a director of the Company in April 1997. He
has worked as a real estate agent for Century 21 since 1991 and holds real
estate licenses in Florida and Massachusetts. During this time, Mr. Puleo has
also worked as an independent consultant in the areas of sales, marketing and
franchising.
<PAGE>
Mr. Paul Brown was appointed a director of the Company effective following
the close of the Ness Transaction, in October, 1998. Mr. Brown has been a
private investor in different entities including the sole beneficial owner of
Integrated Intenational Home Security Investments Limited ("IIHSL") for the last
five years. Integrated Investments Limited, the sole shareholder of IIHSL, and
seller in the Ness Transaction has designated Mr. Brown as its director nominee
pursuant to the rights granted to it in the Stock Purchase Agreement relating to
the Ness Transaction.
STAGGERED BOARD OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is divided into three classes of directors serving staggered three-
year terms.
Class I Directors. The following persons serve as Class I directors with
their term expiring at the annual meeting to be held following June 30, 1998:
Steven A. Rothstein and Steven Rabinovici.
Class II Directors. The following persons serve as Class II directors with
their term expiring at the annual meeting to be held following June 30, 1999:
Timothy M. Mainprize and Dennis J. Puleo.
Class III Directors. The following persons serve as Class III directors
with their terms expiring at the annual meeting to be held following June 30,
2000: Bradley D. Cooper and Paul Brown.
All directors of each class hold their positions until the annual meeting
of shareholders held during the year in which the terms of the directors in such
class expire, or until their respective successors are elected and qualified.
ITEM 11: EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Non-employee directors receive annual compensation of $10,000 and are
reimbursed for out-of-pocket expenses incurred in attending each committee or
board meeting. Pursuant to the 1997 Non-Employee Director Stock Option Plan
options to purchase a total of 20,000 shares have been granted to date to the
Company's non-employee directors, at an exercise price of $10.00 per share, and
at each Annual Meeting of Stockholders each non-employee director will be
granted options to purchase 2,500 shares of Common Stock at an exercise price
equal to the closing market price on the date of such meeting. All options will
be exercisable six months after the effective date of grant of said options and
expire on the fifth anniversary of such date. See "Stock Compensation Plans"
below.
EXECUTIVE EMPLOYMENT AGREEMENTS
Certain executive employment agreements have been executed with the Company
by the following key executives: Messrs. Bradley Cooper, Terrence J. Youngman,
David Appleby, Mark Whitaker and Geoffrey Knowles and Ms. Felicity Hilbert and
continue through June 30, 2000.
The executive employment agreement (which has been superseded by a
consulting agreement with a company beneficially owned by Mr. Cooper described
below) with Mr. Cooper provides that he shall receive a base salary of $700,000
per year plus a bonus equivalent to 10% of Net Profit After Tax ("NPAT"), as
calculated prior to his bonus entitlement. In addition, Mr. Cooper may receive
an additional bonus, as may be determined by the Company's Board of Directors
and its Compensation Committee. Mr. Cooper bears all expenses associated with
his employment including rent, administrative support and travel costs, and the
Company is not obligated to pay or reimburse Mr. Cooper for any out of pocket
expenses incurred while he is on Company business. Mr. Cooper is eligible to
receive stock options in accordance with the Company's 1997 Stock Option Plan or
any other executive
<PAGE>
stock option plan as may be established from time to time by the Company's Board
of Directors. The total remuneration received by Mr. Cooper is reviewed by the
Company's Compensation Committee on an annual basis, and is subject to
adjustment based on such review. In the event of termination during the first
three years of the agreement, the Company must pay to Mr. Cooper an amount equal
to Mr. Cooper's total remuneration (exclusive of bonuses) received or earned
during the 12 month period preceding such termination. On October 1, 1997, the
executive employment agreement with Mr. Cooper was replaced by a consulting
agreement with Speakeasy Pty Ltd, a company beneficially owned by Mr. Cooper.
The terms of the consulting agreement are substantially the same as the terms of
the executive employment agreement that it replaced, except that the Company
agreed to reimburse Speakeasy Pty Ltd for certain out of pocket costs which may
be incurred by Mr. Cooper in connection with services rendered by him solely
related to the Company's expansion into new markets outside of Australia and New
Zealand.
The executive employment agreement with Mr. Appleby provides that he
receives no base salary. Instead, Mr. Appleby receives, on a monthly basis, a
commission of approximately AUD $16 for each sale of a SecurityGuard System
within Australia and New Zealand to a member of the public (provided the product
has not been returned by the consumer and no refund of the purchase price has
been made) and a bonus for reaching specified unit sale targets. For the twelve
months ended June 30, 1998, Mr. Appleby received remuneration, based on the
number of units sold, of $652,586 and a bonus of $341,052. The executive
employment agreement with Mr. Knowles is substantially the same as that of Mr.
Appleby except for his commission, which is approximately AUD $10 for each
SecurityGuard System sold under the same conditions as Mr. Appleby. For the
twelve months ended June 30, 1998, Mr. Knowles received remuneration, based on
the number of units sold, of $339,043 and a bonus of $136,421.
Mr. Youngman's agreement provides for a base salary of $85,233 and does not
entitle him to any bonus.
The executive employment agreement for each of Mr. Whitaker and Ms. Hilbert
provides for a base salary of $67,000.
The total remuneration, including any bonus, received by Messrs. Appleby,
Knowles, Youngman and Whitaker and Ms. Hilbert under their respective agreements
is reviewed by the Company's Compensation Committee on an annual basis, and is
subject to adjustment based on such review.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for the
years ended June 30, 1998, 1997 and 1996 to the Chief Executive Officer and to
the other executive officers of the Company whose total annual salary and bonus
for the year ended June 30, 1998 exceeded $100,000 (together, the "Named
Executive Officers").
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
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NAME AND PRINCIPAL POSITION COMPENSATION COMPENSATION
- ----------------------------------------------------- -------------- -----------------
STOCK
-------
YEAR SALARY OPTIONS BONUS
---- -------- ------- -------
<S> <C> <C> <C> <C>
Bradley D. Cooper(1) 1998 $700,000 -- $575,458
Chairman of the Board and Chief Executive Officer 1997 $692,192 -- --
1996 $ 59,708 -- --
Robert D. Appleby 1998 $652,586 -- $341,052
Executive Vice-President of International Business 1997 $476,468 -- $146,270
Development 1996 $113,826 -- $ 78,860
Geoffrey D. Knowles 1998 $339,043 -- $136,421
Vice President of Marketing 1997 $312,400 -- --
1996 $110,693 -- --
</TABLE>
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(1) The salary paid to Mr. Cooper in fiscal year 1997 consisted solely of
commissions for each SecurityGuard System sold by the Company. Mr. Cooper's
employment agreement that became effective with the IPO, and the consulting
agreement with Speakeasy Pty Ltd which has replaced the employment
agreement, eliminated this commission arrangement. See "Executive Employment
Agreements".
STOCK COMPENSATION PLANS
1997 Stock Option Plan. The Company has adopted the 1997 Stock Option Plan,
under which the Compensation Committee may grant options to purchase up to an
aggregate of 750,000 shares of Common Stock to management, employees and
advisors of the Company. The 1997 Stock Option Plan provides for the grant of
stock options ("Options"), including incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and non-statutory stock options that do not qualify as stock options under
Section 422 of the Code ("Non-Statutory Options"). The Company has issued a
total of 750,000 options under the 1997 Stock Option Plan, all at an exercise
price of $10.00 per share, including 250,000 to Mr. Cooper, 90,000 to Mr.
Youngman and 80,000 to each of Mr. Whitaker and Ms. Hilbert, granted on July 15,
1997, and 165,000 to Mr. Appleby and 85,000 to Mr. Knowles, granted on April 8,
1998. Each of these Options vests in annual 20% increments over a five year
period, with the first 20% vested and exercisable on the first anniversary of
the grant date, except that 85,000 Options granted to Mr. Appleby and 55,000
Options granted to Mr. Knowles will vest in increments upon the Company
achieving certain unit sales numbers outside of Australia and New Zealand prior
to June 30, 1999 or on October 31, 2003, if the Company fails to achieve the
targeted unit sales numbers.
1997 Non-Employee Director Stock Option Plan. The Company has adopted the
1997 Non-Employee Director Stock Option Plan, under which 50,000 shares of
Common Stock have been authorized for issuance. Upon the closing of the
Company's IPO, all four non-employee directors received options to purchase
5,000 shares of Common Stock at an exercise price of $10.00 per share under the
1997 Non-Employee Director Stock Option Plan. Commencing with the first annual
meeting of shareholders following the IPO (expected to be conducted in December
1998), all non-employee directors continuing to serve as such will receive, on
the day following each annual meeting of shareholders, options to purchase an
additional 2,500 shares of Common Stock at an exercise price equivalent to the
market price of the stock on the date of such grant. All such grants will be
Non-Statutory Options. The options granted under the 1997 Non-Employee Director
Stock Option Plan are exercisable beginning six months from the date of grant.
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of October 28, 1998 by (i)
each executive officer of the Company, (ii) each director of the Company or
nominee for director, (iii) all executive officers and directors as a group, and
(iv) each person known by the Company to be the beneficial owner of more than
five percent of the Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
---------------------------
NUMBER OF
SHARES PERCENT
------------ ----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS(2)
Bradley D. Cooper(3)............................. 300,000 5.5%
Terrence J. Youngman(4).......................... 18,000 *
Robert D. Appleby................................ -- --
Mark Whitaker(5)................................. 16,000 *
Geoffrey D. Knowles.............................. -- --
Felicity A. Hilbert(5)........................... 16,000 *
Steven Rabinovici(6)............................. 5,000 *
Timothy M. Mainprize(6)(7)....................... 5,000 *
Dennis J. Puleo(6)............................... 5,000 *
Steven A. Rothstein(6)(8)........................ 54,000 1.0
Paul Brown(9).................................... 760,000 12.9
All executive officers and directors as a group
(11 persons)..................................... 1,179,000 19.4
FIVE PERCENT SHAREHOLDERS
FAI Home Security Holdings Pty Ltd.(10).......... 2,150,000 38.7
Level 7, 77 Pacific Highway
North Sydney, NSW 2060 Australia
Robertson, Stephens & Company
Investment Management L.P.(11)................. 796,600 14.4
555 California St., Suite 2600
San Francisco, CA 94104
Heartland Advisors, Inc.(12)..................... 1,203,100 21.7
790 North Milwaukee Street
Milwaukee, WI 53202
</TABLE>
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*Less than one percent.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting power and sole investment power with respect to all
the shares reflected in this table.
(2) Unless otherwise noted, the address for each of the executive officers and
directors is c/o Home Security International, Inc., Level 7, 77 Pacific
Highway, North Sydney, NSW 2060, Australia.
(3) Includes 250,000 shares owned by Mr. Cooper and 50,000 shares issuable upon
the exercise of options, which are currently exercisable.
(4) Represents 18,000 shares issuable upon the exercise of options, which are
currently exercisable.
(5) Represents 16,000 shares issuable upon the exercise of options, which are
currently exercisable.
<PAGE>
(6) Represents 5,000 shares issuable upon the exercise of options, which are
currently exercisable.
(7) Does not include 2,150,000 shares beneficially owned by FAI Insurances,
of which Mr. Mainprize is a director and the Chief Financial Officer.
(8) Represents 5,000 shares issuable upon the exercise of options, which are
currently exercisable and 49,000 shares issuable upon exercise of the IPO
Warrants, transferred to Mr. Rothstein from National Securities. Does not
include 41,000 shares issuable upon the exercise of the IPO Warrants held
by National Securities, of which Mr. Rothstein is a director and Chairman.
Mr. Rothstein is also Chairman, Chief Executive Officer, President and a
director of Olympic Cascade Financial Corporation, the parent company of
National Securities.
(9) Includes 400,000 shares issued to Integral Investments Limited pursuant to
the Ness Transaction, of which Paul Brown is the sole beneficial owner, and
360,000 shares issuable upon the exercise of the Ness Warrants also issued
to Integral Investments Limited pursuant to the Ness Transaction.
(10) A wholly owned subsidiary of FAI Insurances. Based on information
reported on Schedule 13G, filed on February 19, 1998.
(11) Includes 626,100 shares held of record by The Robertson Stephens Orphan
Fund ("Orphan"), of which Robertson, Stephens & Co. Investment Management,
L.P. ("Robertson") is a General Partner. Robertson, Robertson Stephens
Investment Management Co. ("Parent"), and Parent's 100% parent, BankAmerica
Corporation, each share beneficial ownership of the 796,600 shares held by
Orphan, and other subsidiaries. Based on information reported on Schedule
13G, filed on September 23, 1998.
(12) Based on information reported on Schedule 13G, Amendment No. 2, filed on
May 11, 1998.
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS INVOLVING BRADLEY D. COOPER
In 1990, FAI Insurances acquired 50% of the stock of the Company from
Bradley D. Cooper. On September 5, 1994 and June 1, 1995 FAI Insurances acquired
from Mr. Cooper an additional 4.18% and 5.98% of the Company, respectively, for
approximately $2,552,000. On June 1, 1995, FAI Insurances acquired from Mr.
Cooper the remaining 39.84% of the Company which it did not already own for a
purchase price of approximately $6,280,800 payable over 49 months (subject to
downward adjustment in the event certain Earnings Before Interest and Taxes
("EBIT") targets were not achieved). By May 1997, the purchase price was paid in
full by FAI Insurances. As a result of these transactions, the Company became a
wholly owned subsidiary of FAI Insurances.
On November 11, 1995, Mr. Cooper acquired from FAI Insurances the
International Assets for $220 and assumed approximately $2.0 million of
intercompany debt associated with the International Assets owed to FAI
Insurances. This intercompany debt was subsequently converted to a fixed term
loan bearing interest at 10% per annum. On March 31, 1997, FAI Insurances
reacquired the International Assets from Mr. Cooper for the purchase price of
approximately $2.8 million. The International Assets included a license from FAI
Insurances to distribute the SecurityGuard System in all countries outside
Australia and New Zealand. FAI Insurances' purchase of the International Assets
did not include the amount due under the fixed term loan and the right to
repayment was not transferred by FAI Insurances to the Company in connection
with the Reorganization or otherwise. As of March 31, 1998 Mr. Cooper was
obligated to FAI Insurances under the term loan in an aggregate amount of
$2,449,528.
On July 1, 1996, the Company entered into a management agreement with
Speakeasy Pty Ltd. (as the trustee for the Speakeasy Investment Trust, of which
Bradley D. Cooper is the primary beneficiary), whereby the services of Mr.
Cooper were made available to the Company. In exchange for services provided,
Speakeasy Pty Limited was paid a commission of approximately $19.25 on each
alarm unit sold by the Company. For the fiscal year ended June 30, 1997, the
Company paid to Speakeasy Pty Limited approximately $692,192. This management
agreement terminated on the closing of the Company's IPO and was replaced by an
employment agreement between the Company and Mr. Cooper, which was subsequently
replaced on October 1, 1997 by a consulting agreement with Speakeasy Pty Ltd.,
which provides Mr. Cooper's services to the Company on substantially the same
terms as the employment agreement which became effective upon the IPO. See
"Executive Employment Agreements".
On July 15, 1997 Mr. Cooper purchased 250,000 shares of the Company's
Common Stock at $10.00 per share. Five percent (5%) of the purchase price for
the shares was paid by Mr. Cooper in cash and the remainder was paid through a
five-year note to the Company bearing interest at 7.0% per annum, payable semi-
annually, and secured by the shares purchased. The note is repayable on the
fifth anniversary of its issuance. The interest payable on the note is due on a
full recourse basis. During the fiscal year ended June 30, 1998, Mr. Cooper made
interest payments totaling $159,873.
During the years ended June 30, 1996 and 1997, the Company made certain
personal loan advances to Mr. Cooper. These loan advances were on a non-interest
bearing basis and repayable on demand. The balance of these personal loans on
June 30, 1996 and on June 30, 1997 were $105,432 and $14,076, respectively.
These personal loan balances have been paid in full as of March 31, 1998.
TRANSACTIONS WITH FAI INSURANCES
On June 30, 1997, pursuant to the Reorganization, the Company acquired from
FAI Insurances, the Australian and New Zealand security alarm operations of FAI
Insurances (the "Australia and New Zealand Operations") and the International
Assets. The Reorganization was effected by a share purchase agreement through
which the Company, in exchange for the International Assets and 100% of the
issued capital stock of the wholly owned subsidiaries of FAI
<PAGE>
Insurances which owned the Australia and New Zealand Operations, executed a
$911,892 non-interest bearing note payable to FAI Insurances within thirty days
of the effective date of the Company's IPO (the "FAI Note"), assumed a $208,894
non-interest bearing note payable to FAI Insurances within thirty days of the
effective date of the Company's IPO (the "NZ Note") and issued 4,499,999 shares
of Common Stock of the Company to FAI Home Security Pty Limited, a wholly owned
subsidiary of FAI Insurances. In connection with the Reorganization, the Company
entered into the License Agreement through which the license previously granted
by FAI Insurances to use the "FAI" name and logo was modified to eliminate the
royalty fee in connection therewith. Prior to the Reorganization, the Company
paid a royalty fee to FAI Insurances for the fiscal years ended June 30, 1995,
June 30, 1996 and June 30, 1997 of $1,989,371, $2,750,468 and $3,697,376,
respectively. Immediately prior to the Reorganization, the Company, through its
predecessor entities, made a final dividend distribution to FAI Insurances
totaling approximately $5,876,224 (including a partial return of capital of
$581,928) representing primarily the retained earnings of the Australia and New
Zealand Operations on the date of the Reorganization. Following the
Reorganization, the Company completed the IPO. The FAI Note and the NZ Note were
paid in full by the Company from proceeds of the IPO.
The Company leases from FAI General Insurances Limited, a subsidiary of FAI
Insurances, approximately 824 square meters of office space for its principal
executive and operational offices located at Levels Ground, 3, 7 and 8, 77
Pacific Highway, North Sydney NSW 2060. Under the terms of the agreement, the
Company pays an annual rent of AUD $380 per square meter per annum.
From time to time predecessor entities of the Company entered into loan
transactions with other companies affiliated with FAI Insurances. These loan
transactions were treated as intercompany loans since at the time the loans were
made the Company was an affiliate of FAI Insurances. The balance of these loans
as of June 30, 1995, 1996 and 1997 amounted to $2,675,655, $4,380,060, and
$2,025,427, respectively. All of these loans were satisfied in full subsequent
to June 30, 1997.
Pursuant to the FFC Transaction, on December 31, 1997 the Company purchased
the FFC Shares from FAI Insurances for $7,016,525 and acquired the FFC Option,
at no cost, to acquire the remaining 50% equity interest of FFC for the same
consideration as was paid for the FFC Shares plus 50% of the net change in FFC's
retained earnings from the date of the FFC Transaction until the date the FFC
Option is exercised. The Company delivered the FFC Note in payment of the
purchase price. As of March 31, 1998 the aggregate principal amount of the FFC
Note, plus accrued interest, totaled approximately $5,726,000. The payment of
the principal balance of this note is secured by the FFC Shares purchased by the
Company in the FFC Transaction.
TRANSACTIONS WITH STEVEN A. ROTHSTEIN
National Securities, of which Steven A. Rothstein is Chairman of the Board,
served as one of the IPO Representatives. In connection with the IPO, National
Securities received, in addition to applicable underwriting discounts,
commissions and a nonaccountable expense allowance, 130,000 of the IPO Warrants,
and the right to delegate one nominee for election as a director of the Company
during the five year period ending on July 18, 2002. Mr. Rothstein is also
Chairman of the Board and Chief Executive Officer of Olympic Cascade Financial
Corporation, which is the parent corporation of L.H. Friend.
TRANSACTIONS WITH INTEGRAL INVESTMENTS LIMITED AND PAUL BROWN
On July 17, 1998 the Company entered into the Stock Purchase Agreement with
Integral Investments Limited ("Integral"), whereby it has agreed to purchase all
of the issued and outstanding common stock of Integrated International Home
Security Limited ("IIHSL"), a British Virgin Islands company that owns 75.04 %
of the issued and outstanding common stock of Ness Security Products Pty Ltd.,
and Australian company, a leading designer and manufacturer of security alarm
products in Australia and the Company's sole supplier of its SecurityGuard alarm
(the "Ness Transaction"). As a result of the Ness Transaction, Integral
obtained the right to designate one nominee for
<PAGE>
election to the board of directors of the Company. Paul Brown, the sole
shareholder of Integral was designated the nominee of Integral.
Pursuant to the Stock Purchase Agreement, the Company agreed to pay
aggregate consideration consisting of: (i) 400,000 shares of the Company's
Common Stock; (ii) a five year convertible warrant to purchase 360,000 shares of
the Company's Common Stock at an exercise price of $13.00; (iii) cash in the
amount of $2,426,000 ($126,000 paid concurrent with the execution of the
Purchase Agreement and $2,300,000 to be paid upon closing of the Transaction);
and, (iv) a promissory note, secured by the IIHSL Shares, in the amount of
$9,098,000, payable in installments of $400,000 on each of June 30, 1999 and
December 31, 1999, respectively, with the balance of the note due on June 30,
2000 ("Note"). If any portion of the principal amount of the Note is still
outstanding on October 1, 1999, the Company shall issue an additional five year
warrant to purchase 200,000 shares of the Company's Common Stock at an exercise
price of $13.00 per share. Likewise, if any portion of the principal amount of
the Note is still outstanding on January 1, 2000, the Company shall issue an
additional five year warrant to purchase 200,000 shares of the Company's
Common Stock at an exercise price of $13.00 per share.
TRANSACTION POLICY
All future transactions, including loans, between the Company and its
officers, directors, principal stockholders and affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Home Security International, Inc.,
(Registrant)
By: /s/ Bradley D. Cooper
- -----------------------
Bradley D. Cooper
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: October 28, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ------------------------------------ ----------------
<S> <C> <C>
/s/ Bradley D. Cooper Chairman and Chief Executive October 28, 1998
- ------------------------- Officer
Bradley D. Cooper (Principal Executive Officer)
/s/ Mark Whitaker Chief Financial Officer, Executive October 28, 1998
- ------------------------- Vice President of Finance and
Mark Whitaker Treasurer (Principal Financial
and Accounting Officer)
/s/ * Director October 28, 1998
- -------------------------
Timothy M. Mainprize
/s/ * Director October 28, 1998
- -------------------------
Steven A. Rothstein
/s/ * Director October 28, 1998
- -------------------------
Steve Rabinovici
/s/ * Director October 28, 1998
- -------------------------
Dennis J. Puleo
/s/ Director October 28, 1998
- -------------------------
Paul Brown
</TABLE>
* By: /s/ Mark Whitaker
------------------
Mark Whitaker
As Attorney-in-Fact
