<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(e) or Section 240.14a-12
Response USA, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Response USA, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
---------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
RESPONSE USA, INC.
11-H PRINCESS ROAD
LAWRENCEVILLE, NEW JERSEY 08648
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 6, 1998
To the Stockholders of Response USA, Inc.:
You are hereby notified that the annual meeting of stockholders of Response
USA, Inc., a Delaware corporation (the "Company") will be held at Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176,
on Tuesday, January 6, 1998, at 3:00 p.m. local time, for the following
purposes:
1. To elect nine members to the Board of Directors of the Company to
serve until their respective successors are elected and qualified;
2. To authorize the Board of Directors of the Company to effect a
one-for-three reverse split of the outstanding shares of common stock, $.008 par
value per share ("Common Stock");
3. To authorize an amendment to the Company's certificate of
incorporation to amend the terms of the Company's 1996 Series A Convertible
Preferred Stock (the "Preferred Stock");
4. To authorize an amendment to the Company's certificate of
incorporation to increase the authorized number of shares of Common Stock from
12,500,000 to 37,500,000;
5. To adopt the Company's 1997 stock option plan (the "1997 Stock Option
Plan");
6. To ratify the selection by the Company of Deloitte & Touche LLP,
independent public accountants, to audit the financial statements of the Company
for the year ended June 30, 1997; and
7. To transact such other matters as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on October 31, 1997
are entitled to notice of and to vote at the meeting.
A proxy statement and proxy are enclosed herewith. If you are unable to
attend the meeting in person you are urged to sign, date and return the enclosed
proxy promptly in the enclosed addressed envelope which requires no postage if
mailed within the United States. If you attend the meeting in person, you may
withdraw your proxy and vote your shares. Also enclosed herewith is the
Company's Annual Report for 1997.
By Order of the Board
of Directors
Ronald A. Feldman, Secretary
Lawrenceville, New Jersey
December 11, 1997
<PAGE>
RESPONSE USA, INC.
11-H PRINCESS ROAD
LAWRENCEVILLE, NEW JERSEY 08648
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of
proxies for use at the annual meeting (the "Annual Meeting") of stockholders of
Response USA, Inc. (the "Company"), to be held on Tuesday, January 6, 1998 and
at any adjournments thereof. The accompanying proxy is solicited by the Board
of Directors of the Company and is revocable by the stockholder by notifying the
Company's secretary at any time before it is voted, or by voting in person at
the Annual Meeting. This proxy statement and accompanying proxy will be
distributed to stockholders beginning on or about December 11, 1997. The
principal executive offices of the Company are located at 11-H Princess Road,
Lawrenceville, New Jersey 08648, telephone (609) 896-4500.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on October 31, 1997
(the "Record Date") are entitled to receive notice of, and vote at the Annual
Meeting. As of October 31, 1997, the number and class of stock outstanding and
entitled to vote at the meeting was 6,588,587 shares of common stock, par value
$.008 per share (the "Common Stock") and 5,890 shares of 1996 Series A
Convertible Preferred Stock (the "Preferred Stock"). Each share of Common Stock
is entitled to one vote on all matters. No other class of securities will be
entitled to vote at the meeting, except that holders of Preferred Stock are
entitled to 419 votes for each share of Preferred Stock they hold solely with
respect to the vote on Proposal 3. There are no cumulative voting rights.
The nominees receiving the highest number of votes cast by the holders of
Common Stock will be elected as the Company's directors and constitute the
entire Board of Directors of the Company. The affirmative vote of at least a
majority of the outstanding shares of Common Stock is necessary for approval of
Proposal Nos. 2, 3, and 4. The affirmative vote of at least a majority of the
shares represented and voting at the Annual Meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) is necessary for approval of Proposal Nos. 5 and 6. Proposal
No. 3 also requires the affirmative vote of those holding at least 75% of the
shares of Preferred Stock. A quorum is representation in person or by proxy at
the Annual Meeting of at least one-half of the outstanding shares of the
Company.
<PAGE>
PROPOSALS TO STOCKHOLDERS
-------------------------
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Each nominee to the Board of Directors will serve until the next Annual
Meeting of stockholders, or until his earlier resignation, removal from office,
death or incapacity.
Unless otherwise specified, the enclosed proxy will be voted in favor of
the election of Richard M. Brooks, Ronald A. Feldman, Robert L. May, A. Clinton
Allen, Robert M. Rubin, Bruce H. Luehrs, Stuart R. Chalfin, Todd E. Herman and
Stuart Levin. Information is furnished below with respect to all nominees.
The following information with respect to the principal occupation or
employment of the nominees, the name and principal business of the corporation
or other organization in which such occupation or employment is carried on and
other affiliations and business experience during the past five years has been
furnished to the Company by the respective nominees:
RICHARD M. BROOKS has been Chief Executive Officer and Chairman of the
Company since July 1994, a director of the Company since August 1990, and has
served as the President and Chief Financial Officer of the Company since
February 1990. Mr. Brooks was Chief Operating Officer of the Company from
February 1990 until July 1994. From August 1986 to February 1990, Mr. Brooks
was general counsel to Response Ability Systems, Inc. ("Systems"), a wholly-owed
subsidiary of the Company. Mr. Brooks served as Regional Counsel Mid-Atlantic
Region for the Interstate Commerce Commission from May 1979 to March 1983 and
was a senior attorney for the United States Treasury Department from March 1974
to April 1979. Mr. Brooks received his Bachelor of Science Degree in Business
Administration in June 1970 from Temple University, and graduated from Temple
University School of Law in 1973.
RONALD A. FELDMAN has been a director and Secretary-Treasurer of the
Company since August 1990 and Chief Operating Officer since July 1994. He has
also served as the Secretary and Treasurer of Systems from June 1990 and Vice
President of the Company since April 1992. From August 1986 through September
1989, he was the supervisor of Systems' manufacturing operations and supervised
the Company's monitoring activities since March 1987. Mr. Feldman attended
Temple University from 1980 to 1982.
ROBERT L. MAY has served as President of Triple A Security Systems, Inc.
("Triple A"), a security services company since 1981 and President of The
Jupiter Group, Inc., a company which provides guards, patrol and alarm response
services to customers of Triple A since 1992. Mr. May also serves as Director
of Integral Technologies, Inc., an industry software provider, and is the
Director and President of the Central Station Alarm Association and Alarm
Dealers Association, respectively.
A. CLINTON ALLEN has served as Vice Chairman and a Director of The DeWolfe
Companies Inc. since 1991. Mr. Allen is Chairman and Chief Executive Officer of
A.C. Allen & company, Inc., an investment banking consulting firm. Mr. Allen
also serves as a director of Swiss Army Brands, Inc. and is a member of its
Executive Committee, and is a director of SweetWater, Inc. Mr. Allen also
serves as a director and Vice Chairman of Psychemedics Corporation.
2
<PAGE>
ROBERT M. RUBIN has been a Director of the Company since October 1991. Mr.
Rubin has served as Chairman of Connectsoft Communications Corporation, a
developmental stage company, since June 1997. Mr. Rubin has also served as
Chairman of the Board of Directors of American United Global, Inc. ("AUGI")
since May 1991, and was its Chief Executive Officer from May 1991 to January
1994. Since January 1996, Mr. Rubin has also served as President and Chief
Executive Officer of AUGI. Mr. Rubin was the founder, President, Chief Executive
Officer and a director of Superior Care, Inc. ("SCI") from its inception in 1976
until May 1986. Mr. Rubin continued as a director of SCI (now known as Olsten
Corporation ("Olsten")) until late 1987. Olsten, a New York Stock Exchange
listed company, is engaged in providing home care and institutional staffing
services and health care management services. Mr. Rubin is Chairman of the Board
and a minority stockholder of ERD Waste Technology, Inc. ("ERD"), a diversified
waste management public company specializing in the management and disposal of
municipal solid waste, industrial and commercial non-hazardous waste and
hazardous waste. In September 1997, ERD filed for protection under Chapter 11
of the United States Bankruptcy Code. Mr. Rubin is a former director and Vice
Chairman, and currently a minority stockholder, of American Complex Care,
Incorporated ("ACCI"), a public company formerly engaged in providing on-site
health care services, including intra-dermal infusion therapies. In April 1995,
ACCI's operating subsidiaries made an assignment of their assets for the benefit
of creditors without resort to bankruptcy proceedings. Mr. Rubin is also the
Chairman of the Board of Western Power & Equipment Corp. ("Western") and
Chairman of the Board of IDF International, Inc. ("IDF"), both public companies.
Western, a 56.6%-owned subsidiary of AUGI, is engaged in the distribution of
construction equipment, principally manufactured by Case Corporation. IDF, a
58%-owned subsidiary of AUGI, is engaged in providing construction consulting
services to businesses and municipalities and site acquisition, architectural
and engineering services for the cellular communications industry. Mr. Rubin is
also a director and a minority stockholder of Diplomat Corporation, a public
company engaged in the manufacture and distribution of baby products.
BRUCE H. LUEHRS has been a Director of the Company since October 1, 1997.
Mr. Luehrs has an extensive background in venture capital, mergers and
acquisitions and commercial and investment banking. In September 1996, Mr.
Luehrs formed Penn Valley Capital ("PVC") which provides advisory services to
companies in transition due to periods of rapid growth or financial difficulty.
From July 1995 to September 1996, Mr. Luehrs was a principal with Columbia
Capital Corporation, a merchant bank focusing on the telecommunications
industry. Form June 1992 to July 1995, Mr. Luehrs served as Executive Vice
President and Chief Financial Officer of Seaview Thermal Systems, a
technology-driven environmental services company. From February 1990 through
March 1992, Mr. Luehrs was a principal of PNC Equity Management, an equity fund
affiliated with PNC Corporation. Mr. Luehrs received his undergraduate degree
in economics from Duke University and his Masters in Management from
Northwestern University.
STUART R. CHALFIN has been a Director of the Company since October 1, 1997.
Since 1975, Mr. Chalfin has been a principal of Fishbein & Company, P.C.,
independent public accountants, where he specializes in advising closely held
businesses and professionals. Mr. Chalfin is affiliated with the Committee on
Relations with Colleges and Universities and the Linda Creed Foundation and is a
member of the American Institute of Certified Public Accountants.
TODD E. HERMAN has been a Director of the Company since February 1995 and
President of USS since 1984. Mr. Herman was also Vice President of Investech
Properties, Inc., a private investment and development firms, from 1984 through
1990. Mr. Herman received his Bachelor of Science degree in Business
Administration from Washington University of St. Louis, Missouri in 1975 and
graduated from Seton Hall School of Law in 1982. Mr. Herman is a Certified
Public Accountant.
3
<PAGE>
STUART LEVIN has been a Director of the Company since February 1994. Mr.
Levin has been employed by the Company as its Director of Operations since
October 1991 and Director of the Company's home health care division, since
April 1994. Prior to October 1991, Mr. Levin held management positions with
Tandy Corporation, and was the President of W.A.S., Inc., a food distribution
company. Mr. Levin attended Temple University from 1978 to 1980.
INFORMATION CONCERNING BOARD MEETINGS
The Company's Board of Directors met twice during the fiscal year ended
June 30, 1997. All of the incumbent Directors attended at least 75% of such
meetings, except for Messrs. Luehrs and Chalfin who were appointed to the Board
after June 30, 1997.
INFORMATION CONCERNING COMMITTEES OF THE BOARD
The Company maintains an Audit Committee (responsible for reviewing policy
matters and other issues with the Company's independent public accountants),
consisting of Messrs. Brooks, Luehrs, Rubin and Chalfin; and an Incentive Stock
Option Committee (responsible for the granting of stock options), consisting of
Messrs. Luehrs, Chalfin and Allen. Each of the standing committees met twice
during the fiscal year ended June 30, 1997.
MANAGEMENT
The current executive officers and directors (including nominees) of the
Company are set forth below:
NAME AGE POSITION
---- --- --------
Richard M. Brooks(1) 49 Chief Executive Officer, President,
Chief Financial Officer and Chairman of
the Board
Ronald A. Feldman 35 Vice President, Chief Operating Officer,
Secretary-Treasurer and Director
Robert L. May 40 Director Nominee
A. Clinton Allen(2) 53 Director Nominee
Robert M. Rubin(1) 57 Director
Bruce H. Luehrs(1)(2) 44 Director
Stuart R. Chalfin(1)(2) 56 Director
Todd E. Herman 43 Director and President of United
Security Systems, Inc.
Stuart Levin 37 Director
- -------------------
(1) Member of Audit Committee
(2) Member of Stock Option Committee
4
<PAGE>
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Directors do not receive remuneration for their services as such, but may be
reimbursed for expenses incurred in connection therewith, such as the cost of
travel to Board meetings. Under the Company's credit line with Mellon Bank,
N.A. (the "Bank"), the Bank is entitled to cause the Company to nominate one
person to the Company's Board of Directors. Bruce H. Luehrs is currently the
Bank's nominee. Officers serve at the pleasure of the Board of Directors until
their successors have been elected and have qualified. The Company currently
intends to grant options to certain of the Directors under the 1997 Stock Option
Plan, if adopted. See "Proposal No. 5".
The following table sets forth the annual and long-term compensation for
services in all capacities paid by the Company to its Chief Executive Officer
and each executive officer whose annual compensation exceeded $100,000 (the
"Named Executive Officers") during fiscal 1995, 1996 or 1997:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
-------------------------------- -------------------------------------------------------------
Securities
Other Annual Restricted Underlying Long-Term All Other
Name and Principal Bonus Compensation Stock Options/ Incentive Plan Compensation
Position Year Salary($) ($) ($)(1) Award(s) SARS(#) Payouts ($)
- ------------------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard M. Brooks, 1997 $220,673 -- -- -- 708,333(2) -- --
President, Chief 1996 $217,980 -- -- -- -- -- --
Executive Officer 1995 $175,003 -- -- -- -- -- --
and Chief Financial
Officer
Ronald A. Feldman, 1997 $137,307 -- -- -- 260,067(2) -- --
Chief Operating 1996 $135,654 -- -- -- -- -- --
Officer, Vice 1995 $106,495 -- -- -- -- -- --
President, Secretary
and Treasurer
</TABLE>
(1) Excludes perquisites and other personal benefits, securities and properties
otherwise categorized as salary or bonuses which in the aggregate, for each
of the officers listed above did not exceed the lesser of either $50,000 or
10% of the total annual salary reported for such person.
(2) Such options were originally granted in prior periods; however, on June 15,
1997, the Company reduced the exercise price of such options from $2.50 per
share to $1.50 per share. On June 27, 1997, the Company further reduced the
exercise price of such options from $1.50 per share to $0.01 per share. See
"Management -- Reduction of Exercise Price of Certain Stock Options."
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to or
held by the Named Executive Officers during the fiscal year ended June 30, 1997:
INDIVIDUAL GRANTS
-------------------------------------------------------------
Percent of
Total Options
Number of Securities Granted to Exercise
Underlying Options Employees in Or Base Expiration
Name Granted Fiscal Year Price($/Sh) Date
- --------------------------------------------------------------------------------
Richard M. Brooks 708,333(1) 42.7% $.01 11/14/04
Ronald A. Feldman 260,067(1) 15.4% $.01 11/14/04
- ----------------------
(1) Such options were originally granted in prior periods; however, on June 15,
1997, the Company reduced the exercise price of such options from $2.50 per
share to $1.50 per share. On June 27, 1997, the Company further reduced the
exercise price of such options from $1.50 per share to $0.01 per share. See
"Management -- Reduction of Exercise Price of Certain Stock Options."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
The following table sets forth certain information regarding stock options
exercised by the Named Executive Officers during the fiscal year ended June 30,
1997, as well as the number of exercisable and unexercisable in-the-money stock
options and their values at fiscal year end. An option is in-the-money if the
fair market value for the underlying securities exceeds the exercise price of
the option.
<TABLE>
<CAPTION>
OPTIONS/SAR VALUES
----------------------------------------------------------
Number Value Of
of Securities Unexercised In-
Underlying The-Money
Unexercised Options/SARS
Shares Value SARS at FY-End at FY-End
Acquired on Realized Exercisable/ Exercisable/
Name Exercise # ($) Unexercisable Unexercisable(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard M. Brooks, President, Chief
Executive and Financial Officer --- --- 708,330/0 $1,586,666/0
Ronald A. Feldman, Chief Operating
Officer, Vice President, Secretary
and Treasurer --- --- 260,067/0 $582,550/0
</TABLE>
- -------------------------
(1) The value of unexercised options is determined by multiplying the number of
options held by the difference between the closing price of the Common
Stock of $2 1/4 at June 30, 1997, as reported by the Nasdaq SmallCap
Market, and the exercise price of the options.
6
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Brooks and Mr. Feldman each have employment agreements, expiring June
30, 2000, to act in the capacities listed above for the Company. Such agreements
provide for initial annual base salaries of $225,000 and $150,000, respectively.
The Credit Line provides that the salaries and bonuses received by Messrs.
Brooks and Feldman in any fiscal year shall not exceed $225,000 and $150,000,
respectively. Under their employment agreements, Messrs. Brooks and Feldman
also receive life insurance, disability, hospitalization, major medical,
vacation and other employee benefits, reimbursement of reasonable business
expenses incurred on behalf of the Company, a non-accountable expense allowance
of up to $1,000 per month, in the case of Mr. Brooks, and $500 per month, in the
case of Mr. Feldman, and use of Company-owned vehicles. The employment
agreements are terminable only upon certain circumstances, such as for cause,
disability and death, and if terminated for any other reason, such employees
shall be entitled to receive the present value of all compensation and benefits
through June 30, 2000. The Company maintains and is the beneficiary of key
person life insurance policies in the amount of $3,000,000 and $1,000,000 on the
lives of Messrs. Brooks and Feldman, respectively.
In addition to cash compensation and other benefits, in connection with
amendments to their employment agreements executed in August 1992, Messrs.
Brooks and Feldman received options to purchase 133,333 and 85,067 shares of
Common Stock, respectively, at a price equal to $3.75. These options are
exercisable until November 14, 2004. Messrs. Brooks and Feldman also received
options to purchase 600,000 and 200,000 shares of Common Stock, respectively,
awarded under the Company's Non-Qualified Stock Option Plan. In November 1995,
the exercise price on Messrs. Brooks' and Feldman's options were reduced to the
prevailing market price of $2.50 and subsequently reduced to $1.50 on June 15,
1997 and to $0.01 on June 27, 1997. During February 1996, Messrs. Brooks and
Feldman both exercised options to purchase 25,000 shares of Common Stock.
Mr. Herman and John Colehower have employment agreements with United
Security Services, Inc. ("USS "), expiring March 4, 1999, to act as President
and Treasurer of USS and Vice President of USS, respectively. Such agreements
provide for an initial base salary of $120,000, and may be increased at the
discretion of the Board of Directors of the Company, as well as certain
additional payments and benefits based upon increases in the Company's
subscriber accounts. As a result of such additional payments made to Messrs.
Herman and Colehower, the Company recorded deferred compensation expenses of
$1,657,500. Under their employment agreements, Messrs. Herman and Colehower also
receive life insurance, disability, hospitalization, major medical, vacation and
other employee benefits. The employment agreements are terminable only upon
certain circumstances, such as for cause, disability and death or, for any other
reason, upon 90 days' written notice.
In addition to cash compensation and other benefits, Messrs. Herman and
Colehower received options to purchase 300,000 shares each of Common Stock at an
exercise price of $1.50. These options were subject to a vesting schedule, which
schedule has been accelerated such that all of such options are fully vested.
Robert M. Rubin, a Director of the Company, has performed consulting
services for the Company in the past. In February 1993, Mr. Rubin was issued a
warrant to purchase 5,000 shares of Common Stock at $5.00 per share, in
consideration of services to the Company. The exercise price of such warrant was
subsequently reduced to $.008 per share and the warrant was exercised. In
September 1994, Mr. Rubin was granted options to purchase 5,000 shares of Common
Stock at the prevailing market price of $.8125, which
7
<PAGE>
options were exercised. In February 1995, Mr. Rubin was granted options to
purchase 150,000 shares of Common Stock at a price of $3.75 per share, which
options are exercisable for a period of ten years. In November 1995, Mr. Rubin
was granted options to purchase 150,000 shares of Common Stock at the prevailing
market price of $2.50 and in November 1995, the exercise price of Mr. Rubin's
options granted in February 1995 were reduced to the prevailing market price of
$2.50. (See Note 10 of Notes to Consolidated Financial Statements of the Company
contained in the Company's 1997 Annual Report). On June 27, 1997, the exercise
price of all of Mr. Rubin's options was reduced to $0.01. On October 1, 1994,
Mr. Rubin entered into a consulting agreement with the Company pursuant to which
he was paid an annual consulting fee of $60,000 for a period of two years. The
agreement was terminated on April 30, 1996, at which time Mr. Rubin converted
outstanding loans in the amount of $200,000 into 84,208 shares of Common Stock
and converted subordinated debentures in the amount of $101,329 into 67,553
shares of Common Stock. See "Management" and "Security Ownership of Certain
Beneficial Owners and Management."
INCENTIVE STOCK OPTION PLAN
In March 1992, the Company's Board of Directors and stockholders adopted
and approved an Incentive Stock Option Plan ("ISO Plan"). The ISO Plan provides
for the grant to key employees of the Company of stock options intended to
qualify as "incentive stock options" under the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). A total of 40,000 shares
of Common Stock have been reserved for issuance under the ISO Plan, all of which
shares have been granted as of the date hereof. The ISO Plan is administered by
a committee of the Board of Directors which, among other things, has the sole
discretion to select optionees and determine the number of shares covered by
each option, its exercise price and certain of its other terms. The exercise
price of options granted under the ISO Plan may not be less than the fair market
value of the Company's Common Stock on the date of grant, and not less than 110%
of such fair market value in the case of participants owning more than 10% of
the Company's Common Stock. Options expire no later than 10 years after they are
granted (five years after grant in the case of participants owning more than 10%
of the Company's Common Stock). The number of shares for which the optionee may
exercise an option in any calendar year is limited to option shares with an
aggregate fair market value, determined at the time the option is granted, which
does not exceed $100,000. The $100,000 limit for any calendar year is subject to
further reduction by the fair market value of any stock (determined at the time
of option grant) for which the employee was granted an option under any Company
plan during such calendar year. Options terminate three months after the
optionee ceases to be employed by the Company unless the optionee's employment
is terminated by reason of disability, in which case, the options shall expire
following one year after such employment termination. The committee has the
right to accelerate the expiration date in certain events. Options granted under
the ISO Plan are not transferable, except by will or the law of descent and
distribution.
NON-QUALIFIED STOCK OPTIONS
In August 1990, the Company's Board of Directors approved a Nonqualified
Stock Option Plan (the "NQO Plan") pursuant to which the Company may grant stock
options to directors, officers, key employees and consultants. A total of 10,357
shares of Common Stock were reserved for issuance under the NQO Plan, all of
which shares have been granted as of June 30, 1997. Options shall terminate six
months after the optionee ceases to be employed by the Company or any
subsidiary, regardless of the cause for termination.
8
<PAGE>
REDUCTION OF EXERCISE PRICE OF CERTAIN STOCK OPTIONS
On June 15, 1997, the Company reduced the exercise price of options to
purchase 1,868,400 shares of Common Stock granted to officers, directors, and a
key employee of the Company, from $2.50 to $1.50, or the prevailing market
price. On June 27, 1997, the Company further reduced the exercise price of
options to purchase 1,268,400 shares of Common Stock granted to officers and
directors of the Company, from $1.50 to $0.01, which resulted in a compensation
expense of $1,889,916.
The compensation of the Company's executive officers during the fiscal year
ended June 30, 1996 was determined by the Board of Directors at the time of the
Company's public offering in October 1992, as amended. Such determination was
based upon the Board's assessment of each executive's performance to date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1997, the record and
beneficial ownership of Common Stock of the Company by each officer and director
(including nominees), all officers and directors (including nominees) as a
group, and each person known to the Company to own beneficially or of record
five percent or more of the outstanding shares of the Company:
Number of Shares Owned Percentage of Shares
Name and Address* Beneficially (1) Outstanding
----------------- ---------------- -----------
Richard M. Brooks (2) 710,315 11.8%
Ronald A. Feldman (3) 262,067 4.7%
A. Clinton Allen -0- --
Robert L. May -0- --
Robert M. Rubin (4)
9450 Aegean Drive
Boca Raton, Fl 33496 527,281 9.4%
Stuart Levin (5) 14,500 0.3%
Todd E. Herman (5) 308,000 5.5%
John Colehower (6) 301,500 5.4%
BKR, Inc. (7) 1,094,164 20.6%
Stuart R. Chalfin -0- --
Bruce H. Luehrs -0- --
Officers and Directors
as a group (nine persons)(8) 1,822,163 26.4%
9
<PAGE>
- -------------------
* Unless otherwise specified, the address of each named person is c/o
Response USA, Inc., 11-H Princess Road, Lawrenceville, New Jersey.
(1) Shares of Common Stock which are not outstanding but which a person has the
right to acquire within sixty days pursuant to outstanding options are
deemed outstanding for the purpose of computing such person's ownership of
Common Stock and percentage of outstanding Common Stock owned by such
person, but are not deemed to be outstanding for the purpose of computing
number of shares or the percentage of Common Stock owned by any other
person.
(2) Includes 708,333 shares issuable upon exercise of currently exercisable
options. See "Management -- Employment and Consulting Agreements."
(3) Includes 260,067 shares issuable upon exercise of currently exercisable
options. See "Management -- Employment and Consulting Agreements."
(4) Mr. Rubin's wife and children own 5,520 shares of Common Stock, as to which
Mr. Rubin disclaims beneficial ownership. Includes 300,000 shares issuable
upon exercise of currently exercisable options. See "Management--Employment
and Consulting Agreements."
(5) Of which 14,500 shares are issuable upon exercise of currently exercisable
options.
(6) Of which 300,000 shares are issuable upon exercise of currently exercisable
options. See "Management--Employment and Consulting Agreements."
(7) The address of BKR, Inc. is 7944 East Beck Lane, Suite 210, Scottsdale,
Arizona 85260.
(8) Includes 1,582,900 shares issuable upon exercise of currently exercisable
options referred to in notes 2, 3, 4, 5 and 6 above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the appointment of A. Clinton Allen as a director of the
Company, the Company will enter into a one-year consulting agreement with Mr.
Allen commencing February 1998, pursuant to which Mr. Allen will receive $4,000
per month in consideration for providing certain consulting services to the
Company.
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PROPOSAL NO. 2
AUTHORIZATION OF REVERSE STOCK SPLIT
BACKGROUND
In connection with contemplated financing transactions, the Board of
Directors has determined that it is necessary to effect a reverse split of the
Company's outstanding shares of Common Stock (the "Reverse Stock Split"). The
Company's Board of Directors has unanimously authorized the Reverse Stock Split
pursuant to which each three of the 6,603,087 currently outstanding shares of
Common Stock (the "Old Shares") would be automatically converted into one share
of Common Stock (the "New Shares"). The Reverse Stock Split, if authorized,
will become effective in a one-for-three ratio and only upon the further
authorization of the Board of Directors that such reverse split is required.
The reverse stock split will be effected, if at all, within six months of its
authorization by the stockholders.
REASONS FOR THE REVERSE STOCK SPLIT
The primary reason for the Reverse Stock Split is to increase the per share
stock price. The Company believes that it will be necessary to maintain the
stock price of the Common Stock above its current levels in order to attract
additional public financing for the Company (including the proposed financing as
described in Proposal No. 3). In addition, the Company believes that higher
stock prices will generate greater interest among professional investors and
institutions and increase the Company's chances of succeeding in its application
to have the Common Stock traded on the Nasdaq National Market. If the Company
is successful in generating interest among such entities, it is anticipated that
the shares of Common Stock would have greater liquidity and a stronger investor
base.
The Reverse Stock Split will be effectuated, if at all, by reducing the
number of issued and outstanding shares at a ratio of no greater than
one-for-three; however, the number of authorized shares of Common Stock
(12,500,000 shares) will remain the same (subject to the authorization of
additional shares of Common Stock as contemplated by Proposal No. 4).
Accordingly, as a result of the Reverse Stock Split, if effectuated, the Company
will have a greater number of authorized but unissued shares (the exact number
of which shall be determined based upon the actual ratio of the reverse split,
if any). The Reverse Stock Split has potentially dilutive effects on each of
the stockholders. Each of the stockholders may be diluted to the extent that
any of the authorized but unissued shares are subsequently issued.
The Reverse Stock Split will not alter the percentage interests in the
Company of any stockholder, except to the extent that the Reverse Stock Split
results in a stockholder of the Company owning a fractional share. In lieu of
issuing fractional shares, the Company will issue to any stockholder who
otherwise would have been entitled to receive a fractional share as a result of
the Reverse Stock Split an additional full share of Common Stock.
EFFECT OF THE REVERSE SPLIT
The principal effects of the Reverse Stock Split will be that the number of
shares of Common Stock issued and outstanding will be reduced from 6,603,087 to
approximately 2,201,029 assuming the one-for-three reverse split is effectuated.
The Company's stated capital will not be affected.
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NO RIGHT OF APPRAISAL
Under the Delaware Corporation Law, the state in which the Company is
incorporated, the Reverse Stock Split does not require the Company to provide
dissenting stockholders with a right of appraisal and the Company will not
provide stockholders with such right.
OUTSTANDING WARRANTS AND OPTIONS
Commencing with the effective date of the Reverse Stock Split, if
effectuated, all outstanding warrants and options entitling the holders thereof
to purchase shares of Common Stock will entitle such holders to receive, upon
exercise of their options, one-third of the number of shares of Common Stock
which such holders may purchase upon exercise of their warrants or options and
the exercise price will increase threefold.
FEDERAL INCOME TAX CONSEQUENCES
The Company believes that the Federal income tax consequences of the
Reverse Stock Split to holders of Old Shares and holders of New Shares will be
as follows:
(i) Except as explained in (v) below, no income gain or loss will be
recognized by a stockholder on the surrender of the Old Shares or
receipt of the certificate representing New Shares.
(ii) Except as explained in (v) below, the tax basis of the New Shares will
equal the tax basis of the Old Shares exchanged therefor.
(iii) Except as explained in (v) below, the holding period of the New Shares
will include the holding period of the Old Shares if such Old Shares
were held as capital assets.
(iv) The conversion of the Old Shares into the New Shares will produce no
taxable income or gain or loss to the Company.
(v) The Federal income tax treatment of the receipt of the additional
fractional interest by a stockholder is not clear and may result in
tax liability not material in amount in view of the low value of such
fractional interest.
The Company's opinion is not binding upon the Internal Revenue Service or
the courts, and there can be no assurance that the Internal Revenue Service or
the courts will accept the positions expressed above.
The state and local tax consequences of the Reverse Stock split may vary
significantly as to each stockholder, depending upon the state in which he/she
resides. Stockholders are urged to consult their own tax advisors with respect
to the Federal, State and local tax consequences of the reverse stock split.
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The Board of Directors will offer the following resolution at the Annual
Meeting:
RESOLVED, that the Board of Directors is empowered in their discretion
without further action of the stockholders of the Company, to file an
amendment to the Certificate of Incorporation of the Company to effect
a reverse split of the Company's outstanding shares of common stock,
$.008 par value, in a ratio of one-for-three, and that the President,
Secretary and Chief Executive Officer of the Company, or other officer
designated by the President, and each of them be, and hereby are
empowered to take any and all action necessary to effectuate the
foregoing.
The affirmative vote of at least a majority of the outstanding shares
of Common Stock is necessary for approval of Proposal No. 2. Under Delaware
law, there are no rights of appraisal or dissenter's rights which arise as a
result of a vote to increase the number of authorized shares of the Company's
Common Stock.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR"
APPROVAL THEREOF.
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PROPOSAL NO. 3
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO AMEND THE TERMS OF THE PREFERRED STOCK
On July 1, 1996, the Company completed the private placement of 7,500
shares of Preferred Stock for an aggregate of $7,500,000.
In September 1996, as a result of then current market conditions for the
Common Stock, the Company suspended conversion of the Preferred Stock. In
particular, there was a dramatic increase in the "short" position for the Common
Stock from July through August 1996. During this same period, the price of the
Common Stock declined from $7.375 to $4.656. The Company commenced an
investigation into the trading activity, including discussions with some of the
Company's market-makers and a review of trading activity, the Company could find
no basis for the increase in the short position or the decline in the price.
Lacking any other explanation, and based upon a practice sometimes used by
investors after the purchase of convertible securities, the Company believed
that certain investors may have been selling the Common Stock short in
anticipation of the effectiveness of the registration statement which registered
the sale of the Common Stock issuable upon conversion of the Preferred Stock.
In the weeks that followed the effectiveness of the registration statement, the
Company received requests for significant conversions into shares of Common
Stock.
The Company believed that it was not in the best interests of the Company
to allow conversions which could result in a further precipitous drop in the
market value of the Common Stock. Although the Company was concerned about this
trading activity, and in fact, in connection with the litigation described
below, retained the services of an expert (a University of Virginia professor of
law who regularly provides testimony with respect to such matters) to review the
trading activity to determine if there were any improprieties, the Company did
not believe that it had a sufficient basis to advise the Securities and Exchange
Commission ("SEC") or The Nasdaq Stock Market of the source of the trading
activity. Furthermore, the Company was concerned about the impact on the
overall market for its securities. The Company sold the Preferred Stock with
the belief that the investors in the offering would hold their preferred stock
as an investment rather than selling at the first opportunity. The unusual
trading activity was not necessarily illegal or improper under the rules and
regulation of either the SEC or Nasdaq.
On January 2, 1997, Lake Management LDC ("Lake") and KA Investments LDC,
each Holders of the Preferred Stock, together filed a Complaint in the Court of
Chancery of the State of Delaware against the Company challenging, among other
things, the Company's decision to suspend conversion rights and seeking, among
other things, specific performance under the Certificate of Designations to
convert their Preferred Stock to Common Stock of the Company. The case is
captioned LAKE MANAGEMENT LDC AND KA INVESTMENTS LDC V. RESPONSE USA, INC.,
Civil Action No. 15449. On February 10, 1997, the Company responded to the
Complaint by filing an Answer, Defenses and Counterclaim. A Reply to the
Counterclaim was filed on March 3, 1997. Lake participated in a group
settlement with the other Preferred Holders, and dismissed the foregoing action.
The Company also agreed to the payment to Lake of attorneys' fees.
On February 18, 1997, Halifax Fund L.P., a holder of the Preferred Stock
("Halifax"), filed a Complaint in the Court of Chancery of the State of Delaware
against the Company challenging, among other things, the Company's decision to
suspend conversion and seeking, among other things, specific performance under
the Certificate of Designations to convert its Preferred Stock to Common Stock
of the
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Company. The case is captioned HALIFAX FUND, L.P. V. RESPONSE USA, INC., Civil
Action No. 15553. Halifax also filed a Motion for a Preliminary Injunction and
a Motion for Expedited Proceedings. On March 5, 1997, the Court held a
conference and denied Halifax's request for a hearing on its motion for a
preliminary injunction. On March 11, 1997, Halifax filed a second Motion for a
Preliminary Injunction. The Court held a telephonic conference on March 12,
1997 and denied Halifax's request for a hearing on its second preliminary
injunction motion. Halifax filed a motion for partial summary judgment. On
May 13, 1997, the Court orally granted partial summary judgment to Halifax
solely with respect to its right to convert Preferred Stock into Common Stock.
On May 28, 1997, the Court entered its Order granting partial summary judgment
to Halifax, including among other things, specific performance of Halifax's
right to convert and permanently enjoining the Company from denying the right to
convert the Preferred Stock.
Prior to June 30, 1997, the Company reached an agreement with the holders
of the Preferred Stock (other than Halifax)(the "Holders"), pursuant to which
the Holders agreed to refrain from all conversions of the Preferred Stock for
the periods set forth below, and the Company agreed to issue to the Holders
certain warrants as described below and to amend (subject to stockholder
approval), the terms of the Preferred Stock by the filing of an Amended and
Restated Certificate of Designation (as amended pursuant to an amendment dated
November 30, 1997, the "Agreement").
Pursuant to the terms of the Agreement, on June 26, 1997, each Holder
received five thousand warrants (the "Warrants") for each 100 shares of
Preferred Stock held as of June 26, 1997. The Warrants, which are not
redeemable by the Company, are exercisable at a price per share of $2.00 and
entitle the holder thereof to purchase one share of Common Stock per Warrant.
Of such Warrants, fifty percent (50%) are exercisable after June 30, 1998, and
the remaining fifty percent (50%) are exercisable after June 30, 1999. The
Warrants expire after June 30, 2006. In connection with the amendment executed
on November 30, 1997, each Holder received an additional 7,500 Warrants (the
"Additional Warrants") for each 100 shares of Preferred Stock held as of
November 30, 1997. The Additional Warrants, which are redeemable by the
Company, are exercisable at a price per share of $3.375 and entitle the holder
thereof to purchase one share of Common Stock per Additional Warrant. Of such
Additional Warrants, fifty percent (50%) are exercisable after December 1, 1998
and fifty percent (50%) are exercisable after December 1, 1999. The Additional
Warrants expire after November 30, 2007. The Common Stock issuable upon
exercise of the Warrants and the Additional Warrants shall be registered with
the SEC pursuant to a Registration Statement on Form S-3 which was filed by the
Company with the SEC but has not yet been declared effective.
In consideration of the issuance of the Warrants and Additional Warrants,
and subject to the terms and conditions set forth in the Agreement, each Holder
agreed (a) to give its proxy and its consent in favor of the Amended and
Restated Certificate of Designation (the "Amendment"), and (b) to refrain from
any and all conversions of such Holder's Preferred Stock, pursuant to the terms
of the original Certificate of Designations, until the earlier of February 2,
1998 or upon the occurrence of default dates ("Trigger Dates"). If the Company
fails to comply with the Trigger Dates, the Holders' right to convert its
Preferred Stock shall be activated if and only if a majority of the Holders as
of such Trigger Date have collectively provided appropriate written notice
exercising such right. The Trigger Dates are comprised of the following: (i) the
repurchase of 10% of the aggregate number of shares of Preferred Stock on
December 15, 1997 for aggregate consideration of $795,150; (ii) the printing of
prospectuses relating to the Company's proposed offering of securities by
January 7, 1998; (iii) the holding of the Company's annual stockholders meeting
by January 7, 1998; (iv) commencement of a road show relating to the offering on
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January 16, 1998; (v) the repurchase of 10% of the aggregate number of shares of
Preferred Stock on January 15, 1998 for aggregate consideration of $795,150; and
(vi) the redemption of the remaining shares of Preferred Stock by February 2,
1998 (subject in certain circumstances to extension, but in no event later than
February 12, 1998).
The Agreement contains various covenants providing for the Company's
compliance with the Trigger Dates and related matters. In addition, the
Agreement also provides that upon closing of the transactions contemplated by
the Agreement, each Holder shall release the Company from any and all claims,
actions, and other liabilities, including but not limited to, liability arising
out of the Company's failure to honor the conversions of Preferred Stock prior
to the date of the Agreement and certain other matters. This release becomes
null and void in the event that the Company fails to redeem all of the Preferred
Stock on or before February 12, 1998, and is inapplicable to any claims which a
Holder may have under the Agreement and certain ancillary documents executed in
connection therewith.
The Amendment gives the Company the right to redeem the Preferred Stock
("Redemption") for payment of the following to the Holders:
1. Cash in an amount equal to One Thousand Three Hundred Fifty Dollars
($1,350) per share of Preferred Stock (the "Redemption Price"); and
2. Interest at a rate of twelve percent (12%) per annum on the Redemption
Price from May 12, 1997 until consummation of the Redemption.
The Amendment provides that the suspension of conversion rights would no
longer be effective and the right to convert the Preferred Stock shall be
effective commencing on and after February 12, 1998, in accordance with the
terms set forth in the Amended and Restated Certificate of Designations. In
addition, pursuant to the Agreement, effective as of June 18, 1997, each Holder
agrees to refrain from conversions of the Preferred Stock until the earlier of
February 12, 1998 or certain other specified dates.
Under the terms of the Certificate of Designations in effect prior to the
Amendment, each share of Preferred Stock is convertible into shares of Common
Stock, at the sole option of the Holder, based upon the following formula:
The Premium + 1,000
--------------------------
Conversion Price
where: (a) the Premium equals (I) 10% multiplied by (ii) the number of days
from the date the purchaser deposited funds for the purchase of the Preferred
Stock through and including the date of conversion divided by 365 and multiplied
by (iii) one thousand (1,000); (b) 1,000 represents the face value of the
Preferred Stock; and (c) the Conversion Price is equal to the lesser of (I) 80%
of the average closing bid price of the Common Stock as reported by NASDAQ for
the five trading days preceding the date of conversion or (ii) $5.00 per share.
The Company may redeem all or any portion of the Premium for cash in lieu of
converting such Premium into shares of Common Stock upon the foregoing
conversion terms. A Holder is not entitled, however, to convert shares of the
Preferred Stock which would result in such Holder and his affiliates
beneficially owning more than 4.9% of the outstanding Common Stock. After a
certain period of time after June 1, 1999, the Company may require conversion of
the Preferred Stock upon the foregoing conversion terms.
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The Amendment provides that the 1,000 face value of the Preferred Stock
utilized in the Conversion formula shall be increased to 1,200. In addition,
the fixed price shall initially mean $5.00 and shall be reset on February 3,
1998 to the closing price of the Company's Common Stock on February 2, 1998, as
reported by the NASDAQ Small Cap Stock Market ("NASDAQ") (or if not reported by
NASDAQ, as reported by such other exchange or market where traded) (the "Fixed
Price") and shall be reset on the first day (each a "Reset Date") of each month
thereafter, beginning March 1, 1998, to an amount equal to the lower of (x) the
Fixed Price in effect on the day immediately preceding such Reset Date and (y)
the lowest closing price of the Company's Common Stock as reported by NASDAQ
(or, if not reported by NASDAQ, as reported by such other exchange or market
where traded) for any day during the calendar month immediately preceding such
Reset Date. The Fixed Price and the amounts set forth in clauses (x) and (y) of
the definition thereof shall be subject to equitable adjustments from time to
time for stock splits, stock dividends, recapitalizations, reorganizations and
similar transactions. The redemption price of the Preferred Stock was
determined by negotiation between the Company and the holders of the Preferred
Stock. Factors considered by the Company in agreeing to the redemption price
included (i) the value to the Company and its stockholders in causing the
holders of the Preferred Stock to refrain from converting until February 12,
1998 and (ii) the likelihood of additional legal actions by holders of Preferred
Stock seeking to recover damages from the Company, the probability of success of
such legal actions, as well as the potential recoveries by the holders in such
legal actions.
On June 30, 1997, after the Company concluded the Agreement with the
Holders, the Company agreed to convert 1,000 shares of Preferred Stock owned by
Halifax and issue to Halifax 900,000 shares of the Company's Common Stock. The
Company assisted in locating EC Capital, Inc., a market-maker in the Company's
securities as a purchaser for the Common Stock received by Halifax upon
conversion of its Preferred Stock. Halifax's Common Stock was purchased for an
aggregate price of $1,500,000, comprised of $1,350 per share for each share of
Preferred Stock, plus $150,000 for reimbursement of attorneys' fees. The
Company issued to Halifax 5,000 Warrants for each 100 shares of Preferred Stock
held. The litigation between Halifax and the Company was dismissed with
prejudice upon receipt by Halifax of the full purchase price. In the event that
the Company settles with any other Preferred Holder on terms which Halifax in
its sole discretion believes are better than those received by Halifax in the
settlement, Halifax has the right to elect the alternative settlement. In the
opinion of the Board of Directors, the Amendment is in the best interests of the
Company and all of its shareholders. In the view of the Board, the redemption
price being paid is fair and reasonable in view of the value of the Company's
business, its historic earnings, its prospects for the future and the original
investments made by the Holders.
There are no tax consequences of the Redemption to the Company.
The Amendment will be effective upon the filing of a Certificate of
Amendment with the Department of State of the State of Delaware. The Company
intends to file the Amended and Restated Certificate of Designations within five
days after approval by the stockholders
On June 10, 1997, the Board of Directors of the Company authorized the
redemption of the Preferred Stock, subject to approval of the Amendment by the
shareholders entitled to vote thereon and consummation of the Hampshire
Securities Financing described below or such other alternative financing as the
Company may obtain in lieu thereof. If the requisite number of shares of
Preferred Stock approve the Amendment, the Company intends to redeem the
Preferred Stock pursuant to the terms of the Amended and Restated Certificate of
Designations on or prior to February 2, 1998, unless one of the other conditions
to approval of the Amendment or the Redemption does not occur. If the Amendment
is not approved by
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either the Holders or other stockholders required to approve the Amendment, the
Company may repurchase the Preferred Stock from those individual Holders who
approved the Amendment upon the terms of the Amendment.
On March 26, 1997, the Company and Hampshire executed a letter of intent
(the "Letter of Intent"), whereby the Company engaged Hampshire as its exclusive
financial advisor for a two-year period for purposes of managing a public
offering of the Company's Common Stock. Pursuant to the Letter of Intent,
Hampshire would act as sole or managing underwriter of a public offering which
is intended to raise $18,000,000 for the Company (the "Public Offering"). The
Letter of Intent provides, among other things, that the Company will take
appropriate action such that it will be capitalized with approximately 1.9
million shares of Common Stock and an equivalent number of options following a
one-for-three reverse stock split, and a stock option plan. The Letter of
Intent sets forth certain obligations of the Company in connection with
Hampshire's role as sole or managing underwriter, including (a) the granting to
Hampshire of a customary overallotment option; (b) electing two independent
persons to the Company's Board of Directors; (c) execution of customary lock-up
agreements; and (d) the payment by the Company of certain expenses relating to
the Registration Statement and other documents prepared in connection with the
Public Offering. The Public Offering is conditioned upon, among other matters,
Hampshire's completion of its due diligence, the execution of a definitive
underwriting agreement, no material adverse change in the business or financial
condition of the Company. The Letter of Intent merely sets forth the intentions
of the Company and Hampshire at the time it was executed. There can be no
assurance that the Public Offering will be completed on the foregoing terms, or
at all. The Company reserves the right to substitute alternative financing for
the Hampshire Securities Financing for the purpose of redeeming the Preferred
Stock pursuant to the amendment on or prior to date of redemption.
The Board will offer the following resolution at the Annual Meeting:
RESOLVED, that an Amended and Restated Certificate of Designation be
filed in order to effectuate the approved changes to the terms of the
1996 Series A Preferred Stock and that the President, Secretary and
Chief Executive Officer of the Company, or other officer designated by
the President, and each of them be, and hereby are empowered to take
any and all action necessary to effectuate the foregoing.
Under Section 242 of the Delaware General Corporate Law, the approval of
the majority of the outstanding Common Stock and Preferred Stock, voting
together as a class, entitled to vote thereon is required to approve the
Amendment. Richard M. Brooks, Ronald A. Feldman, Robert M. Rubin and Todd E.
Herman, directors and officers of the Company holding an aggregate of 265,225
shares of Common Stock have executed an agreement dated as of June 18, 1997 in
connection with the Agreement, wherein they have agreed to vote their shares in
favor of the Amendment, as well as in favor of an amendment to the Company's
Certificate of Incorporation to increase the Company's authorized Common Stock
to 37,500,000 shares. Pursuant to the terms of the Certificate of Designations,
each Holder is entitled to vote that number of shares of Common Stock into which
that number of shares of Preferred Stock held by such Holder as of the Record
Date are convertible. As of the Record Date, each shares of Preferred Stock is
convertible into 419 shares of Common Stock. Under Delaware law, there are no
rights of appraisal or dissenter's rights which arise as a result of a vote to
increase the number of authorized shares of the Company's Common Stock.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR"
APPROVAL THEREOF.
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PROPOSAL NO. 4
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The reason for the proposed amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock, is that it is a condition to the Preferred Agreement and necessary
in connection with contemplated financing transactions as described in Proposal
No. 3. The Company will also require such additional authorized shares in
connection with its ongoing acquisition efforts which often entail the issuance
of Common Stock as a substitution for other forms of consideration such as cash
or promissory notes, as well as for future capital raising requirements.
The Company's authorized capital stock consists of 12,500,000 shares of
Common Stock, par value $.008 per share, of which 6,588,587 shares were
outstanding as of the Record Date. Each stockholder is entitled to one vote for
each share of Common Stock owned of record on all matters to be voted on by
stockholders. The holders of Common Stock are entitled, upon liquidation or
dissolution of the Company, to receive pro rata, all assets remaining available
for distribution to stockholders. The Common Stock has no preemptive or other
subscription rights, and there are no conversion rights or redemption
provisions. Dividends may be paid on shares of Common Stock in the discretion
of the Board of Directors from funds legally available therefor. All
outstanding shares of Common Stock are validly issued, fully paid (in cash or
services), and nonassessable.
The Board of Directors believes that an increase in authorized shares of
Common Stock from 12,500,000 to 37,500,000 is required for the foregoing
purposes, and the Board will offer the following resolution at the Annual
Meeting:
RESOLVED, that Article IV of the Certificate of Incorporation of the
Company be amended to increase the number of authorized capital stock
of the Company to 37,500,000 shares, $.008 par value and that the
President, Secretary and Chief Executive Officer of the Company, or
other officer designated by the President, and each of them be, and
hereby are empowered to take any and all action necessary to
effectuate the foregoing.
The affirmative vote of at least a majority of the outstanding shares of
Common Stock is necessary for approval of Proposal No. 4. Under Delaware law,
there are no rights of appraisal or dissenter's rights which arise as a result
of a vote to increase the number of authorized shares of the Company's Common
Stock.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 4 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
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PROPOSAL NO. 5
ADOPTION OF 1997 STOCK OPTION PLAN
The purpose of the 1997 Stock Option Plan is to attract and retain and
provide additional incentive to selected employees, officers, directors, agents,
consultants and independent contractors of the Company, or of any parent or
subsidiary of the Company. Each option granted pursuant to the 1997 Stock
Option Plan is required to be designated at the time of grant as either an
"incentive stock option" or as a "non-qualified stock option." The following
description of the 1997 Stock Option Plan is qualified in its entirety by
reference to the 1997 Stock Option Plan itself.
ADMINISTRATION OF THE PLAN
The 1997 Stock Option Plan is administered by the Board of Directors of the
Company or by any committee duly appointed by the Board, which determines who
among those eligible will be granted options, the time or times at which options
will be granted, the number of shares to be subject to options, the durations of
options, any conditions to the exercise of options and the manner in and price
at which options may be exercised. The Board is authorized to amend, suspend or
terminate the 1997 Stock Option Plan, except that it is not authorized without
stockholder approval (except with regard to adjustments resulting from changes
in capitalization) to (i) increase the maximum number of shares that may be
issued pursuant to the exercise of options granted under the 1997 Stock Option
Plan; (ii) permit the grant of a stock option under the 1997 Stock Option Plan
with an option price less than 85% of the fair market value of the shares at the
time such option is granted (or 110% for greater than 10% stockholders); (iii)
change the eligibility requirements for participation in the 1997 Stock Option
Plan; (iv) extend the term of any option or the period during which any option
may be granted under the 1997 Stock Option Plan; or (v) decrease an option
exercise price (although an option may be cancelled and a new option granted at
a lower exercise price).
SHARES SUBJECT TO THE PLAN
The 1997 Stock Option Plan provides that options may be granted with
respect to a total of 600,000 (after giving effect to the Company's proposed
one-for-three reverse stock split) shares of Common Stock, subject to adjustment
upon certain changes in capitalization without receipt of consideration by the
Company. In addition, if the Company is involved in a merger, consolidation,
dissolution or liquidation, the options granted under the 1997 Stock Option Plan
will be adjusted or, under certain conditions, will terminate, subject to the
right of the option holder to exercise his option or a comparable option
substituted at the discretion of the Company prior to such event. If any option
expires or terminates for any reason, without having been exercised in full, the
unpurchased shares subject to such option will be available again for the
purposes of the 1997 Stock Option plan.
PARTICIPATION
Any employee, officer, director, agent, consultant or independent
contractor of the Company is eligible to receive incentive stock options or
non-qualified stock options granted under the 1997 Stock Option Plan.
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OPTION PRICE
The exercise price of each option will be determined by the Board (or any
committee appointed by the Board), but incentive stock options may not be priced
less than 85% of the fair market value of the shares of Common Stock covered by
the option on the date the option is granted. If an incentive stock option is
to be granted to an employee who owns over 10% of the total combined voting
power of all classes of the Company's stock, then the exercise price may not be
less than 110% of the fair market value of the Common Stock covered by the
option on the date the option is granted.
TERMS OF OPTIONS
The Board (or any committee appointed by the Board), in its discretion,
establishes the term of each option, provided that the maximum term of each
option is 10 years. Options granted to an employee who owns over 10% of the
total combined voting power of all classes of stock of the Company expires not
more than five years after the date of grant. The 1997 Stock Option Plan
provides for the earlier expiration of options of a participant in the event of
certain terminations of employment.
OPTIONS GRANTS
As of the date hereof, no options have been granted pursuant to the 1997
Stock Option Plan; however, the Company currently intends to grant options to
purchase approximately (i) 75,000 shares of Common Stock to Mr. Allen, a
proposed director nominee, (ii) 105,000 shares of Common Stock to Mr. May, a
proposed director nominee, and (iii) 300,000 shares of Common Stock to other
officers and directors of the Company, all of which options will be granted at
an exercise price equal to the public offering price of the Common Stock in the
proposed public offering referred to in Proposal No. 3.
APPROVAL AND TERMINATION
The 1997 Stock Option Plan was approved by the Board of Directors of the
Company on October 7, 1997 and, unless sooner terminated by the Board of
Directors (or any committee appointed by the Board), will terminate on October
7, 2007.
The Board of Directors will offer the following resolution at the Annual
Meeting:
RESOLVED, that the 1997 Stock Option Plan is approved and
adopted.
The affirmative vote of at least a majority of the shares represented and
voting at the Annual Meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
necessary for approval of Proposal No. 5.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 5 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
21
<PAGE>
PROPOSAL NO. 6
RATIFICATION OF SELECTION OF AUDITORS
The firm of Fishbein & Company, P.C. ("Fishbein") audited the financial
statements of the Company for the fiscal years ended June 30, 1990 through June
30, 1996. On July 2, 1997, the Board of Directors of the Company determined not
to appoint Fishbein to audit the financial statements of the Company for the
fiscal year ended June 30, 1997. On July 3, 1997, pursuant to a vote of the
Board of Directors, the firm of Deloitte & Touche LLP was selected to audit the
financial statements of the Company for the year ended June 30, 1997.
The report of Fishbein on the Company's financial statements for the
previous years did not contain an adverse opinion or a disclaimer of opinion,
and was not qualified or modified as to uncertainty, audit scope, or accounting
principles. During the entire period of the engagement of Fishbein, through
July 2, 1997, there had been no disagreement on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to Fishbein's satisfaction, would
have caused Fishbein to make reference in connection with its reports to the
subject matter of the disagreement.
Accordingly, the Board of Directors will offer the following resolution at
the Annual Meeting:
RESOLVED, that the appointment by the Board of Directors of Deloitte &
Touche LLP, independent public accountants, to audit the financial
statements of the Company for the year ended June 30, 1997 be, and
hereby is, ratified and approved.
It is anticipated that a member of Deloitte & Touche LLP will be present at
the Annual Meeting to respond to appropriate questions and will have the
opportunity, if desired, to make a statement.
The affirmative vote of at least a majority of the shares represented and
voting at the Annual Meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
necessary for approval of Proposal No. 6. Under Delaware law, there are no
rights of appraisal or dissenter's rights which arise as a result of a vote to
ratify the selection of auditor's.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 6 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
22
<PAGE>
STOCKHOLDERS' PROPOSALS
It is anticipated that the next Annual Meeting of Stockholders will be held
in June 1998. Stockholders who sought to present proposals at the Company's
Annual Meeting of Stockholders must have submitted their proposals to the
Secretary of the Company on or before April 1, 1998.
INCORPORATION OF FINANCIAL INFORMATION
The Company's audited financial statements for the year ended June 30, 1997
and related disclosures are incorporated by reference herein from the Company's
1997 Annual Report which accompanies this Proxy Statement.
GENERAL
The Company has hired Shareholder Communications Corporation to act as a
proxy solicitor. Shareholder Communications Corporation will receive
approximately $8,000 in connection with its services as solicitation agent. The
address of the solicitation agent is:
Shareholder Communications Corporation
40 Exchange Place
New York, New York 10005
In addition to the use of mails, proxies may be solicited by personal
interview, telephone and telegraph, by directors, officers and regular employees
of the Company, without special compensation therefor. The Company expects to
reimburse banks, brokers and other persons for their reasonable out-of-pocket
expenses in handling proxy materials for beneficial owners of the Company's
Common Stock.
Unless contrary instructions are indicated on the proxy, all shares of
Common Stock represented by valid proxies received pursuant to this solicitation
(and not revoked before they are voted) will be voted FOR Proposal Nos. 2, 3, 4,
5 and 6 and for the election of all directors nominated. All shares of
Preferred Stock represented by valid proxies (and not revoked before they are
voted) will be voted FOR Proposal No. 3.
The Board of Directors knows of no business other than that set forth above
to be transacted at the meeting, but if other matters requiring a vote of the
stockholders arise, the persons designated as proxies will vote the shares of
Common Stock represented by the proxies in accordance with their judgment on
such matters. If a stockholder specifies a different choice on the proxy, his
or her shares of Common Stock will be voted in accordance with the specification
so made.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO FILL IN,
SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE PREPAID ENVELOPE PROVIDED,
NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
By Order of the Board of Directors,
Ronald A. Feldman, Secretary
Lawrenceville, New Jersey
December 11, 1997
23
<PAGE>
RESPONSE USA, INC.
ANNUAL MEETING OF STOCKHOLDERS--TUESDAY, JANUARY 6, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints RICHARD M. BROOKS and RONALD A. FELDMAN and
each of them, with power of substitution, as proxies to represent the
undersigned at the Annual Meeting of Stockholders to be held at Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176,
Tuesday, January 6, 1998 at 3:00 p.m. local time and at any adjournment thereof,
and to vote the shares of stock the undersigned would be entitled to vote if
personally present, as indicted on the reverse side hereof.
The shares represented by the proxy will be voted as directed. If no
contrary instruction is given, the shares will be voted FOR Proposal Nos. 2, 3,
4, 5 and 6 and for the election of Richard M. Brooks, Ronald A. Feldman, Robert
L. May, A. Clinton Allen, Robert M. Rubin, Bruce H. Luehrs, Stuart R. Chalfin,
Todd E. Herman and Stuart Levin as Directors.
Please mark boxes in blue or black ink.
1. Proposal No. 1--Election of Directors.
Nominees: Richard M. Brooks, Ronald A. Feldman, Robert L. May, A. Clinton
Allen, Robert M. Rubin, Bruce H. Luehrs, Stuart R. Chalfin, Todd E. Herman and
Stuart Levin.
<TABLE>
<CAPTION>
FOR ALL AUTHORITY WITHHELD
NOMINEES AS TO ALL NOMINEES
<S> <C>
/ / / /
</TABLE>
For, except authority withheld as to the following nominee(s):
- --------------------------------------------------------------------------------
2. Proposal No. 2 to authorize the Board of Directors of the Company to effect
a one-for-three reverse split of the outstanding shares of the Company's
common stock, $.008 par value per share.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
3. Proposal No. 3 to authorize an amendment to the Company's certificate of
incorporation to amend the terms of the Company's 1996 Series A Convertible
Preferred Stock.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal No. 4 to authorize an amendment to the Company's certificate of
incorporation to increase the authorized number of shares of Common Stock
from 12,500,000 to 37,500,000.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal No. 5 to adopt the 1997 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
6. Proposal No. 6 for ratification of the selection of Deloitte & Touche LLP as
the independent auditors of the Company.
/ / FOR / / AGAINST / / ABSTAIN
7. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Please date, sign as name appears
at left, and return promptly. If
the stock is registered in the name
of two or more persons, each should
sign. When signing as Corporate
Officer, Partner, Executor,
Administrator, Trustee, or
Guardian, please give full title.
Please note any change in your
address alongside the address as it
appears in the Proxy.
Dated: ____________________________
___________________________________
(Signature)
___________________________________
(Print Name)
SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
