RESPONSE USA, INC.
11-H Princess Road
Lawrenceville, New Jersey 08648
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 19, 1997
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 Schneck Weltman Hashmall LLP, 1285
Avenue of the Americas, New York, New York 10019, on Wednesday,
November 19, 1997, at 3:00 p.m. local time, for the following
purposes:
1. To elect five 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;
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, $.008 par value per share ("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
August 29, 1997 (the "Record Date"), 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
October 15, 1997
PRELIMINARY PROXY STATEMENT
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 Wednesday, November 19, 1997, 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 October , 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
August 29, 1997, are entitled to receive notice of, and vote at
the Annual Meeting. As of August 29, 1997, the number and class
of stock outstanding and entitled to vote at the meeting was [
] 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 [ ] 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
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. 2, 3, 4, 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-third of the outstanding shares of the Company.
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 M. Rubin, Bruce H. Luehrs and Stuart R.
Chalfin. 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 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, Mr. Luehrs
was a principal with Columbia Capital Corporation, a merchant
bank focusing on the telecommunications industry. From 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.
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,
Rubin, Luehrs and Chalfin upon his election; and an Incentive
Stock Option Plan Committee (responsible for the granting of
stock options), consisting of Messrs. Luehrs and Chalfin. Each
of the standing committees met twice during the fiscal year ended
June 30, 1997.
MANAGEMENT
The current executive officers and directors of the
Company are set forth below:
Name Age Position
---- --- --------
Richard M. Brooks(1) 48 Chief Executive
Officer, President, Chief Financial
Officer and Chairman of the Board
Ronald A. Feldman 34 Vice President,
Chief Operating Officer, Secretary-
Treasurer and Director
Todd E. Herman 43 Director and President of USS
Robert M. Rubin 57 Director
Bruce H. Luehrs(1)(2) 44 Director
Stuart R. Chalfin(1)(2) 56 Director
Stuart Levin 37 Director
(1) Member of Audit Committee
(2) Member of Stock Option Committee
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.
<TABLE>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------- -----------------------------
<CAPTION>
SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING LONG-TERM
PRINCIPAL BONUS COMPENSATION STOCK OPTIONS/ INCENTIVE PLAN ALL OTHER
POSITION YEAR SALARY ($) ($) ($)(1) AWARD(S) SARS (#) PAYOUTS COMPENSATION ($)
- ---------- ------ ----------- ------- ------------- ------------ ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard M. Brooks, 1997 $ 220,673 -- -- -- 708,333(2) -- --
President, Chief 1996 $ 217,980 -- -- -- -- -- --
Executive 1995 $ 175,003 -- -- -- -- -- --
Officer and
Chief Financial
Officer
Ronald A. Feldman, 1997 $ 137,307 -- -- -- 260,067(2) -- --
Chief Operating 1996 $ 135,654 -- -- -- -- -- --
Officer, 1995 $ 106,495 -- -- -- -- -- --
Vice 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 $0.01 per share. See "Management -- Reduction of Exercise Price of
Certain Stock Options."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to
or held by the Named Executive Officers during the fiscal year ended
June 30, 1997:
INDIVIDUAL GRANTS
-------------------------------------------------
PERCENT OF
TOTAL OPTIONS EXERCISE
GRANTED TO OR BASE
EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/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 $0.01 per share. See "Management -- Reduction of Exercise Price of
Certain Stock Options."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
NUMBER VALUE OF
OF SECURITIES UNEXERCISED IN-
UNDERLYING THE-MONEY
UNEXERCISED OPTIONS/SARS
SHARES VALUE SARS AT FY-END AT FY-END
ACQUIRED ON REALIZED EXERCISEABLE/ EXERCISEABLE/
NAME EXERCISE # ($) UEXERCISEABLE UNEXERCISEABLE(1)
- ----------------- ----------- -------- ------------- -----------------
Richard Brooks, -- -- 708,333/0 $1,586,666/0
President, Chief
Executive and
Financial Officer
Ronald A. Feldman, -- -- 260,067/0 $ 582,550/0
Chief Operating
Officer, Vice
President,
Secretary and
Treasurer
(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.
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 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 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). 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 "Principal Stockholders."
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.
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, all officers and directors 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 Percentage
Shares Owned of Shares
Name and Address* Beneficially (1) Outstanding
- --------------------- ---------------- -----------
Richard M. Brooks (2) 710,315 11.8%
Ronald A. Feldman (3) 262,067 4.7%
Robert M. Rubin (4) 527,281 9.4%
9450 Aegean Drive
Boca Raton, Fl 33496
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 1,822,163 26.4%
group (seven persons) (8)
* 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
exerciseable 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
None.
PROPOSAL NO. 2
AUTHORIZATION OF REVERSE STOCK SPLIT
Background
- ----------
In connection with contemplated financing transactions, the Board of
Directors has determined that it may be 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 no more than each
three of the ( ) 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 only in a ratio not to exceed one-for-
three 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. 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). 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 [
] to approximately [ ], assuming the full one-for-three reverse
split is effectuated. The Company's stated capital will not be
affected.
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.
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, on a ratio of
no more than 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 shares of Common
Stock 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. 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.
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 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 (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 will not
be redeemable by the Company, will be exercisable at a price per share
of $2.00 to purchase one share of Common Stock. Fifty percent (50%) of
the Warrants are exercisable after one (1) year from issuance; the
remaining fifty percent (50%) shall be exercisable two (2) years from
issuance. The term of the Warrants shall be ten years. The Common
Stock issuable upon exercise of the Warrants shall be registered with
the Securities Exchange Commission ("SEC") pursuant to a Registration
Statement on Form S-3 which shall be filed by the Company with the SEC
no later than August 21, 1997.
In consideration of the issuance of the 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") in the form of
Exhibit 3 attached hereto, 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 November
30, 1997 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: (1) the filing with the
Securities and Exchange Commission ("SEC") of this Proxy Statement on or
before July 10, 1997; (2) the mailing of a definitive proxy statement to
the Company's stockholders for the Stockholders' Meeting on or before
August 4, 1997 (subject to extension in the event the SEC conducts a
review of this Proxy Statement); (3) the filing by the Company of a
registration statement on Form S-3 or other appropriate form, with
respect to the registration for resale of the shares issuable upon
exercise of the Warrants and other shares of Common Stock issuable to
the Holders, on or before August 21, 1997; (4) the filing by the Company
of the Amendment and an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized Common Stock to at
least 37,500,000 shares, on or before September 18, 1997 (subject to
extension in the event the SEC conducts a review of this Proxy
Statement); (5) the filing by the Company of a registration statement
with the SEC for the primary issuance by the Company of securities to
generate approximately $8,750,000 of net proceeds for use by the Company
to redeem all of the Preferred Stock (the "Registration Statement"), on
or before October 1, 1997, subject to an additional ten day grace period;
and (6) upon such applicable date as the Company abandons or withdraws
the Registration Statement prior to the Registration Statement being
declared effective for use by the Company on or before November 30, 1997.
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 November 30, 1997, and is inapplicable to any claims which a
Holder may have under the Agreement and certain ancillary documents
executed in connection therewith.
The Certificate of Designations, as amended and restated in its entirety
to reflect the changes made by the Amendment, is attached as Exhibit 3.
The following description is qualified in its entirety by reference to
Exhibit 3.
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
November 30, 1997, 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 November 30, 1997 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.
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 December 1, 1997 to the closing
price of the Company's Common Stock on November 30, 1997, 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 January 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 November
30, 1997, 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 or before the opening of the market on Monday,
December 1, 1997, the Company shall deposit into escrow, that
number of shares of Common Stock reserved or required to be
reserved pursuant to Section 5(c) of the Certificate of
Designations and necessary and sufficient for the purpose of
effecting conversion of the Preferred Stock on or after
November 30, 1997, in accordance with the terms of the Amended
and Restated Certificate of Designations. Pursuant to the
Amendment, the Company is required to reserve for issuance a
sufficient number of shares of Common Stock to effect the
conversion of all outstanding Preferred Stock, and shall have
reserved for issuance 200% of shares then issuable upon
conversion of the outstanding Preferred Stock (based upon the
conversion price then in effect and assuming that the Preferred
Stock is fully convertible. The escrow shall be established
pursuant to an Escrow Agreement by and among the Company, the
remaining Holders as of November 30, 1997 and American Registrar
& Transfer Company, independent escrow agent (the
"Agent")("Escrow Agreement"). The Agent shall process any and
all conversion requests made by or on behalf of the Holders on or
after December 1, 1997, and ending upon such date that no
Preferred Stock is outstanding, pursuant to the terms of the
Amended and Restated Certificate of Designations and the Escrow
Agreement.
On June 30, 1997, after the Company concluded the
Agreement with the Holders, the Company agreed to convert 1000
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 November 30, 1997, unless one of the other conditions to
approval of the Amendment or the Redemption does not occur. If
the Amendment is not approved by 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 $15,000,000 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 November 30, 1997.
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 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 [ ] 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.
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 [ ] shares were outstanding as August 4, 1997.
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
shares of Common Stock 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. 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.
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
500,000 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 of the Company is eligible
to receive incentive stock options or non-qualified stock options
granted under the 1997 Stock Option Plan.
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.
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 6, 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.
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 he
desires, 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.
STOCKHOLDERS' PROPOSALS
It is anticipated that the Company's 1998 Annual
Meeting of Stockholders will be held in November 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 September
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
October , 1997
RESPONSE USA, INC.
Annual Meeting of Stockholders -- Wednesday, November 19, 1997
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 Schneck Weltman & Hashmall LLP, 1285 Avenue of the Americas, New York,
New York 10019, Wednesday, November 19, 1997 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 M. Rubin, Bruce H. Luehrs and Stuart R. Chalfin 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 M. Rubin,
Bruce H. Luehrs and Stuart R. Chalfin.
AUTHORITY
FOR withheld
all as to all
nominees nominees
------ ------
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
------ ------ ------
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.
