<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(c) or Section 240.14a-12
Response USA, Inc.
...............................................................................
(Name of Registrant as Specified In Its Charter)
...............................................................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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:
......................................................................
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:
......................................................................
4) Date Filed: .......................................................
<PAGE>
RESPONSE USA, INC.
11-H PRINCESS ROAD
LAWRENCEVILLE, NEW JERSEY 08648
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 30, 1999
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 Burns &
Levinson LLP, 125 Summer Street, Boston, MA 02110, on Tuesday, March 30, 1999,
at 10:00 a.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 adopt the Company's 1999 stock option plan (the "1999 Stock Option
Plan");
3. 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, 1998; and
4. To transact such other matters as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on February 16, 1999
are entitled to notice of and to vote at the meeting.
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to any of the Proposals set forth herein.
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 the fiscal year ended June 30, 1998. These materials
are being distributed to stockholders beginning on or about February 23, 1999.
By Order of the Board
of Directors
Ronald A. Feldman, Secretary
Lawrenceville, New Jersey
February 23, 1999
<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, March 30, 1999 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 February 23, 1999. 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 February 16, 1999
(the "Record Date") are entitled to receive notice of, and vote at the Annual
Meeting. As of February 16, 1999, the number and class of stock outstanding and
entitled to vote at the meeting was 8,057,985 shares of common stock, par value
$.008 per share (the "Common 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. There are no cumulative voting rights.
The holders of a majority of the outstanding shares of Common Stock present
in person or represented by proxy shall constitute a quorum at the Annual
Meeting. The approval of a plurality of the outstanding shares of Common Stock
present in person or represented by proxy at the Annual Meeting is required for
the election of nominees as directors. In all matters other than election of
directors, the affirmative vote of a majority of the outstanding shares of
Common Stock present in person or represented by proxy at the Annual Meeting is
required for the adoption of such matters.
1
<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 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"). 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, Secretary and Treasurer of the
Company (including one of its subsidiaries prior to its acquisition by the
Company) since August 1990 and an Executive Vice President since October 1998.
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 a Director, Executive Vice President and Chief
Operating Officer of the Company since December 1997. Mr. May also served as
President of Triple A Security Systems, Inc. ("Triple A"), a security services
company, since 1981 and President of The Jupiter Group, Inc., d/b/a Triple A
Patrol ("Triple A Patrol"), a company which provides guards, patrol and alarm
response services, since 1992 prior to their acquisition by the Company. Mr. May
also serves as a director of Integral Technologies, Inc., an industry software
provider, and is a director of the Central Station Alarm Association. Mr. May
has previously served as President of the Pennsylvania Burglar and Fire Alarm
Association and the Alarm Dealers Association.
A. CLINTON ALLEN has served as a Director of the Company since December
1997. Mr. Allen has also served as Vice Chairman and a director of The DeWolfe
Companies Inc., a home ownership service company, 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., a distributor of knives, cutlery and watches and is a member
of its Executive Committee, and is a director of SweetWater, Inc., a water
technology company. Mr. Allen also serves as a director and Vice Chairman of
Psychemedics Corporation, a drug testing services company. Mr. Allen was the
first outside director of Blockbuster Entertainment, was Chairman of its
Compensation Committee and served in such capacities until it was sold to
Viacom/Paramount in 1994. Mr. Allen is a party to a three-year consulting
agreement with the Company commencing February 1999. See "Certain Relationships
and Related Transactions".
2
<PAGE>
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. Mr. Chalfin is
also a member of the Pennsylvania Institute of Certified Public Accountants,
President of Stuart Financial Corp., a financial services firm and President of
Monitoring Acquisition Corp., a dealer in monthly recurring revenue products.
Mr. Chalfin performs certain consulting services for the Company. See "Certain
Relationships and Related Transactions."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION
OF ALL NOMINEES FOR DIRECTORS.
INFORMATION CONCERNING BOARD MEETINGS
The Company's Board of Directors met five times during the fiscal year ended
June 30, 1998. All of the incumbent Directors attended 100% of such meetings,
following their respective elections to the Board.
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, Allen and Chalfin; and a Stock Option and
Compensation Committee (responsible for the granting of stock options),
consisting of Messrs. Chalfin and Allen. The Audit Committee met five times and
the Stock Option and Compensation Committee met twice during the fiscal year
ended June 30, 1998. All members of both Committees attended 100% of such
meetings, following their respective elections to the Board.
3
<PAGE>
MANAGEMENT
The current executive officers and directors of the Company are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Richard M. Brooks(1)................................. 50 Chief Executive Officer, President, Chief Financial
Officer, Chairman of the Board and Director
Ronald A. Feldman.................................... 36 Executive Vice President, Secretary, Treasurer and
Director
Robert L. May........................................ 41 Executive Vice President, Chief Operating Officer and
Director
A. Clinton Allen(1)(2)............................... 54 Director
Stuart R. Chalfin(1)(2).............................. 57 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Stock Option and Compensation Committee
Directors are elected to serve until the next annual meeting of stockholders
and until their successors have been elected and have qualified. Other than the
automatic grant of options to non-employee directors pursuant to the 1999 Stock
Option Plan, 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. 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
1999 Stock Option Plan, if adopted. See "Proposal No. 2."
4
<PAGE>
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 $100,000 (the
"Named Executive Officers") during fiscal 1996, 1997 or 1998:
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
ANNUAL ---------------------------------------------
------------------------------------------ SECURITIES LONG-TERM
NAME AND OTHER ANNUAL RESTRICTED UNDERLYING INCENTIVE
PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/ PLAN
POSITION YEAR ($) ($) ($)(1) AWARD(S) SARS (#) PAYOUTS
- ------------------------------ --------- ---------- ----------- ----------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard M. Brooks,............ 1998 $ 231,731 -- -- -- 87,500 --
President, Chief 1997 $ 220,673 -- -- -- -- -- 236,111 --
Executive Officer, 1996 $ 217,980 -- -- --
Chief Financial
Officer and
Chairman of the Board
Ronald A. Feldman,............ 1998 $ 150,096 -- -- -- 37,500 --
Executive Vice 1997 $ 137,307 -- -- -- -- -- 86,689 --
President, Secretary and 1996 $135,654 -- -- --
Treasurer
Robert L. May,................ 1998 $ 51,903 -- -- -- 175,000 --
Executive
Vice President and
Chief Operating Officer
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL COMPENSATION
POSITION ($)
- ------------------------------ -----------------
<S> <C>
Richard M. Brooks,............ --
President, Chief -- --
Executive Officer,
Chief Financial
Officer and
Chairman of the Board
Ronald A. Feldman,............ --
Executive Vice -- --
President, Secretary and
Treasurer
Robert L. May,................ --
Executive
Vice President and
Chief Operating Officer
</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 $50,000 or
10% of the total annual salary reported for such person.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to or
held by the Named Executive Officers during the fiscal year ended June 30, 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERCENT OF
NUMBER OF TOTAL OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE ($/SH) DATE
- --------------------------------------------------------- ------------ --------------- ----------------- -----------
Richard M. Brooks........................................ 87,500 29.2% $ 6.03 02/04/03
Ronald A. Feldman........................................ 37,500 12.5% $ 6.03 02/04/03
Robert L. May............................................ 175,000 58.3% $ 6.03 02/04/03
</TABLE>
5
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
The following table sets forth certain information regarding stock options
exercised by the Named Executive Officers during the fiscal year ended June 30,
1998, 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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER
OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
SHARES VALUE FY-END AT FY-END
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE # ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------------------------------ ----------------- ------------- ------------------ -------------------
Richard M. Brooks,.............................. -- -- 236,111/87,500 $ 1,572,499/57,750
President, Chairman of the Board, Chief
Executive and Financial Officer
Ronald A. Feldman,.............................. -- -- 86,689/37,500 $ 577,349/24,750
Executive Vice
President, Secretary and Treasurer
Robert L. May,.................................. -- -- 105,000/70,000 $ 69,300/46,200
Executive Vice President
and Chief Operating Officer
</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 $6.69 at June 30, 1998, as reported by the Nasdaq SmallCap Market, and
the exercise price of the options.
EMPLOYMENT AGREEMENTS
Effective October 1, 1998, Mr. Brooks, Mr. Feldman and Mr. May entered into
three-year Employment Agreements with the Company to act in the capacities
listed above for the Company. The Employment Agreements provide for continuous
three-year terms, such that they renew each day for an additional day following
October 1, 1998. Such agreements provide for annual base salaries of $325,000,
$200,000 (through June 30, 1999 and $250,000 for the remainder of the term) and
$250,000, respectively. Under their Employment Agreements, Messrs. Brooks,
Feldman and May 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 and automobile expense reimbursement. The
Employment Agreements are terminable only upon certain circumstances, such as
for cause, disability and death, and if terminated for any other reason, Messrs.
Brooks, Feldman and May shall be entitled to receive the product of (i) the base
salary for such individual multiplied by (ii) 2.99 (the "Severance Benefit"). In
addition, such individuals are entitled to terminate their respective Employment
Agreements under certain circumstances, including a change of control of the
Company, which shall occur in the event that the Company sells all or
substantially all of its assets, merges with another entity which is not
controlled by the Company, or 40% or more of the Company's outstanding Common
Stock is acquired by any person or entity, in which event, such employee shall
be entitled to receive the Severance Benefit. In addition, the Company granted
options to purchase 87,500 and 37,500 shares of Common Stock to Mr. Brooks and
Mr. Feldman, respectively, on February 5, 1998 at an exercise price equal to
$6.03 per share. Of such options, 29,167 and 12,500, respectively, have vested,
and the remaining 58,333 and 25,000, respectively, of such options will vest in
two equal annual
6
<PAGE>
installments commencing on the second anniversary of the date of such grant. 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 connection with the acquisitions of Triple A and Triple A Patrol and his
employment agreement, Mr. May received options to purchase 175,000 shares of
Common Stock on February 5, 1998 at an exercise price equal to $6.03 per share.
Of such options, 128,333 have vested and the remaining 46,666 of such options
will vest in two equal annual installments commencing on the second anniversary
of the date of such grant.
1997 STOCK OPTION PLAN
In October 1997, the Board of Directors of the Company adopted the 1997
Stock Option Plan (the "1997 Plan"), which was subsequently approved by the
Company's stockholders on January 6, 1998.
The 1997 Plan provides for the grant of options to purchase up to, but not
in excess of, 600,000 shares of Common Stock to key employees, including but not
limited to officers, directors, agents, consultants and independent contractors
of the Company or any parent or subsidiary of the Company (excluding members of
the Administrator (as defined in the 1997 Plan)), 593,875 of which have been
granted and 6,125 of which are available for grant. Options may be either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified options.
Incentive stock options may be granted only to employees of the Company or a
subsidiary of the Company, while non-qualified options may be issued to
non-employee directors, as well as to employees of the Company or its
subsidiary.
The 1997 Plan is administered by the Stock Option and Compensation Committee
of the Board of Directors (the "Administrator"), which determines, among other
things, those individuals who receive options, the time period during which the
options may be exercised, the number of shares of Common Stock issuable upon the
exercise of each option and the option exercise price.
The exercise price per share of Common Stock subject to an incentive option
may not be less than the fair market value per share of Common Stock on the date
the option is granted. The per share exercise price of the Common Stock subject
to a non-qualified option may be established by the Administrator. If the
aggregate fair market value (determined as of the date the option is granted) of
Common Stock for which any person may be granted incentive stock options which
first become exercisable in any calendar year exceeds $100,000, such stock
option shall be treated, to the extent of such excess, as an option which does
not qualify as an incentive stock option. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to such
person, 10% or more of the total combined voting power of all classes of stock
of the Company (a "10% Shareholder") shall be eligible to receive any incentive
stock options under the 1997 Plan unless the exercise price is at least 110% of
the fair market value of the shares of Common Stock subject to the option,
determined on the date of grant. Non-qualified options are not subject to such
limitation.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only by the optionee. In the event of termination of
an optionee's employment other than by death, retirement, permanent and total
disability, unless extended by the Administrator on or before such employee's
date of termination of employment, the optionee will have no more than three
months after such termination during which the optionee shall be entitled to
exercise all or any part of such employee's option, unless otherwise determined
by the Administrator. Upon termination of employment of an optionee by reason of
death, retirement, permanent or total disability, such optionee's options remain
exercisable for one year thereafter to the extent such options were exercisable
on the date of such termination.
7
<PAGE>
Options under the 1997 Plan must be issued within 10 years from the
effective date of the Plan. The effective date of the 1997 Plan is September
1997. Incentive stock options granted under the 1997 Plan cannot be exercised
more than 10 years from the date of grant. Incentive stock options issued to a
10% Shareholder are limited to five-year terms. All options granted under the
1997 Plan provide for the payment of the exercise price in cash or check or by
delivery to the Company of shares of Common Stock already owned by the optionee
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods, or by such other methods
approved by the Administrator pursuant to the 1997 Plan. Therefore, an optionee
may be able to tender shares of Common Stock to purchase additional shares of
Common Stock and may theoretically exercise all of such optionee's stock options
with no additional investment other than the purchase of the original shares.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1997 Plan.
As of the date hereof, options to purchase 593,875 shares of Common Stock
have been granted pursuant to the 1997 Plan as follows: (i) 75,000 shares of
Common Stock to Mr. Allen, a director, (ii) 175,000 shares of Common Stock to
Mr. May, an officer and a director, (iii) 75,000 shares of Common Stock to Mr.
Rubin, a former director, (iv) 25,000 shares of Common Stock to Mr. Luehrs, a
former director, (v) 25,000 shares of Common Stock to Mr. Chalfin, a director,
(vi) 87,500 shares of Common Stock to Mr. Brooks, an officer and director, (vii)
37,500 shares of Common Stock to Mr. Feldman, an officer and director, all of
which options were granted in February 1998 at an exercise price equal to $6.03
and are subject to certain vesting requirements, and (viii) approximately 93,875
options granted to certain employees of the Company in October, 1998.
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 the Code. A total of 13,334
shares of Common Stock have been reserved for issuance under the ISO Plan, all
of which have been granted as of June 30, 1998.
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 3,453
shares of Common Stock were reserved for issuance under the NQO Plan, all of
which have been granted as of June 30, 1998.
REDUCTION OF EXERCISE PRICE OF CERTAIN STOCK OPTIONS
On June 15, 1997, the Company reduced the exercise price of options to
purchase 622,800 shares of Common Stock granted to officers, directors, and a
key employee of the Company, from $7.50 to $4.50, or the prevailing market
price. On June 27, 1997, the Company further reduced the exercise price of
options to purchase 422,800 shares of Common Stock granted to officers and
directors of the Company, from $4.50 to $0.03, which resulted in a compensation
expense of $1,889,916. All such options were exercised in January, 1999.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 9, 1999, 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 Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OUTSTANDING
OF BENEFICIAL OWNER(2) (1) STOCK OWNED (3)
- ---------------------------------------------------------------------- ------------------------- -------------------
<S> <C> <C>
Westar Capital, Inc. (4).............................................. 877,192 10.9%
Richard M. Brooks (5)................................................. 265,939 3.3%
Ronald A. Feldman (6)................................................. 99,856 1.2%
Stuart R. Chalfin (7)................................................. 25,000 *
Robert L. May (8)..................................................... 717,953 8.8%
A. Clinton Allen (9).................................................. 75,000 *
Executive Officers and Directors as a group (five persons) (10)....... 1,183,748 14.2%
</TABLE>
- ------------------------
* Less than one percent.
(1) For purposes of the above table, a person or group of persons is deemed to
have "beneficial ownership" of any shares that such person or group has the
right to acquire within 60 days after such date; and for purposes of
computing the percentage of outstanding shares held by each person or group
on a given date, such shares are deemed to be outstanding, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
Beneficial ownership is determined in accordance with Rule 13d-3 under the
Exchange Act, and is generally determined by voting power and/or investment
power with respect to securities. Except as indicated by footnote, and
subject to community property laws where applicable, the Company believes
that the persons named in the table above have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned
by them.
(2) The address for the referenced holders who beneficially own 5% or more of
the outstanding Common Stock of the Company is c/o Response USA, Inc., 11-H
Princess Road, Lawrenceville, New Jersey, 08648, except for Westar Capital,
Inc. whose address is 1021 Main Street, Suite 1270, Houston, Texas.
Information as to Westar Capital, Inc. was derived from the Schedule 13D and
any amendments thereto filed by such stockholder, and, except for the
percentage ownership, reflects the information contained therein as of the
date such 13D was filed.
(3) Individual percentages have been rounded to the nearest 0.1%; based upon
8,057,985 shares of Common Stock outstanding on February 9, 1999.
(4) Westar Security, Inc., Protection One, Inc., Westar Capital, Inc., and
Western Resources, Inc., are affiliated companies and may be collectively
deemed to be the beneficial owners of the Common Stock.
(5) Includes 29,167 shares issuable upon exercise of currently exercisable
options. Does not include 58,333 shares issuable upon exercise of the
unvested portion of options granted on February 5, 1998, which options shall
vest in three equal annual installments commencing on the first anniversary
of the date of grant of such options, one third of which vested on February
5, 1999. See "Employment Agreements."
9
<PAGE>
(6) Includes 12,500 shares issuable upon exercise of currently exercisable
options. Does not include 25,000 shares issuable upon exercise of the
unvested portion of options granted on February 5, 1998, which options shall
vest in three equal annual installments commencing on the first anniversary
of the date of grant of such options, one third of which vested on February
5, 1999. See "Employment Agreements."
(7) Includes 25,000 shares issuable upon exercise of currently exercisable
options, which were granted on February 5, 1998 and have vested.
(8) Includes 128,333 shares issuable upon exercise of currently exercisable
options. Does not include 46,667 shares issuable upon exercise of the
unvested portion of options granted on February 5, 1998, which options shall
vest in three equal annual installments commencing on the first anniversary
of the date of grant of such options, one third of which vested on February
5, 1999. See "Employment Agreements."
(9) Includes 75,000 shares issuable upon exercise of currently exercisable
options which were granted on February 5, 1998 and have vested.
(10) Includes 270,000 shares issuable upon exercise of currently exercisable
options referred to in notes (5), (6), (7), (8) and (9) above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as described below or under "Directors and Executive Officers of the
Registrant" and "Executive Compensation," the Company has not engaged in any
transactions with individuals who, at the time of such transaction, were
officers, directors, principal stockholders or affiliates thereof during the two
fiscal years ended June 30, 1997 and 1998.
In connection with the appointment of A. Clinton Allen as a director of the
Company, the Company entered into a three-year consulting agreement with A.C.
Allen & Co., a company owned by Mr. Allen, commencing February 1999, pursuant to
which A.C. Allen & Co. will receive $4,000 per month in consideration for Mr.
Allen providing certain consulting services to the Company. Such consulting
agreement was approved by the Company's independent directors.
Stuart R. Chalfin, a director of the Company is President of Stuart
Financial, Inc. which performed consulting services for the Company in
connection with acquisitions by the Company. Stuart Financial, Inc. received
consulting fees in connection with such services in the amount of $13,000 for
the fiscal year ended June 30, 1998 and $27,000 from June 30, 1998 through
December 31, 1998.
The Company intends that all future material affiliated transactions and
loans will be made or entered into on terms that are no less favorable to the
Company than those that can be obtained from unaffiliated third parties and that
all future material affiliated transactions and loans, and any forgiveness of
loans, must be approved by a majority of the Company's independent directors who
do not have an interest in the transactions and who had access, at the Company's
expense, to the Company's or independent legal counsel. In addition, the Company
has agreed to maintain at least two independent directors on its Board of
Directors.
Robert L. May, a director and executive officer of the Company, is the
landlord for the Company's leased properties located in Wilkes Barre and Hamlin,
Pennsylvania. During the fiscal year ended June 30, 1998, the Company made
rental payments to Mr. May in the amount of $61,667.
10
<PAGE>
PROPOSAL NO. 2
ADOPTION OF 1999 STOCK OPTION PLAN
The purpose of the 1999 Stock Option Plan is to attract, 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 1999 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 1999 Stock Option Plan is qualified in its entirety by reference to the 1999
Stock Option Plan itself attached as Appendix A.
ADMINISTRATION OF THE PLAN
The 1999 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 1999 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 1999 Stock Option
Plan; (ii) permit the grant of a stock option under the 1999 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 1999 Stock Option
Plan; (iv) extend the term of any option or the period during which any option
may be granted under the 1999 Stock Option Plan; or (v) decrease an option
exercise price (although an option may be canceled and a new option granted at a
lower exercise price).
SHARES SUBJECT TO THE PLAN
The 1999 Stock Option Plan provides that options may be granted with respect
to a total of 750,000 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 1999 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 1999 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 1999 Stock Option Plan.
OPTIONS FOR NON-EMPLOYEE DIRECTORS
Upon approval of the 1999 Stock Option Plan by the stockholders at the
Annual Meeting of Stockholders, each non-employee director shall be granted a
non-qualified stock option to purchase 35,000 shares of Common Stock at the fair
market value of the Common Stock on the date of such grant. Upon first election
or appointment to the Board of Directors, each non-employee director shall be
granted a non-qualified stock option to purchase 20,000 shares of Common Stock
at the fair market value of the Common Stock as of the date of such grant.
Thereafter, each non-employee director shall be annually
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<PAGE>
granted a non-qualified stock option to purchase 20,000 shares of Common Stock
at the fair market value on the date of such grant.
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 1999 Stock Option Plan
provides for the earlier expiration of options of a participant in the event of
certain terminations of employment.
OPTION GRANTS
The Company has not issued any options or awards to purchase shares of
Common Stock under the 1999 Stock Option Plan. The Company has not issued any
options under the 1999 Stock Option Plan to (i) the Company's Chief Executive
Officer, Chairman of the Board and President, (ii) any current executive
officer, (iii) any current director who is not an executive officer, (iv) any
director or nominee for election as a director and (v) any associate of any of
the persons referenced in (i) through (iv) above. The Company does not currently
know nor is it determinable the number of options or awards that the Company
will grant under the 1999 Stock Option Plan to any of the aforementioned
persons, except for the grant of options to purchase 35,000 shares of Common
Stock to each of the two non-employee directors of the Company and the automatic
annual grants thereafter of options to purchase 20,000 shares of Common Stock to
each non-employee director of the Company at the fair market value of the Common
Stock on the date of such grant.
12
<PAGE>
NEW PLAN BENEFITS
1999 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF
DOLLAR SHARES UNDERLYING
VALUE OPTIONS
----------- -----------------
<S> <C> <C>
Richard M. Brooks...................................................................... $ (1) 0
President,
Chairman of the Board,
Chief Executive and Financial
Officer and Director
Ronald A. Feldman...................................................................... $ (1) 0
Executive Vice President,
Secretary, Treasurer and
Director
Robert L. May.......................................................................... $ (1) 0
Executive Vice President
Chief Operating Officer and
Director
Executive Officers as a group.......................................................... $ (1) 0
Non-executive-directors as a group..................................................... $ (1) 70,000
Nominees for election as directors as a group.......................................... $ (1) 0
Non-executive employees as a group..................................................... $ (1) 0
</TABLE>
- ------------------------
(1) The dollar value of options is equal to the difference between the exercise
price of the options granted and the fair market value of the Company's
Common Stock at the date of exercise. Accordingly, such dollar value is not
readily ascertainable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE 1999
STOCK OPTION PLAN UNDER CURRENT LAW
The following discussion is only a summary of the principal federal income
tax consequences of the grant of incentives under the 1999 Stock Option Plan and
is based on existing federal law, which is subject to change, in some cases
retroactively. This discussion is also qualified by the particular circumstances
of each optionee, which may substantially alter or modify the federal income tax
consequences herein discussed.
The Taxpayer Relief Act of 1997 (the "1997 Tax Act") significantly changed
the tax treatment of long-term capital gains for individuals. Under the 1997 Tax
Act, the maximum capital gains tax rates for individuals are: (i) 20% on gains
from the sales of capital assets held for more than 18 months, and (ii) 28% on
gains from sales of capital assets held for more than 12 months but not more
than 18 months. In contrast, the maximum individual ordinary income tax rate is
39.6%. The following discussion assumes that the shares of Common Stock acquired
directly or upon exercise of an option constitute capital assets in the
optionee's hands.
INCENTIVE STOCK OPTIONS. An optionee will recognize no taxable income at the
time an incentive stock option is granted, vests or is exercised. If the
optionee makes no disposition of the acquired shares within two years after the
date of grant of the incentive stock option, or within one year after the
transfer of such shares to the optionee, any gain or loss that is realized on a
subsequent disposition of such shares will be treated as long-term capital gain
or loss. As to options exercised, the excess, if any, of the fair market value
of the shares on the date of exercise over the option price will be an item of
tax preference for purposes of computing the optionee's alternative minimum tax.
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<PAGE>
If the foregoing holding period requirements are not satisfied, the optionee
will realize (i) ordinary income for federal income tax purposes in the year of
the disqualifying disposition in an amount equal to the lesser of (a) the
excess, if any, of the fair market value of the shares on the date of exercise
over the option price thereof, or (b) the excess, if any, of the selling price
over the optionee's adjusted basis of such shares (provided that the
disqualifying disposition is a sale or exchange with respect to which a loss (if
sustained) would be recognized by such individual) and (ii) provided that the
disqualifying disposition is made more than one year after the shares are
transferred to the optionee, long-term capital gain equal to the excess, if any,
of the amount realized upon the disposition of shares over the fair market value
of such shares on the date of exercise.
NON-QUALIFYING OPTIONS. An optionee will recognize no taxable income at the
time a non-qualified stock option is granted or vests. An optionee will realize
ordinary income in the year of exercise of a non-qualified stock option measured
by the difference between the fair market value on the exercise date of the
shares transferred and the option price.
DEDUCTIONS FOR FEDERAL INCOME TAX PURPOSES
The Company will be entitled (provided it satisfies certain reporting
requirements) to a deduction for federal income tax purposes at the same time
and in the same amount as the optionee is considered to be in receipt of
compensation income in connection with the exercise if non-qualified stock
options or, in the case of an incentive stock option, a disqualifying
disposition of shares received upon exercise thereof. If the holding periods
outlined above are met, no deduction will be available to the Company in
connection with an incentive stock option.
Under the Revenue Reconciliation Act of 1993, for fiscal years beginning
after January 1, 1994, the Company may not be able to deduct compensation to
certain employees to the extent compensation exceeds one million dollars per tax
year per individual employee. Covered employees include the chief executive
officer and the four other highest compensated officers of the Company for that
tax year. Certain performance-based compensation including stock options are
exempt provided that, among other things, the stock options are granted by a
compensation committee of the Board of Directors which is comprised solely of
two or more outside directors; the Plan under which the option is granted states
the maximum number of shares with respect to which options may be granted during
a specified period to any employee; and the plan under which the options are
granted is approved by stockholders. The Company intends that stock options
issued under the 1999 Stock Option Plan with an exercise price equal to or
greater than the fair market value of the shares at the time of the grant will
qualify as performance-based compensation.
MARKET VALUE OF SECURITIES UNDERLYING OPTIONS
As of February 9, 1999, the closing bid price of the Common Stock as
reported in the Nasdaq SmallCap Market was $3 3/32 per share.
APPROVAL AND TERMINATION
The 1999 Stock Option Plan was approved by the Board of Directors of the
Company on February 11, 1999 and, unless sooner terminated by the Board of
Directors (or any committee appointed by the Board), will terminate on February
11, 2009.
The Board of Directors will offer the following resolution at the Annual
Meeting:
RESOLVED, that the 1999 Stock Option Plan is approved and adopted.
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.
14
<PAGE>
PROPOSAL NO. 3
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. At last
year's Annual Meeting held on January 6, 1998, the shareholders ratified the
Board of Directors' decision to hire Deloitte & Touche LLP ("Deloitte") as the
Company's auditors.
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
3, 1997, there were no disagreements 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 reappointment 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, 1998 be, and
hereby is, ratified and approved.
It is anticipated that a member of Deloitte will be present at the Annual
Meeting to respond to appropriate questions and will have the opportunity, if
desired, to make a statement.
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.
15
<PAGE>
STOCKHOLDERS' PROPOSALS
It is anticipated that the next Annual Meeting of Stockholders will be held
in December 1999. Stockholders who seek to present proposals at the Company's
next Annual Meeting of Stockholders must submit their proposals to the Secretary
of the Company on or before June 15, 1999.
In the event the Company receives notice of a stockholder proposal to take
action at next year's Annual Meeting of Stockholders that is not submitted for
inclusion in the Company's proxy materials, or is submitted for inclusion but is
properly excluded from the proxy material, the persons named in the proxy sent
by the Company to its stockholders intend to exercise their discretion to vote
on the stockholder proposal in accordance with their best judgment if notice of
the proposal is not received at the Company's main office prior to the date of
the next Annual Meeting of Stockholders.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act, requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities are required by regulations
of the SEC to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the fiscal year ended June 30, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
INCORPORATION OF FINANCIAL INFORMATION
The Company's audited financial statements for the year ended June 30, 1998
and related disclosures are incorporated by reference herein from the Company's
1998 Annual Report which accompanies this Proxy Statement.
GENERAL
In addition to the use of mails, proxies may be solicited by personal
interview, telephone and telefax, by directors, officers and regular employees
of the Company, without extra remuneration therefor. The Company will bear the
cost of solicitation of proxies. 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.
The form of proxy solicited by the Board of Directors affords stockholders
the ability to specify a choice among approval of, disapproval of, or abstention
with respect to each matter to be acted upon at the Annual Meeting. Shares of
Common Stock represented by the proxy will be voted, except as to matters with
respect to which authority to vote is specifically withheld. Where the solicited
stockholder indicates a choice on the form of proxy with respect to any matter
to be acted upon, the shares will be voted as specified. Abstentions and broker
non-votes will not have the effect of votes in opposition to a director or
"against" any other proposal to be considered at the Annual Meeting.
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 and 3
and FOR the election of all directors nominated.
The Board of Directors knows of no business other than that set forth above
to be transacted at the Annual 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
16
<PAGE>
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
February 23, 1999
17
<PAGE>
RESPONSE USA, INC.
1999 STOCK OPTION PLAN
SECTION 1. PURPOSE. The purpose of the Response USA, Inc., 1999 Stock Option
Plan (this "Plan") is to provide a means whereby selected employees, officers,
directors, agents, consultants and independent contractors of Response USA,
Inc., (the "Company") or of any parent or subsidiary (as defined in subsection
5.7 and referred to hereinafter as "related corporations") thereof, may be
granted incentive stock options and/or non-qualified stock options to purchase
the Common Stock (as defined in Section 3) of the Company, in order to attract
and retain the services or advice of such employees, officers, directors,
agents, consultants and independent contractors and to provide added incentive
to them by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION.
(a) This Plan shall be administered by the Board of Directors of the Company
(the "Board"), except to the extent the Board delegates its authority to a
committee of the Board to administer this Plan. The administrator of this Plan
shall hereinafter be referred to as the "Plan Administrator."
(b) For so long as the Company's Common Stock is registered under Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no
Option shall be granted to a director or officer (subject to Section 16 of the
Exchange Act) of the Company by the Board unless (i) approved in advance by the
Board or the Plan Administrator in accordance with the provisions of Rule
16b-3(d)(1) under the Exchange Act (where the Plan Administrator, if not the
entire Board, is a committee of the Board composed solely of two or more
non-employee directors who satisfy the requirements of Rule 16b-3(b)(3) under
the Exchange Act), or (ii) approved in advance, or subsequently ratified by, the
stockholders in accordance with the provisions of Rule 16b-3(d)(2) under the
Exchange Act, except that an option may be granted absent such approval if the
option provides that no officer or director of the Company may sell shares
received upon the exercise of such option during the six-month period
immediately following the grant of such option.
2.1 PROCEDURES. The Board shall designate one of the members of the Plan
Administrator as chairman. The Plan Administrator may hold meetings at such
times and places as it shall determine. The acts of a majority of the members of
the Plan Administrator present at meetings at which a quorum exists, or acts
reduced to or approved in writing by all Plan Administrator members, shall be
valid acts of the Plan Administrator.
2.2 RESPONSIBILITIES. Except for the terms and conditions explicitly set
forth in this Plan, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be granted under
this Plan, including selection of the individuals to be granted options, the
number of shares to be subject to each option, the exercise price, and all other
terms and conditions of the options, including the designation of such options
as an incentive stock option or non-qualified stock option. Grants under this
Plan need not be identical in any respect, even when made simultaneously. The
interpretation and construction by the Plan Administrator of any terms or
provisions of this Plan or any option issued hereunder, or of any rule or
regulation promulgated in connection herewith, shall be conclusive and binding
on all interested parties, so long as such interpretation and construction with
respect to incentive stock options corresponds to the requirements of Internal
Revenue Code (the "Code") Section 422, the regulations thereunder, and any
amendments thereto.
2.3 SECTION 16(B) COMPLIANCE AND BIFURCATION OF PLAN. It is the
intention of the Company that this Plan comply in all respects with Section
16(b) and Rule 16b-3 under the Exchange Act, to the extent applicable, and, if
any Plan provision is later found not to be in compliance with such Section or
Rule, as the case may be, the provision shall be deemed null and void, and in
all events the Plan shall be construed in favor of its meeting the requirements
of Section 16(b) and Rule 16b-3 under the Exchange Act. Notwithstanding anything
in the Plan to the contrary, the Board, in its absolute discretion, may
bifurcate
A-1
<PAGE>
the Plan so as to restrict, limit or condition the use of any provision of the
Plan to participants who are officers and directors or other persons subject to
Section 16(b) of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other participants.
SECTION 3. STOCK SUBJECT TO THIS PLAN. The stock subject to this Plan shall
be the Company's Common Stock, par value $0.008 per share (the "Common Stock"),
presently authorized but unissued or subsequently acquired by the Company.
Subject to adjustment as provided in Section 7 hereof, the aggregate amount of
Common Stock to be delivered upon the exercise of all options granted under this
Plan shall not exceed 750,000 shares as such Common Stock was constituted on the
effective date of this Plan. If any option granted under this Plan shall expire,
be surrendered, exchanged for another option, canceled or terminated for any
reason without having been exercised in full, the unpurchased shares subject
thereto shall thereupon again be available for purposes of this Plan, including
for replacement options which may be granted in exchange for such surrendered,
canceled or terminated options.
SECTION 4. ELIGIBILITY. An incentive stock option may be granted only to any
individual who, at the time the option is granted, is an employee of the Company
or any related corporation. A nonqualified stock option may be granted to any
director, employee, officer, agent, consultant or independent contractor of the
Company or any related corporation, whether an individual or an entity. Any
party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee".
SECTION 5. TERMS AND CONDITIONS OF OPTIONS. Options granted under this Plan
shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan (the "Option
Agreement"). Notwithstanding the foregoing, options shall include or incorporate
by reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE. The maximum number of shares that may be
purchased pursuant to the exercise of each option and the price per share at
which such option is exercisable (the "exercise price") shall be as established
by the Plan Administrator, provided that the Plan Administrator shall act in
good faith to establish the exercise price which shall be not less than the fair
market value per share of the Common Stock at the time the option is granted
with respect to incentive stock options and not less than 85% of the fair market
value per share of the Common Stock at the time the option is granted with
respect to nonqualified stock options and also provided that, with respect to
incentive stock options granted to greater than 10% stockholders, the exercise
price shall be as required by Section 6.
5.2 TERM AND MATURITY. Subject to the restrictions contained in Section
6 with respect to granting incentive stock options to greater than 10%
stockholders, the term of each incentive stock option shall be as established by
the Plan Administrator and, if not so established, shall be 10 years from the
date it is granted but in no event shall the term of any incentive stock option
exceed 10 years. The term of each nonqualified stock option shall be as
established by the Plan Administrator and, if not so established, shall be 10
years from the date it is granted. To ensure that the Company or related
corporation will achieve the purpose and receive the benefits contemplated in
this Plan, any option granted to any Optionee hereunder shall, unless the
condition of this sentence is waived or modified in the agreement evidencing the
option or by resolution adopted by the Plan Administrator, be exercisable in
three equal annual installments unless otherwise determined by action of the
Company's Stock Option Committee; provided, however, all option shares shall
become immediately exercisable in the event that there is a merger,
consolidation, acquisition of property or stock, separation, reorganization,
liquidation or other Change of Control pursuant to Section 7.1.1 hereof.
5.3 EXERCISE. Subject to any vesting schedule described in subsection
5.2 above, each option may be exercised in whole or in part; provided, however,
that no fewer than 100 shares (or the remaining shares then purchasable under
the option, if less than 100 shares) may be purchased upon any exercise of an
option hereunder and that only whole shares will be issued pursuant to the
exercise of any option. Options
A-2
<PAGE>
shall be exercised by delivery to the Company of notice of the number of shares
with respect to which the option is exercised, together with payment of the
exercise price.
5.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise price
shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's check
or personal check (unless at the time of exercise the Plan Administrator in a
particular case determines not to accept a personal check) for the Common Stock
being purchased.
The Plan Administrator can determine at the time the option is granted
for incentive stock options, or at any time before exercise for nonqualified
stock options, that additional forms of payment will be permitted. To the extent
permitted by the Plan Administrator and applicable laws and regulations
(including, but not limited to, federal tax and securities laws and regulations
and state corporate law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by an Optionee
having a fair market value equal to the exercise price, such fair market value
to be determined in good faith by the Plan Administrator;
(b) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds necessary to pay the exercise price and any federal, state or
local withholding tax obligations that may arise in connection with the
exercise; or
(c) delivery of a properly executed exercise notice together with
instructions to the Company to withhold from the shares that would otherwise be
issued upon exercise that number of shares having a fair market value equal to
the option exercise price.
5.5 WITHHOLDING TAX REQUIREMENT. The Company or any related corporation
shall have the right to retain and withhold from any payment of cash or Common
Stock under the Plan the amount of taxes required by any government to be
withheld or otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require an Optionee receiving shares of Common Stock
to reimburse the Company for any such taxes required to be withheld by the
Company and withhold such shares in whole or in part until the Company is so
reimbursed. In lieu thereof, the Company, at its option in its sole discretion,
shall (a) have the right to withhold from any other cash amounts due or to
become due from the Company to the Optionee an amount equal to such taxes or (b)
retain and withhold a number of shares having a market value not less than the
amount of such taxes required to be withheld by the Company to reimburse the
Company for any such taxes and cancel (in whole or in part) any such shares so
withheld. If required by Section 16(b) of the Exchange Act, the election to pay
withholding taxes by delivery of shares held by any person who at the time of
exercise is subject to Section 16(b) of the Exchange Act, shall be made either
six months prior to the date the option exercise becomes taxable or at such
other times as the Company may determine as necessary to comply with Section
16(b) of the Exchange Act.
5.6 ASSIGNABILITY AND TRANSFERABILITY OF OPTION. Options granted under
this Plan and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than (i) by will or by the applicable laws of descent and
distribution, (ii) pursuant to a qualified domestic relations order as defined
in Section 414(p) of the Code, or Title I of the Employee Retirement Income
Securities Act of 1974, as amended, or the rules thereunder or (iii) as
otherwise determined by the Plan Administrator and set forth in the Option
Agreement. Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of any option under this Plan or of any right or privilege conferred
hereby, contrary to the Code or to the provisions of this Plan, or the sale or
levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void. The designation by an Optionee of a
beneficiary does not, in and of itself, constitute an impermissible transfer
under this Section.
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5.7 TERMINATION OF RELATIONSHIP. If the Optionee's relationship with the
Company or any related corporation ceases for any reason other than termination
for cause, death, retirement, permanent or total disability, and unless by its
terms the option sooner terminates or expires or is extended by the Plan
Administrator, then the Optionee may exercise, for a three-month period, that
portion of the Optionee's option which is exercisable at the time of such
cessation, but the Optionee's option shall terminate at the end of the
three-month period following such cessation as to all shares for which it has
not theretofore been exercised, unless, in the case of a nonqualified stock
option, such provision is waived in the agreement evidencing the option or by
resolution adopted otherwise by the Plan Administrator within 90 days of such
cessation. If, in the case of an incentive stock option, an Optionees
relationship with the Company or related corporation changes (i.e., from
employee to non-employee, such as a consultant), such change shall constitute a
termination of an Optionees employment with the Company or related corporation
and the Optionee's incentive stock option shall become a non-qualified stock
option.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for willful misconduct, gross negligence, dishonesty,
conviction or confession of a crime punishable by law (except minor violations),
fraud, misconduct or disclosure of confidential information; provided, however,
in the case of an employee who is a party to an employment agreement with the
Company or any related corporation, "cause" shall have the meaning set forth in
such employees employment agreement. If an Optionee's relationship with the
Company or any related corporation is suspended pending an investigation of
whether or not the Optionee shall be terminated for cause, all Optionee's rights
under any option granted hereunder likewise shall be suspended during the period
of investigation.
If an Optionee's relationship with the Company or any related
corporation ceases because of a retirement, permanent or total disability, the
Optionee's option shall not terminate or, in the case of an incentive stock
option, cease to be treated as an incentive stock option until the end of the
12-month period following such cessation (unless by its terms it sooner
terminates and expires). As used in this Plan, the term "total disability"
refers to a mental or physical impairment of the Optionee which is expected to
result in death or which has lasted or is expected to last for a continuous
period of 12 months or more and which causes the Optionee to be unable, in the
opinion of the Company and two (if more than one is required by the Company in
its sole discretion) independent physicians, to perform his or her duties for
the Company and to be engaged in any substantial gainful activity. Total
disability shall be deemed to have occurred on the first day after the Company
and the two (if more than one is required by the Company in its sole discretion)
independent physicians have furnished their opinion of total disability to the
Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship between
or among the Company and/or any related corporation shall not be deemed to
constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
As used herein, the term "related corporation", when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) or
other entity in, at the time of the granting of the option, an unbroken chain of
corporations ending with the Company, if stock or other interests possessing 50%
or more of the total combined voting power of all classes of stock or other
interests of each of the corporations or other entities other than the Company
is owned by one of the other corporations or other entities in such chain. When
referring to a parent corporation or other entity, the term "related
corporation" shall mean any corporation or other entity in an unbroken chain of
corporations or other
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entities ending with the Company if, at the time of the granting of the option,
each of the corporations or other entities other than the Company owns stock or
other interests possessing 50% or more of the total combined voting power of all
classes of stock or other interests in one of the other corporations or other
entities in such chain.
5.8 DEATH OF OPTIONEE. If an Optionee dies while he or she has a
relationship with the Company or any related corporation or within the
three-month period (or 12-month period in the case of totally disabled
Optionees) following cessation of such relationship, any option held by such
Optionee, to the extent that the Optionee would have been entitled to exercise
such option, may be exercised within one year after his or her death by the
personal representative of his or her estate or by the person or persons to whom
the Optionees rights under the option shall pass by will or by the applicable
laws of descent and distribution.
5.9 STATUS OF SHAREHOLDER. Neither the Optionee nor any party to which
the Optionee's rights and privileges under the option may pass shall be, or have
any of the rights or privileges of, a shareholder of the Company with respect to
any of the shares issuable upon the exercise of any option granted under this
Plan unless and until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT. Nothing in this Plan or in any option
granted pursuant to this Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of a related corporation, or to
interfere in any way with the right of the Company or of any such related
corporation to terminate his or her employment or other relationship with the
Company at any time.
5.11 MODIFICATION AND AMENDMENT OF OPTION. Subject to the requirements
of Code Section 422 with respect to incentive stock options and to the terms and
conditions and within the limitations of this Plan, the Plan Administrator may
modify or amend outstanding options granted under this Plan. The modification or
amendment of an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her rights or any of the obligations
of the Company under such option. Except as otherwise provided in this Plan, no
outstanding option shall be terminated without the consent of the Optionee.
Unless the Optionee agrees otherwise, any changes or adjustments made to
outstanding incentive stock options granted under this Plan shall be made in
such a manner so as not to constitute a "modification" as defined in Code
Section 424(h) and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Code Section 422(b).
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all
incentive stock options granted under the terms of this Plan, to the extent that
the aggregate fair market value (determined at the time the incentive stock
option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by the Optionee during any calendar year
(under this Plan and all other incentive stock option plans of the Company, a
related corporation or a predecessor corporation) exceeds $100,000, such options
shall be treated as nonqualified stock options. The previous sentence shall not
apply if the Code is amended or if the Internal Revenue Service publicly rules,
issues a private ruling to the Company, any Optionee, or any legatee, personal
representative or distributee of an Optionee or issues regulations, changing or
eliminating such annual limit, in which case the limitation shall be that
provided by the Code or the Internal Revenue Service, as the case may be.
5.13 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE
5.13.1 EXERCISE OF OPTIONS UNDER SECTIONS 5.4(A) AND (C). The value
of Common Stock received by the Optionee from an exercise under Sections 5.4(a)
and 5.4(c) hereof shall be the fair market value, which shall mean the last
reported sales price, regular way, of the Common Stock on the date of receipt by
the Company of the Optionee's delivery of shares under Section 5.4(a) hereof or
delivery of the exercise notice under Section 5.4(c) hereof (or, if no sale
takes place on any such day, the closing bid price of the Common Stock on such
day), on the principal securities exchange (including the National Association
of Securities Dealers, Inc. (the "NASDAQ" National Market System) on which the
Common
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Stock is admitted or listed for trading, or, if the Common Stock is not listed
on any such exchange on any such day, the highest reported bid price for the
Common Stock as furnished by the NASD through NASDAQ, or a similar organization
if NASDAQ is no longer reporting such information, or, if the Common Stock is
not listed for trading on an exchange and is not quoted on NASDAQ or any similar
organization on any such day, the fair value of a share of Common Stock on such
day as determined by the Plan Administrator of the Company in good faith.
5.13.2 EXERCISE OF OPTION UNDER SECTION 5.4(B). The value of Common
Stock received by the Optionee from an exercise under Section 5.4(b) hereof
(a) in the case of the sale of the Common Stock received as a result of the
exercise by a broker on the date of receipt by the Company of the Optionee's
exercise notice, shall equal the sales price received for such shares; and
(b) in all other cases, shall be determined as provided in Section 5.13.1
hereof.
5.14 NON-EMPLOYEE DIRECTORS. Upon approval of the 1999 Stock Option Plan
by the stockholders at the Annual Meeting of Stockholders, each non-employee
director shall be granted a non-qualified stock option to purchase 35,000 shares
of Common Stock at the fair market value of the Common Stock on the date of such
grant. Upon first election or appointment to the Board of Directors, each
non-employee director shall be granted a non-qualified stock option to purchase
20,000 shares of Common Stock at the fair market value of the Common Stock as of
the date of such grant. Thereafter, each non-employee director shall be annually
granted a non-qualified stock option to purchase 20,000 shares of Common Stock
at the fair market value on the date of such grant.
SECTION 6. GREATER THAN 10% STOCKHOLDERS.
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If incentive
stock options are granted under this Plan to employees who own more than 10% of
the total combined voting power of all classes of stock of the Company or any
related corporation, the term of such incentive stock options shall not exceed
five years and the exercise price shall be not less than 110% of the fair market
value of the Common Stock at the time the incentive stock option is granted.
This provision shall control notwithstanding any contrary terms contained in an
option agreement or any other document. The term and exercise price limitations
of this provision shall be amended to conform to any change required (or, in the
sole discretion of the Plan Administrator, permitted) by a change in the Code or
by a ruling or pronouncement of the Internal Revenue Service.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in determining
stock ownership, an employee shall be deemed to own the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its stockholders, partners or beneficiaries. If an employee or a person
related to the employee owns an unexercised option or warrant to purchase stock
of the Company, the stock subject to that portion of the option or warrant which
is unexercised shall not be counted in determining stock ownership. For purposes
of this Section 6, stock owned by an employee shall include all stock owned by
him which is actually issued and outstanding immediately before the grant of the
incentive stock option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate number
and class of shares for which options may be granted under this Plan, the number
and class of shares covered by each outstanding option, and the exercise price
per share thereof (but not the total price), shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock of the Company resulting from a split-up or consolidation of shares or any
like capital adjustment, or the payment of any stock dividend.
7.1. EFFECT OF LIQUIDATION, REORGANIZATION OR CHANGE IN CONTROL.
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK. Except as provided in
subsection 7.1.2, upon a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to
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the merger have the same proportionate ownership of common stock in the
surviving corporation immediately after the merger), consolidation, acquisition
of property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company), liquidation of the
Company, or other "Change of Control" of the Company as a result of which the
stockholders of the Company receive cash or property other than capital stock in
exchange for or in connection with their shares of Common Stock, any option
granted hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization, liquidation or Change of Control to exercise
such Optionee's option in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied. A "Change of
Control" of the Company shall be deemed to have occurred in addition to the
events set forth in this subsection 7.1.1, if any change occurs which would be
required to be reported under item 1 on Form 8-K, promulgated under the Exchange
Act.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE. If the
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and corporation issuing
the Exchange Stock, in their sole discretion, determine that any or all such
options granted hereunder shall not be converted into options to purchase shares
of Exchange Stock but instead shall terminate in accordance with the provisions
of subsection 7.1.1. The amount and price of converted options shall be
determined by adjusting the amount and price of the options granted hereunder in
the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. Unless the Board
determines otherwise, the converted options shall be fully vested whether or not
the vesting requirements set forth in the option agreement have been satisfied.
7.2 FRACTIONAL SHARES. In the event of any adjustment in the number of
shares covered by an option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL. All Section 7 adjustments shall
be made by the Board, and its determination as to what adjustments shall be
made, and the extent thereof, shall be final, binding and conclusive. Unless an
Optionee agrees otherwise, any change or adjustment to an incentive stock option
shall be made in such a manner so as not to constitute a "modification" as
defined in Code Section 425(h) and so as not to cause his or her incentive stock
option issued hereunder to fail to continue to qualify as an incentive stock
option as defined in Code Section 422(b).
SECTION 8. SECURITIES REGULATION. Shares shall not be issued with respect to
an option granted under this Plan unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange or inter-dealer quotation system upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance, including the availability of an exemption from
registration for the issuance and sale of any shares hereunder. Inability of the
Company to obtain from any regulatory body having jurisdiction the authority
deemed by the Company's counsel to be necessary for the lawful issuance and sale
of any shares hereunder or the unavailability of an exemption from registration
for the issuance and sale of any shares hereunder shall relieve the Company of
any liability in respect of the nonissuance or sale of such shares as to which
such requisite authority shall not have been obtained.
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As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such representation is required by any relevant provision of the aforementioned
laws. At the option of the Company, a stop-transfer order against any shares of
stock may be placed on the official stock books and records of the Company, and
a legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Company may also require such other
action or agreement by the Optionees as it may from time to time deem to be
necessary or advisable. The Company shall not be obligated, by reason of this
provision or otherwise, to undertake registration of the options or stock
thereunder.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities exchange
or inter-dealer quotation system, all stock issued hereunder if not previously
listed on such exchange or inter-dealer quotation system shall be authorized by
that exchange or system for listing thereon prior to the issuance thereof.
SECTION 9. AMENDMENT AND TERMINATION.
9.1 Board Action. The Board may at any time suspend, amend or terminate
this Plan, provided that except as set forth in Section 7, the approval of the
holders of a majority of the Company's outstanding shares of voting capital
stock present and entitled to vote at any meeting is necessary for the adoption
by the Board of any amendment which will:
(a) increase the number of shares which are to be reserved for the
issuance of options under this Plan;
(b) permit the granting of stock options to a class of persons other
than those presently permitted to receive stock options under this Plan; or
(c) require shareholder approval under applicable law, including
Section 16(b) of the Exchange Act.
9.2 AUTOMATIC TERMINATION. Unless sooner terminated by the Board, this
Plan shall terminate ten years from the earlier of (a) the date on which this
Plan is adopted by the Board or (b) the date on which this Plan is approved by
the stockholders of the Company. No option may be granted after such termination
or during any suspension of this Plan. The amendment or termination of this Plan
shall not, without the consent of the option holder, alter or impair any rights
or obligations under any option theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN. This Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock present and
entitled to vote at any meeting at any time within 12 months before or after the
adoption of this Plan.
Adopted by the Board of Directors on February 11, 1999 and approved by the
stockholders on , 1999.
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RESPONSE USA, INC.
NONQUALIFIED STOCK OPTION LETTER AGREEMENT
Date:
----------------
TO:
- ------------------------
We are pleased to inform you that you have been selected by the Plan
Administrator of the 1999 Stock Option Plan (the "Plan") of Response USA, Inc.,
(the "Company"). The Plan was adopted by the Board of Directors, by the
Stockholders at the Company's 1999 Annual Meeting of Stockholders. When you sign
and return to the Company the Acceptance and Acknowledgment attached to this
Stock Option Agreement you will be entitled to receive a nonqualified option for
the purchase of shares of the Company's common stock, par value $0.008 per
share ("Common Stock"), at an exercise price of $ per share (the "exercise
price"), and subject to the vesting provisions set forth herein. A copy of the
Plan is attached and the provisions thereof, including, without limitation,
those relating to withholding taxes, are incorporated into this Agreement by
reference. It is understood that this Option is not intended to constitute an
incentive stock option as that term is defined in Section 422A of the Internal
Revenue Code of 1986, as amended.
The terms of the option are as set forth in the Plan and in this Agreement.
The most important of the terms set forth in the Plan are summarized as follows:
NUMBER OF SHARES: The option granted to you covers an aggregate of
shares of Common Stock.
EXERCISE PRICE: The exercise price per share of Common Stock subject to
your option is $ per share (the "Exercise Price").
ADJUSTMENTS. The number of shares of Common Stock subject to your option
and the Exercise Price may be subject to adjustment under certain circumstances
as described in the Plan.
DATE OF GRANT: The date of grant of the option is .
TERM: The term of the option is ten years from date of grant, unless sooner
terminated.
VESTING: Your option shall vest in three equal annual installments unless
otherwise determined by the Plan Administrator.
EXERCISE: The vested position of the option may be exercised, in whole or
in part, but not as to any fractional shares, during the term of the option. You
should use a Notice of Exercise of Nonqualified Stock Option in the form
attached to this Agreement when you exercise the option. During your lifetime
only you can exercise the option. The Plan also provides for exercise of the
option by the personal representative of your estate or the beneficiary thereof
following your death.
PAYMENT FOR SHARES: The vested portion of this option may be exercised by
the delivery of:
(a) Cash, personal check (unless, at the time of exercise, the Plan
Administrator determines otherwise), certified or bank cashier's checks in an
amount equal to the aggregate Exercise Price for the number of shares as to
which the option is being exercised together with a properly executed Notice of
Exercise;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, shares of the capital stock of the Company held by you having a fair
market value at the time of exercise, as determined by the Plan Administrator in
accordance with the Plan, equal to the aggregate Exercise Price for the number
of shares as to which the option is being exercised;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise together with instructions to
the Company to withhold from the shares that would
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otherwise be issued upon exercise that number of shares having a fair market
value equal to the aggregate Exercise Price for the number of shares as to which
the option is being exercised; or
(d) A properly executed Notice of Exercise together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the aggregate Exercise Price for the number of shares as
to which the option is being exercised;.
Upon receipt of written Notice of Exercise and payment and delivery of any
other required documentation, the Company shall deliver to the person exercising
the option a certificate or certificates for the appropriate number of shares of
Common Stock. It shall be a condition to the performance of the Company's
obligation to issue or transfer Common Stock upon exercise of this option that
you pay, or make provision satisfactory to the Company for the payment of, any
taxes which the Company is obligated to collect with respect to the issue or
transfer of Common Stock upon exercise.
TERMINATION: Your option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or a related corporation, unless cessation is due
to death, retirement, permanent or total disability, in which case the portion
of this option which is vested at the time of such termination shall terminate
one year after cessation of such relationship.
All unvested options will terminate immediately upon the cessation of your
relationship with the Company or a related corporation for any reason,
including, without limitation, termination for cause, resignation, death,
retirement, permanent or total disability.
TRANSFER OF OPTION: The option is not transferable except by will or by the
applicable laws of descent and distribution or pursuant to a qualified domestic
relations order.
NOTICE: All notices sent in connection with this option shall be in writing
and, if to the Company, shall be delivered personally to the President of the
Company or mailed to its principal office, addressed to the attention of the
President, and, if to you, shall be delivered personally or mailed to you at the
address noted on the attached Acceptance and Acknowledgment. Such addresses may
be changed at any time by notice from one party to the other.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
It is the intention of the Company that this Plan comply in all respects
with Section 16(b) and Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"), to the extent applicable, and, if any Plan provision is later
found not to be in compliance with such Section or Rule, as the case may be, the
provision shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of Section 16(b) and Rule
16b-3 under the Exchange Act. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are officers and directors
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or other persons subject to Section 16(b) of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
participants.
All decisions or interpretations made by the Plan Administrator with regard
to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and you.
This Agreement shall bind and inure to the benefit of the parties hereto and
the successors and assigns of the Company and, to the extent provided in the
Plan, your executors, administrators, legatees and heirs.
Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
Response USA, Inc.
By:
----------------------------------------------------------------
[NAME AND TITLE]
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ACCEPTANCE AND ACKNOWLEDGMENT
I, a resident of the State of , accept the nonqualified
stock option described above and in Response USA, Inc. 1999 Stock Option Plan,
and acknowledge receipt of a copy of this Agreement, including a copy of the
Plan. I have read and understand this Agreement and the Plan, including the
provisions of Section 8.
Dated: ________________________
- -------------------------------------------
- -------------------------------------------
Taxpayer I.D. Number
By his or her signature below, the spouse of the Optionee, if such Optionee
is legally married as of the date of his or her execution of this Agreement,
acknowledges that he or she has read this Agreement and the Plan and is familiar
with the terms and provisions thereof, and agrees to be bound by all the terms
and conditions of this Agreement and the Plan.
Dated: ________________________
------------------------------
Spouse's Signature
------------------------------
Printed Name
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NOTICE OF EXERCISE
[NAME AND ADDRESS OF ISSUER]
Gentlemen:
I hereby exercise my right to purchase shares of Common Stock (the
"Shares") of Response USA, Inc., a Delaware corporation, pursuant to, and in
accordance with, the Response USA, Inc. 1999 Nonqualified Stock Option Agreement
("Agreement") dated . As provided in that Agreement, I deliver
herewith a certified or bank cashier's check in the amount of the aggregate
option price (unless alternative payment methods have been approved by the Plan
Administrator). Please deliver to me stock certificates representing the subject
shares registered as follows:
<TABLE>
<S> <C>
Name:
Address:
Social Security Number:
- ------------------------
</TABLE>
The aggregate exercise price is $ (total number of shares to be
purchased x $ per share).
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own account
(and not for the account of others), for investment and not with a view to
the distribution or resale thereof;
(b) by virtue of his or her position, the undersigned has access to the
same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or otherwise
dispose of the Shares in the absence of either (i) a registration statement
filed under the Act or (ii) an exemption from the registration provisions
thereof; and
(e) the certificates representing the Shares may contain a legend to the
effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a registration statement filed and declared effective under the Act,
the undersigned hereby represents and warrants that he or she has received the
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of Common
Stock represented by the Shares.
4. The undersigned understands that there are certain tax implications to
his or her exercise of his or her right to purchase shares of Common Stock under
the Agreement. The undersigned further understands that it is his or her
obligation to confer with his or her own tax advisor with respect to such tax
implications.
Very truly yours,
- --------------------------------------------------------------------------------
(signature)
- --------------------------------------------------------------------------------
(please type or print name)
A-13
<PAGE>
RESPONSE USA, INC.
INCENTIVE STOCK OPTION LETTER AGREEMENT
Date:
TO:
We are pleased to inform you that you have been selected by the Plan
Administrator of the 1999 Stock Option Plan (the "Plan") of Response USA, Inc.,
(the "Company") to receive stock options. The Plan was adopted by the Board of
Directors and approved by the stockholders of the Company at the Company's 1999
Annual Meeting of Stockholders. When you sign and return to the Company the
Acceptance and Acknowledgment attached to this Stock Option Agreement you will
be entitled to receive an incentive option for the purchase of shares of
the Company's common stock, $0.008 par value ("Common Stock"), at an exercise
price of $ per share (the "exercise price"). A copy of the Plan is attached
and the provisions thereof, including, without limitation, those relating to
withholding taxes, are incorporated into this Agreement by reference.
The terms of the option are as set forth in the Plan and in this Agreement.
The most important of the terms set forth in the Plan are summarized as follows:
NUMBER OF SHARES: The option granted to you covers an aggregate of
shares of Common Stock.
EXERCISE PRICE: The exercise price per share of Common Stock subject to your
option is $ per share (the "Exercise Price").
ADJUSTMENTS. The number of shares of Common Stock subject to your option and
the Exercise Price may be subject to adjustment under certain circumstances as
described in the Plan.
DATE OF GRANT: The date of grant of the option is .
TERM. The term of the option is ten years from date of grant, unless sooner
terminated.
VESTING. Your option shall vest in three equal annual installments unless
otherwise determined by the Plan Administrator.
EXERCISE. The vested portion of the option may be exercised, in whole or in
part, but not as to any fractional shares, during the term of the option. You
should use a Notice of Exercise of Incentive Stock Option in the form attached
to this Agreement when you exercise the option. During your lifetime only you
can exercise the option. The Plan also provides for exercise of the option by
the personal representative of your estate or the beneficiary thereof following
your death.
PAYMENT FOR SHARES. The vested portion of this option may be exercised by
the delivery of:
(a) Cash, personal check (unless at the time of exercise the Plan
Administrator determines otherwise), or certified or bank cashier's
checks in an amount equal to the aggregate Exercise Price for the number
of shares as to which the option is being exercised together with a
properly executed Notice of Exercise;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with shares
of the capital stock of the Company held by you having a fair market
value at the time of exercise, as determined by the Plan Administrator in
accordance with the Plan, equal to the aggregate Exercise Price for the
number of shares as to which the option is being exercised;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise together with
instructions to the Company to withhold from the shares that would
otherwise be issued upon exercise that number of shares having a fair
market value equal
A-14
<PAGE>
to the aggregate Exercise Price for the number of shares as to which the
option is being exercised; or
(d) A properly executed Notice of Exercise together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of
sale or loan proceeds to pay the aggregate Exercise Price for the number
of shares as to which the option is being exercised.
Upon receipt of written Notice of Exercise and payment and delivery of any
other required documentation, the Company shall deliver to the person exercising
the option a certificate or certificates for the appropriate number of shares of
Common Stock. It shall be a condition to the performance of the Company's
obligation to issue or transfer Common Stock upon exercise of this option that
you pay, or make provision satisfactory to the Company for the payment of, any
taxes which the Company is obligated to collect with respect to the issue or
transfer of Common Stock upon exercise.
TERMINATION. Your option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or a related corporation thereof, unless cessation
is due to death, retirement, permanent or total disability, in which case the
portion of this option which is vested at the time of such termination shall
terminate one year after cessation of such relationship. All unvested options
will terminate immediately upon the cessation of your relationship with the
Company or a related corporation for any reason, including, without limitation,
termination for cause, resignation, death, retirement, permanent or total
disability.
TRANSFER OF OPTION. The option is not transferable except by will or by the
applicable laws of descent and distribution or pursuant to a qualified domestic
relations order.
NOTICE: All notices sent in connection with this option shall be in writing
and, if to the Company, shall be delivered personally to the President of the
Company or mailed to its principal office, addressed to the attention of the
President, and, if to you, shall be delivered personally or mailed to you at the
address noted on the attached Acceptance and Acknowledgment. Such addresses may
be changed at any time by notice from one party to the other.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
It is the intention of the Company that this Plan comply in all respects
with Section 16(b) and Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"), to the extent applicable, and, if any Plan provision is later
found not to be in compliance with such Section or Rule, as the case may be, the
provision shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of Section 16(b) and Rule
16b-3 under the Exchange Act. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are officers and directors or other persons subject to Section
16(b) of the Exchange Act without so restricting, limiting or conditioning the
Plan with respect to other participants.
A-15
<PAGE>
All decisions or interpretations made by the Plan Administrator with regard
to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and you.
This Agreement shall bind and inure to the benefit of the parties hereto and
the successors and assigns of the Company and, to the extent provided in the
Plan, your executors, administrators, legatees and heirs.
Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
[NAME AND TITLE]
By:
[NAME AND TITLE]
A-16
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
I, a resident of the State of , accept the stock option
described above granted under the Response USA, Inc., 1999 Stock Option Plan,
and acknowledge receipt of a copy of this Agreement, including a copy of the
Plan. I have read and understand this Agreement and the Plan, including the
provisions of Section 8 thereof.
Dated:
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
Taxpayer I.D. Number Signature
</TABLE>
By his or her signature below, the spouse of the Optionee, if such Optionee
is legally married as of the date of such Optionee's execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of this Agreement and the Plan.
Dated:
<TABLE>
<S> <C> <C>
----------------------------
Spouse's Signature
----------------------------
Printed Name
</TABLE>
A-17
<PAGE>
NOTICE OF EXERCISE
[NAME AND ADDRESS OF ISSUER]
Gentlemen:
I hereby exercise my right to purchase shares of Common Stock (the
"Shares") of Response USA, Inc., a Delaware corporation, pursuant to, and in
accordance with, the Response USA, Inc., 1999 Incentive Stock Option Agreement
("Agreement") dated . As provided in that Agreement, I deliver
herewith a certified or bank cashier's check in the amount of the aggregate
option price (unless alternative payment methods have been approved by the Plan
Administrator). Please deliver to me stock certificates representing the subject
shares registered as follows:
Name: ________________________________________
Address: ______________________________________
- --------------------------------------
Social Security Number:
- ------------------------
The aggregate exercise price is $ (total number of shares to be
purchased x $ per share).
1. If the sale of the Shares and the resale thereof has not, prior to the date
hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"),
the undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own account (and
not for the account of others), for investment and not with a view to the
distribution or resale thereof;
(b) by virtue of his or her position, the undersigned has access to the same
kind of information which would be available in a registration statement
filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or otherwise
dispose of the Shares in the absence of either (i) a registration
statement filed under the Act or (ii) an exemption from the registration
provisions thereof; and
(e) the certificates representing the Shares may contain a legend to the
effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a registration statement filed and declared effective under the
Act, the undersigned hereby represents and warrants that he or she has
received the applicable prospectus and a copy of the most recent annual
report, as well as all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of
Common Stock represented by the Shares.
4. The undersigned understands that there are certain tax implications to his
or her exercise of his or her right to purchase shares of Common Stock under
the Agreement. The undersigned further understands that it is his or her
obligation to confer with his or her own tax advisor with respect to such
tax implications.
<TABLE>
<S> <C>
Very truly yours,
--------------------------------------------
(signature)
--------------------------------------------
(please type or print name)
</TABLE>
A-18
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
RESPONSE USA, INC.
MARCH 30, 1999
Please Detach and Mail in the Envelope Provided
Please mark your
/X/ votes as in this
example.
<TABLE>
<CAPTION>
AUTHORITY
WITHHELD
FOR ALL AS TO ALL
NOMINEES NOMINEES FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>
1. Proposal No. 1 / / / / Nominees: 2. Proposal No. 2 / / / / / /
Election of Richard M. Brooks Adoption of the 1999 Stock Option Plan.
Directors. Ronald A. Feldman
Robert L. May 3. Proposal No. 3
For, except authority withheld as to A. Clinton Allen Ratification of the selection of
the following nominee(s): Stuart R. Chalfin Deloitte & Touche LLP, as the independent / / / / / /
auditors of the Company.
4. The undersigned hereby confers upon the proxies, and each of them,
discretionary authority to vote upon such other business as may
properly come before the meeting.
SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
_____________________________________ _________________________________ Dated: ______________ , 1999
(Signature) (Print Name)
NOTE: (Please date, sign as name appears above, 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.
</TABLE>
<PAGE>
RESPONSE USA, INC.
ANNUAL MEETING OF STOCKHOLDERS, TUESDAY, MARCH 30, 1999
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 the power of substitution, as proxies to represent the
undersigned at the Annual Meeting of Stockholders of Response USA, Inc. (the
"Company") to be held at Burns & Levinson LLP, 125 Summer Street, Boston, MA
02110 on Tuesday, March 30, 1999 at 10:00 a.m. local time and at any
adjournments thereof, and to vote the shares of stock the undersigned would
be entitled to vote if personally present, as indicated 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
AND 3 AND FOR THE ELECTION OF RICHARD M. BROOKS, RONALD A. FELDMAN, ROBERT L.
MAY, A. CLINTON ALLEN AND STUART R. CHALFIN, AS DIRECTORS.
(Continued and to be signed on the reverse side.)
