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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
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Exchange Act Rule 14a-11 or 14a-12
INNOVATIVE TECH SYSTEMS, INC.
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(Name of Registrant as Specified In Its Charter)
INNOVATIVE TECH SYSTEMS, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
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(4) Proposed maximum aggregate value of transaction:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
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INNOVATIVE TECH SYSTEMS, INC.
444 Jacksonville Road
Suite 200
Warminster, Pennsylvania 18974
---------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 21, 1997
---------------------------------------------
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders (the "Annual Meeting") of Innovative
Tech Systems, Inc., an Illinois corporation (the "Company"), will be held at the
Courtyard by Marriott, 2350 Easton Road (Route 611), Willow Grove, Pennsylvania
19090, at 10:00 A.M., local time, on Thursday, August 21, 1997, for the
following purposes:
(l) To elect five directors of the Company to serve until the
next Annual Meeting of Shareholders or until their respective successors are
duly elected and shall qualify;
(2) To consider and vote upon a proposal to amend the
Company's 1994 Stock Option Plan (the "Plan") to increase the aggregate number
of shares of the Company's Common Stock authorized for issuance under the Plan
from 975,000 to 2,175,000 shares;
(3) To ratify the appointment of Price Waterhouse LLP as the
Company's independent accountants; and
(4) To transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement thereof.
The Proxy Statement accompanying this Notice provides detailed
information concerning matters to be considered and acted upon at the Annual
Meeting. Please read it carefully.
The Board of Directors of the Company unanimously recommends that the
Shareholders vote in favor of each of the proposals outlined above.
The Board of Directors has fixed the close of business on July 14, 1997
as the record date for determining those shareholders who will be entitled to
notice of and to vote at the Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend the meeting, please complete, date and sign the enclosed
proxy card. All proxy cards
<PAGE>
should be returned promptly in the enclosed envelope. Your proxy may be revoked
at any time prior to the time it is voted.
A copy of the Company's Annual Report for the fiscal year ended January
31, 1997 is enclosed with this Notice.
By Order of the Board of Directors,
KAREN A. THOMPSON
Secretary
Warminster, Pennsylvania
2
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INNOVATIVE TECH SYSTEMS, INC.
444 Jacksonville Road
Suite 200
Warminster, Pennsylvania 18974
PROXY STATEMENT
1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 21, 1997
These proxy materials are furnished in connection with the solicitation
of proxies by the Board of Directors of Innovative Tech Systems, Inc., an
Illinois corporation ("Innovative Tech" or the "Company"), for the 1997 Annual
Meeting of Shareholders of Innovative Tech (the "Annual Meeting") to be held at
10:00 A.M. on Thursday, August 21, 1997, at the Courtyard by Marriott, 2350
Easton Road (Route 611), Willow Grove, Pennsylvania 19090, and any adjournments
or postponements of such meeting. These proxy materials were first mailed to
shareholders on or about July 24, 1997. The address of the principal executive
office of Innovative Tech is 444 Jacksonville Road, Suite 200, Warminster,
Pennsylvania 18974.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized below:
(1) To elect five (5) directors to serve until the next Annual Meeting
of Shareholders or until their respective successors are duly elected and shall
qualify;
(2) To consider and vote upon a proposal to amend the Company's 1994
Stock Option Plan (the "Plan") to increase the aggregate number of shares of the
Company's Common Stock authorized for issuance under the Plan from 975,000 to
2,175,000 shares;
(3) To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants; and
(4) To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
COMMON STOCK AND PRINCIPAL HOLDERS THEREOF
Shares of the Common Stock, par value $.0185 per share (the "Common
Stock"), of Innovative Tech represented by proxies in the accompanying form
which are properly executed and returned to Innovative Tech before the Annual
Meeting, will be voted at the meeting in
<PAGE>
accordance with the shareholders' instructions contained in such proxies. In the
absence of contrary instructions, shares of the Common Stock represented by such
proxies will be voted "For" the election of the nominees listed herein to serve
as directors of the Company; "For" the proposed amendment to the Company's 1994
Stock Option Plan; "For" the ratification of the appointment of Price Waterhouse
LLP, as the Company's independent accountants; and in the discretion of the
proxy holders on such other matters as may properly come before the Annual
Meeting.
Any shareholder has the power to revoke his proxy at any time before it
is voted. A proxy may be revoked by a shareholder if it has not been exercised
by filing with the Secretary of the Company a written notice of such revocation,
by a later dated proxy delivered to the Secretary of the Company at any time
prior to the voting of the shares represented by such proxy, by oral revocation
given by a shareholder in person at the Annual Meeting or any adjournment
thereof prior to the exercise of such proxy, or by the shareholder voting the
shares represented by the proxy by written ballot at the Annual Meeting or any
adjournment thereof.
The close of business on July 14, 1997 was the record date (the "Record
Date") for shareholders entitled to notice of and to vote at the Annual Meeting.
Shares of Common Stock outstanding on the Record Date are entitled to vote at
the Annual Meeting, and the holders of record thereof will have one vote for
each share so held on the matters to be voted upon at the Annual Meeting. The
presence in person or by proxy of the holders of a majority of the outstanding
shares of Common Stock of the Company entitled to vote at the Annual Meeting
will constitute a quorum. Abstentions and broker non-votes are counted for the
purposes of determining the presence or absence of a quorum for the transaction
of business at the meeting.
Directors will be elected by a plurality vote. Approval of the proposed
Amendment to the Company's 1994 Stock Option Plan requires the approval of a
majority of the outstanding shares of the Common Stock voted at the meeting.
Ratification of the appointment of Price Waterhouse LLP as the Company's
independent accountants requires the approval of a majority of the outstanding
shares of the Common Stock voted at the meeting. Abstentions are counted in the
tabulations of the votes cast on proposals presented to shareholders, whereas
broker non-votes are not counted for purposes of determining the election of
directors or whether a proposal has been approved.
As of the close of business on the Record Date, there were 10,888,456
outstanding shares of Common Stock. The following table lists, as of the Record
Date, each person known by the Company to be the beneficial owner of more than
five percent (5%) of the outstanding Common Stock:
2
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Name and Number of Percentage
Address Shares Owned(1) of Class Owned(2)
------- --------------- -----------------
William M. Thompson(3) 2,864,629 25.95%
444 Jacksonville Rd.
Suite 200
Warminster, PA 18974
John M. Thompson(3) 2,152,657 19.50%
444 Jacksonville Rd.
Suite 200
Warminster, PA 18974
- ------------------------
1. Except as otherwise noted, each holder named in the table has
sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned.
2. The percentages have been calculated on the basis of treating
as outstanding for a particular holder, all shares of the
Common Stock outstanding on said date and all shares of Common
Stock issuable to such holder in the event of exercise or
conversion of outstanding options, warrants and convertible
securities owned by such holder at said date which are
exercisable or convertible within sixty (60) days of such
date.
3. Includes 972,900 shares of Common Stock owned of record by
three (3) outside investors who purchased such shares in a
private placement of shares of the Company's Common Stock
completed in April, 1994 (the "Private Placement"). William M.
Thompson and John M. Thompson have sole voting power with
respect to such shares pursuant to voting agreements executed
by the three (3) outside investors. These voting agreements
expire on the earlier to occur of (a) January 1, 2008, (b) a
transfer of the underlying shares in a transaction registered
under the Securities Act of 1933, and (c) a transfer of the
underlying shares in a transaction pursuant to Rule 144
promulgated under the Securities Act of 1933. Also, includes
150,000 shares of the Common Stock underlying certain vested
stock options granted pursuant to the Plan.
3
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CERTAIN INFORMATION WITH RESPECT TO DIRECTORS AND OFFICERS
Election of Directors
The Board of Directors consists of five (5) directors, all of whom are
to be elected at the Annual Meeting to serve until the 1998 Annual Meeting.
Management's nominees for election as directors are listed below. The proxy
holders intend to vote all proxies received by them in the accompanying form for
such nominees unless otherwise directed. In the unanticipated event that any
nominee is unable or unwilling to accept the nomination or to serve as a
director at the time of the Annual Meeting, the proxies will be voted for the
remaining nominees and for a substitute nominee who shall be designated by the
present Board of Directors to fill the vacancy. As of the date of this Proxy
Statement, management is not aware of any nominee who is unable or unwilling to
serve as a director.
Director of
Innovative Tech
Name Since Age
---- ----- ---
William M. Thompson 1990 38
John M. Thompson 1990 35
Mark R. Hernick 1994 35
Julie Moore 1994 38
John R. Smart 1994 32
WILLIAM M. THOMPSON
Mr. Thompson has served as the Company's Chairman, Chief Executive
Officer and Director since January, 1990. From January, 1990, to March, 1995,
Mr. Thompson served as President of the Company. From January, 1988, to January,
1990, Mr. Thompson served as President and Director of Innovative Tech Systems,
Inc., a Pennsylvania corporation. From December, 1986 to January, 1988, Mr.
Thompson was an independent consultant. From October, 1985 to December, 1986,
Mr. Thompson was Director of Operations for CAD, Inc. Prior to joining CAD,
Inc., Mr. Thompson served as Vice President of Marketing for Computer Graphics
Division, Inc., a start-up venture.
JOHN M. THOMPSON
Mr. Thompson has served as the Company's Treasurer and Director since
January, 1990, as the Company's Secretary from January, 1990 to March, 1995, as
the Company's Chief Operating Officer since June, 1994, and as the Company's
President since March, 1995. Mr.
4
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Thompson also served as the Company's Chief Financial Officer from January, 1990
to June, 1994, and is currently serving as the company's interim Chief Financial
Officer following the resignation of Louis Desiderio. From April, 1989 to
January, 1990, Mr. Thompson served as Treasurer and Director of Innovative Tech
Systems, Inc., a Pennsylvania corporation. Mr. Thompson served as Vice President
of Finance for Philadelphia Ship Maintenance Co., Inc. from July, 1988 through
April, 1989 and as that company's Controller from June, 1984 to May, 1987. Mr.
Thompson has also served as Controller for Display Corporation of America and as
a staff accountant for Manufacturers Hanover Financial Services, Inc.
JOHN R. SMART
Mr. Smart has served as the Company's Vice President of Marketing from
January, 1990 to March, 1995, as a Director of the Company since May, 1994, and
as an Executive Vice President since March, 1995. Prior to joining Innovative
Tech Systems, Inc. in October, 1989, Mr. Smart served as an independent
distributor of drinking water systems for Multi Pure Corporation where he
recruited, trained and monitored the company's sales staff, and as a financial
consultant for A.F. Investments, Inc., a subsidiary of Atlantic Financial
Corporation, where his primary function was in sales and product marketing.
MARK R. HERNICK
Mr. Hernick has served as a Director of the Company since May, 1994.
Mr. Hernick is currently Vice President of Sales and Marketing for the display
division of Art Guild, Inc. Mr. Hernick has been with Art Guild, Inc. since
November, 1987, directing all sales and marketing activities for the firm, which
designs and produces custom point-of-purchase displays, store fixtures, mall
kiosks, trade show and museum exhibits and showrooms. Mr. Hernick is also a Vice
President, and a director, of Spinnaker Solutions, Inc., which is engaged in the
design, development, supply and use of industrial coatings.
JULIE MOORE
Ms. Moore has served as a Director of the Company since May, 1994. Ms.
Moore was formerly employed by Temple University Hospital in Philadelphia,
Pennsylvania as a physician liaison for the heart transplant program. From June,
1992 to March, 1993, Ms. Moore served as a sales specialist for Home Health
Corp. of America of King of Prussia, Pennsylvania, with her primary
responsibilities being the marketing of medical respiratory products to
physicians. From June, 1990 to June, 1992, Ms. Moore was a hospital sales
representative with Fujisawa Pharmaceutical Company of Deerfield, Illinois where
she sold and promoted a diverse line of pharmaceuticals. Ms. Moore was employed
as Vice President of Marketing for Frank's School Uniforms, Inc. of Roslyn,
Pennsylvania from 1987 to 1990.
5
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In addition to William M. Thompson, John M. Thompson and John R. Smart,
the following individual also serves as an executive officer of the Company:
KAREN A. THOMPSON
Ms. Thompson, age 31, has served as the Company's Vice President from
January, 1990 to March, 1995, and as the Company's Executive Vice President of
Information Services and Secretary since March, 1995. From April, 1989 to
January, 1990, Ms. Thompson served as Vice President of Innovative Tech Systems,
Inc., a Pennsylvania corporation. Prior to 1990, Ms. Thompson was employed as
administrator of dealer finance for Manufacturers Hanover Financial Services,
Inc., and Customer Service and Technical Support Manager for Applied Computer
Products.
William Thompson and John Thompson are brothers, and Karen Thompson is
their sister.
The Company's By-laws provide that directors shall be elected by a
plurality of the votes cast by the holders of the outstanding shares of Common
Stock. There is no provision for cumulative voting under the Company's Articles
of Incorporation or By-laws.
Board of Directors Meetings and Committees.
During the fiscal year ended January 31, 1997, no meetings of the Board
of Directors were held and the Board of Directors acted three (3) times by
unanimous written consent in accordance with Illinois law.
The Company's Stock Option Committee is responsible for the
administration of the Company's 1994 Stock Option Plan and is authorized to
select optionees and determine the terms of their options, subject to the
provisions of the 1994 Stock Option Plan. The Stock Option Committee consists of
Mr. Hernick and Ms. Moore. The Committee did not meet during the last fiscal
year of the Company.
The Company does not have a standing Executive Committee, Audit
Committee, or Nominating Committee.
The Company has made certain advances to William M. Thompson, the
Company's Chairman and Chief Executive Officer and a member of the Company's
Board of Directors. These advances are repayable upon demand. The highest
outstanding principal balance of the advances during the fiscal year of the
Company ended on January 31, 1997 was $71,362.00. The outstanding principal
balance of the advances as of the Record Date was $72,745.00.
6
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Security Ownership of Management.
The following table sets forth the beneficial ownership of Common Stock
of Innovative Tech as of the Record Date by each director and nominee, the
Company's Chief Executive Officer, the Company's Chief Operating Officer, and
all directors, nominees and the Company's executive officers as a group.
Amount and Nature
Name and Address of of Beneficial Percentage of Class
Beneficial Owner Ownership(1) Ownership(2)
- ----------------- ------------ -------------
William M. Thompson(3)................. 2,864,629 25.95%
444 Jacksonville Road
Suite 200
Warminster, Pennsylvania 18974
John M. Thompson(3).................... 2,152,657 19.50%
444 Jacksonville Road
Suite 200
Warminster, Pennsylvania 18974
John R. Smart (4)...................... 116,989 1.06%
444 Jacksonville Road
Suite 200
Warminster, Pennsylvania 18974
Mark R. Hernick
444 Jacksonville Road............... 1,617 ---%
Suite 200
Warminster, Pennsylvania 18974
Julie Moore(5)......................... 2,022 ---%
444 Jacksonville Road
Suite 200
Warminster, Pennsylvania 18974
EXECUTIVE OFFICERS, DIRECTORS
AND NOMINEES AS A GROUP
(six (6) persons) (6)................. 4,297,375(5) 37.73%
--------- -----
- ------------------------
(1) Except as otherwise noted, each holder named in the table has sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned.
7
<PAGE>
(2) The percentages have been calculated on the basis of treating as
outstanding, for a particular holder, all shares of the Common Stock
outstanding on said date and all shares of Common Stock issuable to
such holder in the event of exercise or conversion of outstanding
options, warrants and convertible securities owned by such holder at
said date which are exercisable or convertible within sixty (60) days
of such date.
(3) Includes 972,900 shares of Common Stock owned of record by three (3)
outside investors who purchased such shares in the Private Placement.
William M. Thompson and John M. Thompson have sole voting power with
respect to such shares pursuant to voting agreements executed by the
three (3) outside investors. These voting agreements expire on the
earlier to occur of (a) January 1, 2008, (b) a transfer of the
underlying shares in a transaction registered under the Securities Act
of 1933, and (c) a transfer of the underlying shares in a transaction
pursuant to Rule 144 promulgated under the Securities Act of 1933.
Also, includes 150,000 vested stock options granted pursuant to the
Plan.
(4) Includes 100,000 vested stock options granted pursuant to the Plan.
(5) Includes 1,617 shares of Common Stock owned by Ms. Moore's husband as
to which Ms. Moore disclaims beneficial ownership.
(6) Includes 972,900 shares of Common Stock owned of record by three (3)
outside investors who purchased such shares in the Private Placement.
William M. Thompson and John M. Thompson have sole voting power with
respect to such shares pursuant to voting agreements executed by the
three (3) outside investors. Also, it includes 1,617 shares of Common
Stock owned by Ms. Moore's husband, as to which Ms. Moore disclaims
beneficial ownership and 500,000 shares subject to vested stock
options.
Certain Relationships or Related Transactions
On September 1, 1995, the Company moved its headquarters to 444
Jacksonville Road, Warminster, Pennsylvania 18974. The Company has a five (5)
year lease for 20,000 square feet of office space. The annual rent is $260,000.
The building is owned and operated by Thompson Enterprises, L.P., a Pennsylvania
limited partnership. William M. Thompson, John M. Thompson, and Karen A.
Thompson are the limited partners of Thompson Enterprises, L.P. William M.
Thompson and John M. Thompson are executive officers, directors and shareholders
of the Company. Karen A. Thompson is an executive officer and shareholder of the
Company.
On March 17, 1995, the Company pledged a $700,000 Certificate of
Deposit as collateral for a mortgage loan obtained by Thompson Enterprises, L.P.
On January 30, 1997, Thompson Enterprises, L.P. refinanced the mortgage loan,
and the Certificate of Deposit was released and is classified as cash and cash
equivalents in the January 31, 1997 balance sheet of the Company.
8
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Section 16(a)Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") and each securities exchange on which the Company's equity
securities are admitted for trading. Officers, directors and greater than ten
percent (10%) shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Form 5s were
required for those persons, the Company believes that, for the fiscal year of
the Company ended on January 31, 1997, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent (10%)
shareholders were satisfied.
Compensation of Directors and Executive Officers.
The following table sets forth information concerning the compensation
paid or accrued by the Company during the three (3) fiscal years ended on
January 31, 1997 to its Chief Executive Officer and its Chief Operating Officer.
SUMMARY COMPENSATION TABLE
Options
Name and Principal Position Year Salary Bonus Granted
- --------------------------- ---- ------ ----- -------
William M. Thompson 1997 $110,000 -- --
Chairman and Chief Executive Officer 1996 $110,000 -- --
1995 $100,140 -- 225,000
John M. Thompson 1997 $110,000 -- --
President, Chief Operating Officer 1996 $110,000 -- --
and Treasurer (1) 1995 $100,140 -- 225,000
- -----------------------
(1) Effective as of June 1, 1994, John M. Thompson was appointed as the
Company's Chief Operating Officer.
The above compensation does not include certain insurance and other
personal benefits, the total value of which does not exceed, as to any named
officer or director or group of executive officers, the lesser of $50,000 or ten
percent (10%) of such person's cash compensation.
9
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All of the Company's group life, health, hospitalization or medical
reimbursement plans, if any, do not discriminate in scope, terms or operation,
in favor of the executive officers or directors of the Company and are generally
available to all salaried employees.
FISCAL YEAR END OPTION VALUES
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money
at January 31, 1997 Options at
Exercisable/ January 31, 1997
Name Unexercisable Exercisable/Unexercisable
- ---- ------------- -------------------------
William M. Thompson 150,000/75,000 $30,750.00/$15,375.00
John M. Thompson 150,000/75,000 $30,750.00/$15,375.00
Compensation of Directors.
Directors who are not employees of the Company receive $500.00 per
Board of Directors' meeting attended and are reimbursed for their out-of-pocket
expenses incurred in connection with their duties as members of the Board of
Directors.
PROPOSAL TO INCREASE SHARES AUTHORIZED
FOR ISSUANCE UNDER 1994 STOCK OPTION PLAN
The Company's existing Stock Option Plan (the "Plan") was adopted in
1994. The Plan originally authorized the grant of options to purchase up to an
aggregate of 325,000 shares of Common Stock (adjusted to 975,000 shares
following the three-for-one stock split effectuated by the Company in September
1995) to the Company's directors and employees and to other persons responsible
for making significant contributions to the Company's business. The Board of
Directors believes that the equity stake in the growth and success of the
Company afforded by stock options provides such key individuals with an
incentive to continue to energetically apply their talents on behalf of the
Company. Accordingly, in February 1997, the Board of Directors unanimously
approved an amendment to the Plan, subject to shareholder approval, to increase
the shares of Common Stock authorized for issuance under the Plan from 975,000
to 2,175,000. Options to purchase an aggregate of 1,794,600 shares of the Common
Stock are currently outstanding under the Plan. As of the date hereof, options
to purchase an aggregate of 15,000 shares of the Common Stock have been
exercised pursuant to the Plan. If the proposed amendment to the Plan was
approved by the Company's shareholders on the date hereof, options
10
<PAGE>
to purchase an aggregate of 365,400 shares of the Common Stock would be
available for issuance under the Plan.
The following table sets forth information, as of the Record Date,
concerning stock options granted under the Plan to (a) the Company's Chief
Executive Officer, (b) the Company's Chief Operating Officer, (c) all executive
officers as a group, (d) all current directors who are not executive officers as
a group, (e) each nominee for election as a director, (f) each associate of any
such directors, executive officers, or nominees, (g) each other person who
received or is to receive five percent (5%) of all options granted under the
Plan, and (h) all other employees and eligible participants, as a group.
Name of Individual or Number of Options
Group and Number in Group Held on Record Date
- ------------------------- -------------------
William M. Thompson 275,000
John M. Thompson 275,000
All Current Executive Officers,
as a Group (including William M
Thompson and John M. Thompson)
(4 persons) 1,050,000
Current Directors who are not
Executive Officers, as a Group
(2 persons) 15,000
Mark Hernick 7,500
Julie Moore 7,500
John Smart 200,000
Anthony B. Crawford 100,000
Target Capital Corporation 100,000
Richard M. Salva 100,000
Karen A. Thompson 300,000
All Other Employees and Eligible
Participants, as a Group
(55 persons) 429,600
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No determination has been made with respect to future recipients of options
under the Plan and it is not possible to specify the names or positions of the
individuals to whom options may be granted, or the number of shares, within the
limitations of the Plan, to be covered by such options.
The following is a brief summary of certain significant provisions of
the Plan.
1. Maximum Number of Shares Authorized for Issuance. Following
approval of the proposed amendment to the Plan by the Company's shareholders,
the Plan would provide for the granting of options to purchase up to 2,175,000
shares of the Company's Common Stock. The number and kind of shares subject to
the Plan would be appropriately adjusted in the event of any change in the
capital structure of the Company. Shareholders have no preemptive rights with
regard to shares allotted to the Plan.
2. Administration. The Plan is administered by the Stock
Option Committee which is appointed by the Company's Board of Directors and is
to consist of not less than two (2) Directors of the Company who are not then
employees of the Company. The current members of the Stock Option Committee are
Julie Moore and Mark Hernick. The Stock Option Committee interprets the Plan and
has discretion to select participants, establish the manner in which options are
granted and exercised, cancel and modify options in certain situations and
otherwise prescribe all of the terms and provisions of options granted under the
Plan. Any authority granted to the Stock Option Committee under the Plan may
also be exercised by the Company's Board of Directors.
3. Participants. Eligible participants in the Plan include the
Company's directors who are also employees of the Company (presently three (3)
individuals) and all other employees of the Company (presently ninety-nine (99)
additional individuals) in the case of incentive stock options, and, in the case
of non-qualified options, also include the Company's directors who are not
employees of the Company (presently two (2) individuals) and other individuals
who provide services to, or otherwise have a relationship with, the Company or
its subsidiaries. Optionees are to be selected on the basis of demonstrated
ability to contribute substantially to the success of the Company. The Stock
Option Committee has sole authority to determine the identity and the number of
optionees and the number of shares to be optioned to any individual under the
Plan.
4. Amendments to the Plan. The Board of Directors is able to
amend the Plan without further approval by the shareholders of the Company,
except insofar as such approval is required by law, or the Internal Revenue Code
in the case of incentive stock options.
5. Term of Options. The Plan permits the Company to grant
either "non-qualified options" or "incentive stock options." No options can be
granted under the Plan later than May 10, 2004. Incentive stock options can have
a maximum exercise period of ten (10) years (five (5) years for optionees who
own more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or its parent or subsidiary corporation or
corporations). Non-qualified options can have a maximum exercise period as
specified by the Stock Option Committee at the time of grant. Within these
maximum exercise periods, the Plan
12
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permits the Stock Option Committee to establish in its discretion the time
period within which any individual option can be exercised. In its discretion,
the Stock Option Committee can accelerate the vesting of options held by
employees who are retiring from the Company.
The Plan provides that, upon termination of employment of the
optionee for a cause other than death or disability, the employee's right to
exercise the option will terminate within three (3) months following cessation
of employment. In the event of termination of employment due to death or
disability, the same provisions apply except that the period of time for
exercise is one (1) year.
6. Transferability. Options granted under the Plan are not be
transferable except in the event of death.
7. Exercise Price. The exercise price per share for each
non-qualified option granted under the Plan cannot be less than the fair market
value of a share of the Common Stock on the date of grant. The same would apply
in the case of incentive stock options, except in the case of optionees who own
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or its parent or subsidiary corporation or corporations, in
which case the exercise price cannot be less than one hundred ten percent (110%)
of the fair market value of a share of the Common Stock on the date of grant.
Fair market value will be determined by rules prescribed by the Internal Revenue
Code and regulations promulgated thereunder.
The aggregate fair market value (determined as of the time
such option is granted) of the Common Stock for which any employee may have
incentive stock options which become exercisable for the first time in any
calendar year may not exceed $100,000.
8. Payment of Exercise Price. The entire option price must be
paid at the time the option is exercised, by certified or official bank check,
or such other equivalent acceptable to the Company.
9. Use of Proceeds. Proceeds received from optioned shares
will be used for general corporate purposes.
10. Federal Income Tax Matters. The Company believes that
under currently applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), an optionee will not be deemed to receive any income for
Federal tax purposes upon the grant of an option under the Plan, nor will the
Company be entitled to a tax deduction at that time because the incentive stock
options are so treated under Sections 421 and 422 of the Code and the
non-qualified options will not have a "readily ascertainable fair market value"
at the time of grant for purposes of Section 83 of the Code. However, upon the
exercise of an option the tax consequences are as follows:
(a) Upon the exercise of a non-qualified option, the
optionee will have ordinary income in an amount equal to the
excess of the value of the shares on the
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exercise date over the exercise price. The Company will be
allowed an income tax deduction in the same amount.
(b) Upon the exercise of an incentive stock option,
there is no income recognized by the optionee at the time of
exercise. If the stock is held at least one (1) year following
the date of transfer of the stock to him and at least two (2)
years from the date of grant of the option, the optionee will
realize a long-term capital gain or loss upon a sale of the
underlying stock, measured as the difference between the
option exercise price and the sale price. If both of these
holding period requirements are not satisfied, and thus a
"disqualifying disposition" has occurred, ordinary income tax
treatment will apply to the difference between the option
exercise price and the fair market value of the stock on the
date of exercise of the option. If the actual gain exceeds the
amount of ordinary income, the excess will be considered
short-term or long-term capital gain depending on how long the
shares are actually held. No income tax deduction will be
allowed the Company with respect to shares purchased by an
optionee upon the exercise of an incentive stock option,
provided such shares are held for the required periods as
described above. If a disqualifying disposition occurs, the
Company will be allowed an income tax deduction equal to the
amount of ordinary income recognized by the optionee upon the
disposition. If the amount which the optionee realizes on the
disqualifying disposition would result in a loss if the rules
regarding disqualifying dispositions applied, the amount of
ordinary income which the optionee would recognize (and the
amount of the Company's deduction) is limited to the excess of
the amount realized on the sale over the basis of such stock.
Each optionee should consult his or her tax advisor as to
alternative minimum tax consequences or other specific tax issues created with
respect to the options as they may apply to his or her particular situation.
11. Expiration and Termination of the Plan. The Plan may be
abandoned or terminated at any time by the Board of Directors except with
respect to any option then outstanding under the Plan. No options may be granted
pursuant to the Plan after its termination date of May 10, 2004.
The Board of Directors of the Company believes that a stock option plan
is of substantial value in creating additional incentive for key individuals to
promote the success of the Company by increasing their proprietary interest in
the Company, encouraging key individuals to remain in the Company's employ, and
assisting in the recruitment of personnel of outstanding ability. In light of
the Company's efforts to strengthen its position in the facilities management
marketplace, the ability to attract, motivate and retain highly qualified
employees and consultants is of particular importance to the Company.
Accordingly, the Board of Directors of the Company recommends a vote FOR this
proposal. For the proposed amendment to the Plan to be adopted, it will be
necessary that it be approved by the affirmative vote of a majority of the
shares of the Common Stock voted at the meeting.
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INDEPENDENT ACCOUNTANTS
Subject to ratification by the holders of the Company's Common Stock,
the Board of Directors, by resolution, has selected the firm of Price Waterhouse
LLP, independent accountants, to audit the books, records and accounts of the
Company for the fiscal year ending January 31, 1998. It is anticipated that
representatives of Price Waterhouse LLP will be present at the Annual Meeting to
respond to appropriate questions and, if they desire, to make a statement.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
On November 22, 1996, the Registrant dismissed Coopers & Lybrand,
L.L.P., independent accountants, who had previously been engaged as the
Registrant's principal accountant to audit the Registrant's financial
statements, Coopers & Lybrand, L.L.P.'s dismissal was intended to be effective
as of December 2, 1996 and Coopers & Lybrand, L.L.P. continued to provide
services to the Registrant through November 27, 1996 in connection with the
filing by the Registrant of an amendment to its Form 10-Q filed with respect to
the period ended July 31, 1996.
The Registrant disputes the accuracy of the statement made in the
letter of Coopers & Lybrand, L.L.P. (Exhibit A hereto) concerning the
resignation of Coopers & Lybrand, L.L.P. prior to its dismissal. It is the
Registrant's position that Coopers & Lybrand, L.L.P. did not notify the
Registrant's president of its intention to resign until after Coopers & Lybrand,
L.L.P. had been notified that the Registrant's letter of dismissal had been
sent. Written confirmation as to the termination of the client-auditor
relationship between the Registrant and Coopers & Lybrand, L.L.P. was not issued
by Coopers & Lybrand, L.L.P. until November 27, 1996 (Exhibit B hereto). The
Registrant did not receive any other form of written notification from Coopers &
Lybrand, L.L.P. concerning its resignation as to the Registrant's principal
accountant.
The decision to change accountants was approved by the Registrant's
Board of Directors. The former accountant's report on the Registrant's financial
statements for either of the past two (2) years did not contain an adverse
opinion or a disclaimer of opinion, nor was either report qualified as to
uncertainty, audit scope or accounting principles.
It is the Registrant's position that, during the Registrant's two (2)
most recent fiscal years and subsequent interim periods, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of the former
accountant, would have caused it to make a reference to the subject matter of
the disagreements in connection with its reports. The Registrant takes exception
to the "reportable event" noted in the letter of Coopers & Lybrand, L.L.P.
(Exhibit A hereto) for the following reasons:
1. On the date the Registrant filed its Form 10-Q for the fiscal
period ended July 31, 1996, a partner at Coopers & Lybrand,
L.L.P. advised the Registrant that information had come to
their attention that it had concluded materially impacted
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<PAGE>
the fairness of the unaudited, management-prepared financial
statements included in such Form 10-Q.
2. The item in the financial statements which was in issue was
the presentation as a gain of the extinguishment of debt
payable to certain former shareholders of a company acquired
by the Registrant.
3. In determining the proper presentation to be used for such
item, the Registrant had repeatedly consulted with Coopers &
Lybrand, L.L.P. and had been advised that the extinguishment
of such debt was properly shown as a gain.
4. Based upon Coopers & Lybrand, L.L.P.'s advice, the Registrant
prepared the Form 10-Q for the period ended July 31, 1996 and
showed the extinguishment of the debt as a gain.
5. After the Registrant received notification from Coopers &
Lybrand, L.L.P. that the debt owed to the former shareholders
of the company acquired by the Registrant should have been
recorded at its fair value at the time of acquisition and,
upon extinguishment of such debt, no gain or loss should have
been recorded, the Registrant further investigated, in
consultation with Coopers & Lybrand, L.L.P., the correct
financial statement presentation for such item and concurred
with Coopers & Lybrand, L.L.P.'s recommendation.
6. The Registrant prepared an Amendment to its Form 10-Q for the
fiscal period ended on July 31, 1996 which was forwarded to
Coopers & Lybrand, L.L.P. for its review and approval on
November 22, 1996 and filed with the Securities and Exchange
Commission on November 27, 1996.
7. Based upon the foregoing chronology of events and discussions
which took place between the Registrant's management and
Coopers & Lybrand, L.L.P. at the time the original Form 8-K
was filed, the Registrant maintains that, at the time of
Coopers & Lybrand, L.L.P.'s dismissal, there were no
unresolved issues between the Registrant and Coopers &
Lybrand, L.L.P. concerning financial statement preparation or
disclosure or financial reporting.
On March 3, 1997 the Company engaged Price Waterhouse LLP as its
independent accountants to audit the Company's consolidated financial statements
for the year ended January 31, 1997. During the two (2) fiscal years ended
January 31, 1996 and the interim periods of fiscal 1997 prior to engaging Price
Waterhouse LLP, the Registrant did not consult with Price Waterhouse LLP on any
matters.
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SHAREHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 1998 Annual
Meeting of Shareholders must be received at the principal executive offices of
the Company no later than March 25, 1998. Such proposals may be included in next
year's proxy statement if they comply with certain rules and regulations
promulgated by the Securities and Exchange Commission.
COSTS OF SOLICITATION
The entire cost of soliciting proxies will be borne by Innovative Tech.
Arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxies and proxy materials to the beneficial owners of
stock, and reimbursement for expenses may be made. Proxies may be solicited in
person or by telephone or telegraph by directors, officers or regular employees
of Innovative Tech, none of whom will receive additional compensation therefor.
MANNER IN WHICH PROXIES WILL BE VOTED
All properly executed proxies received by the Board of Directors will
be voted. The Board proposes to vote all proxies for the election of the
nominees listed herein to serve as directors of the Company; for the proposed
amendment to the 1994 Stock Option Plan; for the ratification of the appointment
of Price Waterhouse LLP as the Company's independent accountants; and in the
discretion of the proxy holders on such other matters as may properly come
before the Annual Meeting. The Board knows of no other matters which may be
presented for action at the Annual Meeting. However, if any other matter
properly comes before the meeting, the proxy holders will vote in accordance
with their best judgment on such matter.
Shareholders are urged to vote, sign and return the enclosed form
of proxy promptly in the enclosed envelope.
By Order of the Board of
Directors,
July 24, 1997 KAREN A. THOMPSON
Secretary
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INNOVATIVE TECH SYSTEMS, INC.
1994 STOCK OPTION PLAN
(as amended through July 14, 1997)
1. Purpose
The purpose of the Innovative Tech Systems Inc. (the "Company") Stock
Option Plan (referred to herein as the "Plan") is to provide a means by which
certain employees and directors of, and others providing services to or having a
relationship with, the Company and. its subsidiaries (as such term is defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code") may
be given an opportunity to purchase common stock of the Company ("Common Stock")
. The Plan is intended to promote the interests of the Company by encouraging
stock ownership on the part of such individuals, by enabling the Company and its
subsidiaries to secure and retain the services of highly qualified persons, and
by providing such individuals with an additional incentive to advance the
success of the Company and its subsidiaries.
2. Administration
The Plan shall be administered by a Committee consisting of not less
than two directors (the "Committee") to be appointed from time to time by the
Board of Directors. Membership on the Committee shall in any event be limited to
those members of the Board who are "Non-Employee Directors" as defined in the
regulations promulgated by the Securities Exchange Commission pursuant to
Section 16(b) of the Securities Exchange Act of 1934. The Committee shall have
the power to select optionees, to establish the number of shares and other terms
applicable to each such option, to construe the provisions of the Plan, and to
adopt rules and regulations governing the administration of the Plan.
Notwithstanding anything to the contrary containe herein, any authority granted
to the Stock Option Committee under the Plan may also be exercised by the
Company's Board of Directors. The members of the Board of Directors or the
Committee shall not be liable for any action or determination made in good faith
with respect to the Plan or to any option granted pursuant thereto.
3. Eligibility
The persons who shall be eligible to participate in this Plan and
receive options hereunder shall be the Company's directors and such employees
and other individuals who provide services to or otherwise have a relationship
with the Company or its subsidiaries as the Committee shall from time to time
determine to be key individuals to the success of the Company.
4. Allotment of Shares
A maximum of 2,175,000 authorized but unissued shares of the Common
Stock of the Company will be allotted to the Plan, subject to the required
approval by the stockholders.
<PAGE>
Shares that by reason of the expiration of an option or otherwise are no longer
subject to purchase pursuant to an option granted under the Plan may be
reoptioned under the Plan. The Company shall not be required upon the exercise
of any option to issue or deliver any shares of stock prior to the completion of
such registration or other qualification of such shares under any state or
federal law, rule or regulation as the Company shall determine to be necessary
or desirable.
5. Effective Date and Term of Plan
The effective date of the Plan is the date on which it is approved by
the shareholders of the Company. The Plan shall terminate on the tenth
anniversary of its effective date; but the Board of Directors may terminate the
Plan at any time prior thereto. Termination of the Plan shall not alter or
impair, without the consent of the optionee, any of the rights or obligations of
any option theretofore granted under the Plan.
6. Terms and Conditions
A. All Options
Stock options granted pursuant to this Plan shall be evidenced
by agreements in such form as the Committee shall from time to time approve.
Nothing in this Plan or any option granted hereunder shall govern the employment
rights and duties between the optionee and the Company or subsidiary. Neither
this Plan, nor any grant or exercise pursuant thereto, shall constitute an
employment agreement among such parties. The following shall also apply to all
options granted under the Plan:
(i) Option Price
Except as otherwise set forth herein, the option
price per share for each stock option shall be determined by
the Committee and shall not be less than the fair market value
on the date the option is granted. The fair market value shall
be determined as prescribed by the Internal Revenue Code and
Regulations thereunder.
(ii) Time of Exercise of Option
Except as otherwise set forth herein, the Committee
shall establish the option period and time or times within the
option period when the stock option may be exercised in whole
or in such parts as may be specified from time to time by the
Committee. With respect to an optionee who is about to retire,
the Committee may in its discretion accelerate the time or
times when any particular stock option held by said optionee
may be so exercised so that such time or times are earlier
than those originally provided in said option. In all cases
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<PAGE>
exercise of a stock option shall be subject to the provisions
of Section 6A(vi).
(iii) Payment and Manner of Exercise
The entire option price shall be paid at the time the
option is exercised. To the extent that the right to purchase
shares has accrued hereunder, options may be exercised from
time to time by written notice to the Company stating the full
number of shares with respect to which the option is being
exercised and the time of delivery thereof, which shall be at
least fifteen days after the giving of such notice unless an
earlier date shall have been mutually agreed upon. Such notice
of exercise shall be accompanied by full payment for the
shares by certified or official bank check or the equivalent
thereof acceptable to Company. Upon exercise, the Company
shall, without transfer or issue tax to the optionee (or other
person entitled to exercise the option), deliver to the
optionee (or such other person) at the principal office of the
Company, or such other place as shall be mutually agreed upon,
a certificate or certificates for such shares; provided,
however, that the time of delivery may be postponed by the
Company for such periods as may be required for it with
reasonable diligence to comply with any requirements of law;
and provided further that in the event the Common Stock
issuable upon exercise is not registered under the Securities
Act of 1933 (the "Act") , then the Company may require that
the registered owner deliver an investment representation in
form acceptable to the Company and its counsel and the Company
will place a legend on the certificate for such Common Stock
restricting the transfer of same. There shall be no obligation
or duty for the Company to register under the Act at any time
the Common Stock issuable upon exercise of the options. If the
optionee (or other person entitled to exercise the option)
fails to accept delivery, the optionee's payment shall be
returned and the right to exercise the option with respect to
such undelivered shares shall be terminated.
(iv) Non-Transferability of Option
An option by its terms shall not be transferable by
the optionee otherwise than by will or by the laws of descent
and distribution.
(v) Adjustment in Event of Recapitalization of the
Company
In the event of a reorganization, recapitalization,
stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, the Board of
Directors shall make such adjustment as it may deem equitably
required, in the number and kind of shares authorized by and
for the Plan, in the number and kind of shares covered by the
options granted, and in the option price.
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<PAGE>
(vi) Rights after Termination of Employment
In the event of termination of employment due to any
cause other than death or disability, rights to exercise the
stock option shall terminate three months following cessation
of employment. In the event of termination of employment due
to disability (within the meaning of Section 22 (e) (3) of the
Code) or death, such optionee or executor, administrator or
devisee of an optionee, shall have the right to exercise such
option (to the extent otherwise exercisable) at any time
within one year after cessation of employment by reason of
such disability or death.
B. Non-Qualified Stock Options
The Committee may, in its discretion, grant options under the
Plan which, in whole or in part, do not qualify as incentive stock options under
Section 422 of the Code ("Non-Qualifying Options"). The terms and conditions of
the Non-Qualifying Options shall be governed by Section 6A above.
C. Incentive Stock Options
The Committee may, in its discretion, grant options under the
Plan which qualify, in whole or in part, as incentive stock options under
Section 422 of the Code. In addition to the terms and conditions set forth in
Section 6A above, the following terms and conditions shall govern any incentive
stock option issued under the Plan:
(i) Maximum Fair Market Value of Incentive Stock Options
No optionee may have incentive stock options which
become exercisable for the first time in any calendar year
(under all incentive stock option plans of the Company and its
subsidiary corporations) with an aggregate fair market value
(determined as of the time such option is granted) in excess
of one Hundred Thousand Dollars ($100,000).
(ii) Option Price
The option price per share for each stock option
shall be 100% of the fair market value of the Common Stock on
the date the option is granted; except, in the case of the
grant to an optionee who owns Common Stock of the Company
possessing more than 10% of the total combined voting power of
all classes of stock of the Company or its subsidiaries, the
option price of such option shall be at least 110% of the fair
market value of the Common Stock on the date the option is
granted. The fair market value shall be determined as
prescribed by the Internal Revenue Code and Regulations.
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<PAGE>
(iii) Period of Option
Each option shall expire ten years from the date it
is granted or at the end of such shorter period as may be
designated by the Committee on the date of grant; except, in
the case of the grant of an incentive stock option to an
optionee who owns Common Stock of the Company possessing more
than 10% of the total combined voting power of all classes of
stock of the Company or its subsidiaries, such option shall
not be exercisable after the expiration of five years from the
date it is granted.
(iv) Purpose for which Option may be Granted
Each option may be issued to an otherwise eligible
individual only for reasons connected with his employment by
the Company or its parent or subsidiary corporation (or
corporations).
7. Amendment of Plan
The Board, within its discretion, shall have authority to amend the
Plan and the terms of any option issued hereunder without the necessity of
obtaining further approval of the stockholders, unless such approval is required
by law.
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INNOVATIVE TECH SYSTEMS, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
PROXY FOR HOLDERS OF COMMON STOCK
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints WILLIAM M. THOMPSON, JOHN M. THOMPSON, and
DEBORAH A. HAYS, or any of them, with full power of substitution, the proxy of
the undersigned to represent the undersigned at the Annual Meeting of
Shareholders of Innovative Tech Systems, Inc. to be held on August 21, 1997, or
any adjournment or postponement thereof, and to vote the number of shares of the
Common Stock of Innovative Tech Systems, Inc. which the undersigned would be
entitled to vote if personally present:
1. Election of Directors
/ / FOR the nominees listed below (except / / WITHHOLD AUTHORITY
as marked to the contrary below) to vote for the nominees
listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
MARK R. HERNICK JULIE MOORE JOHN R. SMART
JOHN M. THOMPSON WILLIAM M. THOMPSON
2. Amendment to Company's 1994 Stock Option Plan to increase the maximum number
of shares authorized to be issued thereunder from 975,000 to 2,175,000:
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of the appointment of Price Waterhouse LLP as the Company's
independent accountants:
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN ON THE REVERSE SIDE AND
RETURN PROMPTLY.
<PAGE>
4. In his discretion, the Proxy holder is authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, SHARES OF THE COMMON STOCK
REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE; AND FOR THE PROPOSALS DESCRIBED IN ITEM NOS. 2 AND 3 ABOVE. THIS PROXY
MAY BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
You are urged to sign and return your proxy without delay in the return
envelope provided for that purpose which requires no postage if mailed in the
United States.
Date: , 1997
--------------------------------
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Signature(s) of Shareholder(s)
When signing the proxy, please date it and
take care to have the signature conform to
the shareholder's name as it appears on
this side of the proxy. If shares are
registered in the names of two or more
persons, each person should sign.
Executors, administrators, trustees and
guardians should so indicate when signing.
