ITEX CORPORATION
PRESIDENT'S MESSAGE TO SHAREHOLDERS
December 1, 1997
Dear Shareholder:
With this mailing you are once again given the opportunity to be heard
on important issues facing your Company. The enclosed proxy materials describe
several issues on which you are being asked to vote. It is of utmost importance
to ITEX Corporation and I urge you review the materials now and send your proxy
in the enclosed envelope. We at ITEX are excited about the future of your
Company and I wanted to take this opportunity to share some of that excitement
with you.
The last year is one which long will be remembered by me and will, I
believe, prove to be a watershed year for your Company. I took over the helm of
ITEX in September of 1996. At the beginning of 1997 the Company was faced with a
declining stock price, major litigation with ITEX's primary competitor, and
general turmoil in the Company's operations brought about by unprecedented
attacks on the integrity and stability of ITEX Corporation.
As the end of 1997 draws near, your Company has prevailed in its
litigation against BXI. While the matter is on appeal, it appears that we will
be successful in bringing to a positive conclusion an acquisition which
Management and the Board of Directors firmly believed was in the best interests
of the Company. The Courts have now vindicated that position, and I believe our
integrity and judgment have have vindicated as well. As was reported in the
Company's Form 10-K for the fiscal year ended July 31, 1997, we are optimistic
that court ordered mediation will result in a negotiated settlement to the
issues which have divided ITEX and the BXI Trade Exchange.
On the operational front, we reported an increase in earnings per share
of 174% from $0.19 per share in 1996 to $0.52 per share in 1997. Net income
tripled over last year even though revenues were down 5.7% And although the
Company continued to show a negative cash flow from operations, the negative
amount was down to $349,000 from last year's $1,418,000 figure. This year we
have strengthened ourselves financially and positioned your Company for
continued domestic growth and international expansion.
I am most excited about several new initiatives to diversify the
Company's vision for the future. In July we began a partial redeployment or our
assets and investment strategy by acquiring claims to natural resources located
on four industrial mineral properties in the State of Washington. Subsequently
your Company has obtained several additional mineral property claims at nominal
cost by original claim staking.
<PAGE>
In addition, the Company embarked on an exciting new venture through
its wholly owned foreign subsidiary, Associated Reciprocal Traders, to develop
16 acres of improved but undeveloped resort property known as the Villas Punta
Ballena Samana Resort located in the northeast corner of the Dominican Republic.
The resort, with planned condominium and hotel units, fits extremely well with
your Company's already well developed travel related services business. Resort
destination travel is more popular than ever and your Company intends to make
Villas Punta Ballena a first class opportunity both for the Company and for the
members of the ITEX Trade Exchange.
Internationally, the Company has successfully added six new
international licensees bringing the ITEX presence to some seventeen countries
with plans for adding several more in 1998. In addition, the Company formed a
stragegic alliance with the International Business Network for World Commerce
and Industry, Ltd. (IBNET) through which the Company will be able to facilitate
barter transactions which enhance the World Chambers of Commerce mission of
meeting the needs of its international constituents. Your Company's alliance
with IBNET is a significant opportunity to advance the Company's effectiveness
in international marketplaces.
Your Company continues to be in the forefront of technology
applications to domestic and international barter transactions. Among other
initiatives, your Company has made its innovative BarterWire trading technology
available to clients through the internet with "ITEX Online", complete with its
own in-house gateway and web server which can be accessed at www.itex.com.
In short, the future looks bright to all of us here at the ITEX
Headquarters as well as to industry analysts. But for this momentum to continue
it is extremely important that you, the Shareholders, participate in charting
the Company's future through your participation in the Annual Meeting to be held
on January 8, 1998. Please take a moment now to review the proxy materials and,
if you will be unable to attend the Meeting, return your proxy with your vote on
the very important issues to be considered at the Annual Meeting. It takes only
a few minutes to vote and return your proxy and I encourage you to do so.
In the mean time, I and the Company's entire staff are available to
answer any questions you may have concerning your Company and its vision for the
coming years. We are excited and believe that you will be, too.
Sincerely,
GRAHAM H. NORRIS
President and
Chief Executive Officer
<PAGE>
December 1, 1997
TO THE SHAREHOLDERS OF ITEX CORPORATION:
You are cordially invited to attend the Annual Meeting of the
Shareholders of ITEX CORPORATION (the "Company"). The meeting will be held on
Thursday, January 8, 1998 at 1:00 p.m., Pacific Standard Time in the Conference
Room, second floor, 2 Lincoln South, at 10220 S.W. Greenburg Road, Portland, OR
97223 for the following purposes:
1. To ratify adoption of Amended and Restated By-Laws for the Company.
2. To elect three directors to serve for a term of one year; three
directors to serve a term of two years; and three directors to serve a term
of three years, or until their successors are elected and qualified. The
Board of Directors has nominated Mary Scherr, Dr. Charles Padbury and Vern
O. Curtis to serve a one year term; Robert Nelson, Dr. Evan Ames and Ronald
P. Erickson to serve a two year term; and Graham Norris, Joseph Morris and
G. Dale Weight to serve a three year term.
3. To adopt an Amendment to the Articles of Incorporation of the Company
changing the authorized capital of the Company from 20 million shares to 50
million shares.
4. To adopt Amended and Restated Articles of Incorporation for the Company.
5. To ratify the 1997 Incentive Stock Option Plan for employees, officers,
directors and consultants of the Company. The details of this Plan are
described in the accompanying Proxy Statement.
6. To ratify the 1998 Incentive Stock Option Plan for employees, officers,
directors and consultants of the Company. The details of this Plan are
described in the accompanying Proxy Statement.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this notice. Only shareholders of record at the close of
business on November 21, 1997 are entitled to notice of and the opportunity to
vote at the Annual Meeting.
In addition to the formal items of business, shareholders will hear a
presentation by Management on the Company's general state of affairs, including
its current financial and operating condition.
BY ORDER OF THE BOARD OF DIRECTORS:
- ---------------------------------------------------------------
Graham H. Norris, Sr., President, CEO and Chairman of the Board
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. HOWEVER,
TO INSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENVELOPE ENCLOSED
FOR THAT PURPOSE. THE GIVING OF THE PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE AT
THE ANNUAL MEETING IF THE PROXY IS REVOKED IN THE MANNER SET FORTH IN THE
ACCOMPANYING PROXY STATEMENT.
3
<PAGE>
ITEX CORPORATION PROXY STATEMENT
The enclosed proxy is solicited on behalf of the management and Board
of Directors of ITEX CORPORATION (the "Company") for use at the Annual Meeting
of Shareholders to be held on Thursday, January 8, 1998 at 1:00 p.m., Pacific
Standard Time in the Conference Room, second floor, 2 Lincoln South, at 10220
S.W. Greenburg Road, Portland, OR 97223. The Company's principal executive
office is located at One Lincoln Center, 10300 S.W. Greenburg Road, Suite 370,
Portland, OR 97223. The Company will bear the cost of preparing and mailing the
Proxy Form, this Proxy Statement, a copy of the Company's Annual Report for the
fiscal year ended July 31, 1997 and any other material furnished to the
shareholders by the Company in connection with the Annual Meeting.
The Company expects to mail this Proxy Statement, the enclosed Proxy
Form and a copy of the Company's Annual Report for the fiscal year ended July
31, 1997 to shareholders of record as of the close of business on November 21,
1997 on or about December 1, 1997. Only shareholders of record at the close of
business on November 21, 1997 are entitled to notice of and the opportunity to
vote at the Annual Meeting. The number of shares outstanding on November 21,
1997 was 7,361,496 shares, each of which is entitled to one vote for each
proposal voted upon at the Annual Meeting. Proxies will be solicited by use of
the mails, and officers and employees of the Company may also solicit proxies by
telephone or personal contact without receiving extra compensation for their
services. Brokers, dealers, banks or other nominees are requested to forward
solicitation materials to their principals to obtain authorization for the
execution of the Proxy Form. All valid proxies will be voted at the Annual
Meeting of Shareholders in accordance with each shareholder's instructions
contained in the Proxy Form. Abstentions and broker non-votes will not be
counted either for against any proposal. Pursuant to the Company's Articles of
Incorporation, there are no cumulative voting rights.
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke it at any time before it is voted. The proxy may be
revoked by filing with the Secretary of the Company at the Company's principal
executive office a written instrument of revocation or a duly executed proxy
bearing a later date, or by attending the meeting and voting in person. A
shareholder who attends the meeting need not revoke his or her proxy and vote in
person unless he or she wishes to do so.
PROPOSAL NO. 1 -- TO RATIFY AMENDED AND RESTATED BY-LAWS FOR THE COMPANY
The By-Laws of the Company have not been amended since they were
originally adopted. The original By-Laws were entitled "By-Laws of ITEX Barter
Systems, Inc." (Original By-Laws). The new By-Laws will be entitled "Amended and
Restated By-Laws of ITEX Corporation" (Amended By-Laws). The change is necessary
because the Company has undergone a name change and the By-Laws need to be
updated to fit the needs of the Company. A description of the specific changes
reflected in the Amended and Restated By-Laws is set forth below:
Article II, Section 2 will be altered by the Amended By-Laws. In the
original By-Laws, the date of the annual meeting was scheduled for the second
Friday of November. The Amended By-Laws change the date to the first Thursday in
January. The change was made for the convenience of the Board of Directors and
the Shareholders of the Company and based upon the difficulty in preparing
annual report and proxy materials in time for a November meeting.
Article II, Sections 3 and 7 will be altered by the Amended By-Laws.
The original By-Laws provide the Shareholders with at least ten (10) days
advance notice of the annual meeting, but no more than fifty (50) days notice.
The Amended By-Laws maintain the minimum of ten days notice but increase the
maximum to sixty (60) days notice. The change was made to conform to provisions
of Nevada Law and to provide Shareholders with more advanced notice.
The Amended By-Laws insert a new Section 8 to Article II. The provision
is entitled, "Notice of Specific Purpose." The new provision limits the business
conducted at special meetings to the purposes for which the meeting was called.
Shareholders may make proposals which may be listed on the proxy statement.
However, the Shareholder must comply with Rule 14a-8 of the Securities and
Exchange Act of 1934. This provision has been added to ensure that special
meetings are conducted in an efficient and productive manner.
Article II, Section 9 of the original By-Laws will be altered by the
Amended By-Laws by the addition of the phrase "the Articles of Incorporation, or
the By-Laws." The change was made to increase the number of situations in which
the majority of a quorum may decide a question.
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<PAGE>
Article III, Section 1 will be altered by the Amended By-Laws. The
original By-Laws provided for election of all Directors at the annual meeting.
The Amended By-Laws provide for the election of the entire Board of Directors at
the first annual meeting following approval of these By-Laws. The terms of the
Directors will initially be for one, two, and three years. Thereafter, all terms
will be for three years. The provision enables the staggering of Director terms.
At all future meetings, a maximum of three Directors will be elected for full,
three year terms. The change will promote continuity and stability on the Board
while maintaining the accountability of the Directors to the Shareholders. This
provision also has been inserted as a defense to deter attempted acquisitions of
the Company which are not in the best interest of the Company.
This provision will be further discussed below.
Article III, Section 2 will be altered by the Amended By-Laws. The
original By-Laws provided for the filling of vacancies on the Board of Directors
by a simple majority vote by the Board of Directors. The Amended By-Laws require
a two-thirds (2/3) majority vote by the Board of Directors to fill a vacancy.
Any vacancy will be filled by the Board of Directors for the remaining term of
the departing Director. This change will ensure that vacancies will only be
filled by Directors that represent the will of the majority of the Shareholders.
This provision also has been inserted as a defense to deter attempted
acquisitions of the Company which are not in the best interest of the Company.
This provision will be further discussed below.
Article III, Section 3 will be altered by the Amended By-Laws. The
original By-Laws provided that a majority of shareholders may remove a Director
and is not in compliance with Nevada law. The Amended By-Laws alter the
provision in order to conform with Nevada law.
Article III, Section 4 will be added by the Amended By-Laws. The
provision enables the Directors, by a two-thirds vote, to remove another
Director. The provision has been inserted as a defense to deter attempted
acquisitions of the Company which are not in the best interest of the Company.
This provision will be further discussed below.
Article III, Section 5 will be altered by the Amended By-Laws. The
change allows all Committees of the Board to function after the resignation of a
Director.
Article III, Section 10 will be altered by the Amended By-Laws. The
Amended By-Laws slightly reword the provision to clarify that the Board of
Directors may meet using any and all forms of communication that allow each
Director to hear and be heard by all other Directors.
Article III, Section 11 will be altered by the Amended By-Laws. The
Amended By-Laws allow notice of Board meetings to be given to Directors using a
telefax.
Article III, Section 12 will be altered by the Amended By-Laws. The
Amended By-Laws insert the phrase, "the Articles of Incorporation, or these
By-Laws." after "... provided by statute." The change was made to increase the
number of situations in which the majority of a quorum may act in furtherance of
the interests of the Company.
Article VI will be altered by the Amended By-Laws. The Amended By-Laws
clarify that the Board may declare any dividend, particularly a cash or stock
dividend, that Nevada Law permits. In addition, the Amended By-Laws change
"Certificate of Incorporation" to "Articles of Incorporation" to reflect the
correct terminology used by the State of Nevada.
Article XI will be altered by the Amended By-Laws. The original By-Laws
required a majority vote by the Board to repeal, alter, or amend the By-Laws or
substitute new By-Laws. The Amended By-Laws require a two-thirds majority to
repeal, alter, amend, or substitute By-Laws. The provision promotes stability
and ensures that any change will reflect the will of the Shareholders.
The foregoing amendments to the By-Laws of the Company were adopted by
the Board of Directors on September 3, 1997. As permitted by Nevada law, the
By-Laws as originally adopted by Company as well as the Amended and Restated
By-Law provide that the By-Laws may be amended by a vote of the Board of
Directors of the Company. Management decided that it would submit the Amended
and Restated By-Laws for ratification by the Shareholders of the Company in
order that the Shareholders might be fully informed of the provisions governing
the day-to-day operations of the Company. A COPY OF THE AMENDED AND RESTATED
BY-LAWS OF ITEX CORPORATION WILL BE SENT AT NO CHARGE TO SHAREHOLDERS REQUESTING
THE SAME, IN WRITING, TO DONOVAN C. SNYDER, SECRETARY, P.O. BOX 2309, PORTLAND,
OR 97208-2309.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND A VOTE IN FAVOR OF PROPOSAL
NO. 1.
5
<PAGE>
PROPOSAL NO. 2 -- ELECTION OF DIRECTORS
The Company's Board of Directors has nominated the candidates listed
below for election to the Company's Board of Directors for a one, two or three
year term and until their successors are elected and qualified. The change to
staggered elections for directors is a result of a recent amendment to the
bylaws of the Company by the Board of Directors as permitted by the bylaws. The
Board of Directors determined that in order to protect against a hostile
takeover of the Company and to assure continuity, it was advisable to stagger
the terms of the Company's nine directors so that no more than three directors
are elected in any one year.
In order to effect this change in the bylaws, it is necessary to elect
three directors to serve for a term of one year; three directors to serve a term
of two years; and three directors to serve a term of three years, or until their
successors are elected and qualified. As soon as this staggered schedule in
enacted, one-third of the Directors will be elected each year rather that the
entire Board as had previously been the case. If a Director resigns or otherwise
ceases to act as a Director prior to the completion of his or her term of
office, the Board of Directors is empowered to appoint a replacement Director
for the remainder of the term of the departing Director.
The Board of Directors has nominated Mary Scherr, Dr. Charles Padbury
and Vern O. Curtis to serve a one year term; Robert Nelson, Dr. Evan Ames and
Ronald P. Erickson to serve a two year term; and Graham Norris, Joseph Morris
and Dale Weight to serve a three year term.
Dr. Sherry Meinberg, previously a member of the Board resigned on
October 2, 1997 to devote more time to her writing, lecturing and educational
consulting activities. Ronald P. Erickson was elected by the Board of Directors
to serve Dr. Meinberg's unexpired term.
Nominees to the Board of Directors:
Graham H. Norris, Sr., CTB, age 55, President, CEO and Chairman of the Board of
Directors, Director since 1986, nominated to a three year term.
Mr. Norris, who was elected President and Chief Executive Officer of
the Company on September 6, 1996, has over 30 years experience in management and
finance. Prior to his becoming President of the Company, he had been a
consultant providing a variety of management consulting services to small
private and public corporations. After a period of transition in management of
the Company, Mr. Norris was elected Chairman of the Board of Directors in
addition to President and Chief Executive Officer. Mr. Norris has been a pilot
for United Airlines since 1963. He has been a director of the Company since
1986. In 1993, Mr. Norris became an ITEX Broker, operating an independent barter
office in Provo, Utah, in which capacity he earned the credential of Certified
Trade Broker.
Mary Scherr, CTB, age 60, Vice President of Broker Development, Director since
1986, nominated to a one year term.
Ms. Scherr has over fourteen years of experience within the barter
industry. Upon joining ITEX in 1984 as an independent broker, Ms. Scherr was
routinely recognized for outstanding sales performance. In fact, she was honored
with Broker of the Year for distinguishing herself among her Company peers. In
1993, Ms. Scherr was brought into the internal operations of ITEX as Vice
President of Broker Development. Ms. Scherr holds a Masters Degree from the
University of Iowa.
Charles T. Padbury, age 59, Director since 1992, nominated to a one year term.
Dr. Padbury is a Beaverton, Oregon dentist and has been a member of the
ITEX Retail Trade Exchange since 1985. Dr. Padbury has brought a wealth of
experience to the Board in terms of the interests, perceptions, and vantage
point of the ITEX client. During 1996 Dr. Padbury served briefly as Chairman of
the Board of Directors.
Robert Nelson, CPA, age 50, Director since 1995, nominated to a two year term
Mr. Nelson is a Certified Public Accountant in private practice in
Portland, Oregon specializing in tax accounting. He has also been an active
member of the ITEX Retail Trade Exchange, and expects to bring the advantages of
both of these experiences to the Board. Mr. Nelson received an MBA from Brigham
Young University and is still active in the BYU Management Society. He is a
member of the American Institute of CPAs and the Oregon Society of CPAs.
6
<PAGE>
Evan B. Ames, age 58, Director since 1995, nominated to a two year term.
Dr. Ames acquired his Ph.D. in 1971 from Princeton University, majoring
in near eastern and Soviet studies. He has served with the Central Intelligence
Agency. In 1985 Mr. Ames became affiliated with R.L. Ball & Associates as an
investment researcher, analyst, and investment strategist. He is currently a
Registered Investment Adviser registered with the Securities & Exchange
Commission.
Joseph Morris, CPA, age 48, Director, Senior Vice President and Chief Financial
Officer, Director since 1995, nominated to a three year term.
Mr. Morris serves as both a Director and Senior Vice President and
Chief Financial Officer of ITEX. With over 15 years experience in and around the
barter industry, Mr. Morris has served as technical liaison between the
Financial Accounting Standards Board (FASB) and International Reciprocal Trading
Association (IRTA). He served as financial officer for Software-Intercomp, Inc.
of Denver Colorado, a publicly traded company on NASDAQ from 1984 through July
1995, except for the period 1988 to 1990. During that period, Mr. Morris was a
technical project manager with FASB. Mr. Morris is an accomplished CPA and
author of seven books on accounting practices. Mr. Morris was appointed Chief
Financial Officer of the Company on January 18, 1996.
Ronald P. Erickson, age 53, Director, nominated to a two year term, Director
since 1997.
Mr. Erickson is Chairman and Chief Executive Officer of GlobalTel
Resources, Inc., a provider of telecommunications services, messaging and
intranet solutions headquartered in Seattle, Washington. Mr. Erickson was
previously Chairman/Vice-Chairman/President and CEO of Egghead Software, Inc., a
software reseller, where he was also one of the company's founders.
He has been involved in various aspects of the microcomputer technology
industry for the past seventeen years. He was co-founder of Microrim, Inc., a
regional database software development company; was Chairman and CEO of NBI,
Inc. a software development and systems integration company; and has been an
investor and active director in a number of other technology companies including
Telecalc (telecommunications), Lone Wolf (multimedia networking), Pantheon
(Internet publishing), I.Q. Technology (computer connectivity), Digital Data
Networks (multimedia advertising) and AEI Music Network (global music sales and
distribution). He has a law degree and was a practicing attorney form 1975 to
the late 1980's. Earlier in his career he worked in Washington, D.C. as a White
House staff member.
Vern O. Curtis, age 63, nominated to a one year term.
Mr. Curtis is a private investor who resides in Portland, Oregon. From
1998 to 1991 he was Dean of the School of Business and Economics of Chapman
College, Orange, Californai. From 1968 to 1987 he was employed by Denny's Inc.
with which he served as Treasurer in 1969, Chief Financial Officer in 1971,
Executive Vice President and Director in 1978 and President and Chief Executive
Officer from 1980 until his retirement in 1987.
Mr. Curtis serves on the Boards of Directors of PIMCO Funds, a group of
mutual funds that manages $19 billion securities , primarily fixed income
securities; of PIMCO Commercial Mortgage Trust, Inc. (NYSE) a closed-end fund
specializing in investments in commercial mortgage-backed securities; a group of
Real Estate Investment Trusts (each listed on the ASE); and Fresh Choice, Inc.
(Nasdaq) a restaurant company with approximately 50 units operating primarily in
California.
G. Dale Weight, age 63, nominated to a three year term.
Dr. Weight is the dean of the Atkinson Graduate School of Management at
Willamette University in Salem, Oregon. Dr. Weight joined the university in 1990
after 20 years of private sector banking leadership including seven years as
chairman and CEO of a $5 billion Oregon-based bank. He has also served in the
public sector as a federal government economist with the federal reserve system
and as a fderal financial institution regulator. He has served as a member and
chairman of the Oregon State Board of Education, as chairman of the Associated
Oregon Industries Foundation, and as a member of the board of The Federal
Reserve Bank of San Francisco (Portland office), the Federal Home Loan Bank of
Seattle, and the Oregon Independent College Foundation. In addition to his
duties as dean and professor of finance at the Atkinson Graduate School of
Management, he currently serves as a member of Oregon Governor Kitzhaber's
Council of Academic Advisors and as an abritrator for the National Association
of Securities Dealers. He currently is a member of the board of directors of
York Graphics, Inc. of York, Pennsylvania.
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<PAGE>
The ITEX Board of Directors has a standing audit committee comprised of
Mr. Nelson, Mr. Morris and Dr. Ames and a standing compensation committee
comprised of Dr. Padbury, Mr. Nelson and Dr. Ames. In the last fiscal year
(August 1, 1996 - July 31, 1997) there were five meetings of the Board of
Directors. There were two meetings each of the audit and compensation
committees. None of the Directors attended any less than 75% of the aggregate of
(1) the total number of meetings of the Board of Directors and (2) the total
number of meetings held by committees of the Board on which each such Director
served.
EXECUTIVE COMPENSATION
- ----------------------
Table No. 1 lists the compensation paid to the named executive officers
(or former executive officer) for Fiscal Year 1996-97.
Table No. 1
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Awards Payouts
Name and
Principal Annual Compensation Restricted Stock Options/ LTIP All Other
Position Year Salary($) Bonus($) Other($) Award($) SARs(#) Payouts Compensation
- -------- ---- --------- -------- -------- --------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Graham H. Norris FY97 $101,500 $-0- $-0- $ 210,000/0 $-0- $
President & CEO
Michael T. Baer FY97 $105,500 $-0- $-0- $-0- -0- -0- $-0-
Former CEO
Joseph Morris FY97 $129,300 $-0- $-0- $ 35,000/0 $-0- $-0-
Senior VP
</TABLE>
Table No. 2
Option/SAR Grants in Last Fiscal Year
Options Percent of Exercise Expiration
Name Granted (#) Total Options Price Date
Graham H. Norris 210,000 37.8% $3.75/share 12/27/2006
Michael T. Baer -0- -0- n/a n/a
Joseph Morris 35,000 6.3% $3.75/share 12/26/2006
As of August 1, 1996, Outside Directors (i.e., Directors who are not employees
of the Company) have received $500 per Board meeting attended in person or by
telephone and members of Board committees have received $250 per committee
meeting attended. In addition, all Directors serving on January 1, 1997 were
issued 1,000 shares of the Company's restricted common stock and received the
option to acquire a minimum of 2,500 additional shares pursuant to an Employees
Incentive Stock Option Plan with the exercise price being the closing bid price
of the stock on the trading day before the grant is made. No funds were set
aside or accrued by the Company during Fiscal 1996 ending July 31, 1996 to
provide pension, retirement or similar benefits for Directors or Executive
Officers, other than those who are covered by the Company's 401(K) plan as
employees of the Company.
In order to attract and retain individuals of exceptional qualifications to
serve on the Board of Directors, on September 6, 1997, the Directors adopted a
plan whereby each Outside Director is to be paid $20,000 per annum in equal
monthly installments, will be issued 2,500 shares of common stock on January 2
of each year in which he or she served as a Director and will be granted the
option to acquire 10,000 shares of the Company's common stock at an exercise
price equal to the trading price of the Company's shares on January 2. In
addition, attendance at all committee meetings shall be compensated at the rate
of $750 per meeting with the chairperson of the committee receiving $1,000 per
meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------
8
<PAGE>
Table No. 3 lists as of November 21, 1997 the shareholdings of all Directors and
Executive Officers and amount of Registrant's voting securities owned by all
officers and directors as a group.
Table No. 3
Shareholdings of Directors and Executive Officers
Title of Name of Amount and Nature % of
Class Beneficial Owner of Beneficial Ownership Class
- --------- ------------------------ ----------------------- ------
Common Graham H. Norris, Sr. 487,106 4.2%
President, CEO and (78,106 shares,
Chairman of the Board 409,000 stock options)
- --------- ------------------------ ----------------------- ------
Common Ronald P. Erickson -0- 0%
Director
- --------- ------------------------ ----------------------- ------
Common Mary Scherr 216,500 1.8%
Vice President, Director (13,100 shares,
203,400 stock options)
- --------- ------------------------ ----------------------- ------
Common Dr. Charles Padbury 88,055 0.7%
Director (15.055 shares,
73,000 stock options)
- --------- ------------------------ ----------------------- ------
Common Robert Nelson, CPA 62,547 0.5%
Director (2,547 shares,
60,000 stock options)
- --------- ------------------------ ----------------------- ------
Common Dr. Evan B. Ames 62,500 0.5%
Director (2,500 shares,
60,000 stock options)
- --------- ------------------------ ----------------------- ------
Common Gerald Pitts 50,000 0.4%
Vice President (-0- shares,
50,000 stock options)
- --------- ------------------------ ----------------------- ------
Common Edward S. Wittman 50,000 0.4%
Vice President (-0- shares,
50,000 stock options)
- --------- ------------------------ ----------------------- ------
Common Joseph Morris, CPA 199,500 1.7%
Senior Vice President (3,500 shares,
CFO, Director 196,000 stock options)
- --------- ------------------------ ----------------------- ------
Common Sondra Ames 6,505 0.1%
Vice President (5 shares,
6,500 options)
- --------- ------------------------ ----------------------- ------
Common Donovan C. Snyder 38,800 0.3%
Secretary (1,000 shares,
37,800 stock options)
- --------- ------------------------ ----------------------- ------
Total Directors and Executive Based upon 11,733,774 shares 10.7%
Officers (7,361,496 shares issued,
4,371,978 stock options)
- --------- ------------------------ ----------------------- -----
As of November 21, 1997 and including the options described in Proposals 5 and
6.
Table No. 4 lists persons or companies holding over 5% beneficial ownership of
Registrant's outstanding stock as of November 21, 1997:
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<PAGE>
Table No. 4
5% or Greater Shareholders
Title of Name and address Amount and Nature % of
Class of Beneficial Owner of Beneficial Class
Ownership
- --------- ---------------------------- ----------------------- -----
Common Terry Neal 734,088 6.3%
3295 NW 113th Place (275,588 shares owned,
Portland, OR 97229 8,500 shares beneficially
owned, 450,000 options)
- --------- ---------------------------- ----------------------- -----
Common Bailey Mutual Fund 750,000 6.4%
C/O Holland Trust (250,000 shares owned,
Financial Services 500,000 warrants)
Haaksbergweg 55 1101 BR
Amsterdam ZO
The Netherlands
- --------- ---------------------------- ----------------------- -----
Common Newcastle Services, Ltd 714,625 6.1%
P.O. Box 461 (314,625 shares owned,
Nova Scotia Bldg. 400,000 warrants)
Main Street
Charlestown, Nevis
West Indies
- --------- ---------------------------- ----------------------- -----
Total 5% Based upon 11,735,774 shares Outstanding at 11/21/97 18.8%
(7,361,496 shares issued,
4,371,978 stock options and
warrants)
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF EACH OF THE NOMINEES TO THE BOARD OF
DIRECTORS. A MAJORITY OF THE VOTES CAST BY A QUORUM OF SHARES IN ATTENDANCE IN
PERSON OR BY PROXY AT THE ANNUAL MEETING WILL BE REQUIRED FOR THE ELECTION OF
EACH DIRECTOR NOMINEE.
PROPOSAL NO. 3 -- AMENDING THE CAPITALIZATION PROVISION IN THE ARTICLES
OF INCORPORATION
Paragraph Fourth of the Articles of Incorporation of the Company
provides for a maximum number of share of authorized, voting Common Stock of
twenty million (20,000,000) shares. Under this maximum, the number of
outstanding shares, options, and warrants is greater than half of the maximum
number of authorized, voting Common Stock. Therefore, the Company is precluded
from declaring a stock dividend or a stock split. This proposal will increase
the total capital of the Company to fifty million (50,000,000) shares. The
maximum number of shares of authorized, voting Common Stock shall be forty-five
million (45,000,000) shares. The remaining five million (5,000,000) shares shall
be Preferred Stock. In accordance with Nevada Law, the Board of Directors will
be authorized to make a resolution issuing a series of Preferred Stock
consisting of a number of shares specified in the resolution. The resolution
will also specify the voting powers, preferences, limitations, restrictions,
relative rights and distinguishing designations of the series of Preferred
Stock. The increased number of shares is necessary to preserve flexibility in
possibly declaring a stock dividend, stock split, or conducting any other
business on behalf of the Company. The ability of the Board of Directors to
create a class or classes of Preferred Stock is also considered by Management to
be necessary to give the Company additional flexibility in raising capital by
means of the issuance of securities other than Common Stock.
This Amendment may be also act as a defense to deter attempted
acquisitions of the Company which are not in the best interest of the Company.
Increasing the maximum number of authorized, voting Common Stock will enable the
Company to issue more outstanding stock which will have the effect of diluting
the control of individual Shareholders and may reduce the stock price. Creating
a class of Preferred Stock will enable the Company to issue stock with increased
voting rights which will have the effect of diluting the control of individual
Shareholders. Although these provisions may also make mergers or the assumption
of control
10
<PAGE>
by a principal shareholder more difficult, thus rendering the removal of
management more difficult, management believes that this proposal is necessary
for the continued prosperity of the Company. The Company is a leader in a unique
field which requires a high level of expertise and specialized skills. However,
the pool of knowledgeable management which is capable of skillfully guiding the
Company is small. Therefore, management believes that efforts to acquire the
Company and unilaterally replace management will impair operation of the Company
and the ITEX Retail Trade Exchange, reducing the profitability of the Company
and the stock price. Management believes that this proposal is to the benefit of
the Company and will inure to the benefit of the Shareholders.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO.
3. A MAJORITY OF THE VOTES CAST BY A QUORUM OF SHARES IN ATTENDANCE IN PERSON OR
BY PROXY AT THE ANNUAL MEETING WILL BE REQUIRED FOR THE APPROVAL OF THIS
PROPOSAL.
PROPOSAL NO. 4 -- ADOPTION OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
The body of the ITEX Corporation Articles of Incorporation has not been
revisited since the Company was called ITEX Barter Systems, Inc. The body of the
Articles of Incorporation have been amended, but remain substantially similar to
the original Articles of Incorporation for The Magneto-Electric Company
(hereafter, "Original Articles"). The Original Articles will be re-entitled
"Amended and Restated Articles of Incorporation of ITEX Corporation" (hereafter,
"Restated Articles").
Paragraph First of the Original Articles recites the name of the
Company and will not be altered by the Restated Articles.
Paragraph Second of the Original Articles will be altered by the
Restated Articles. The Restated Articles list the correct address for the Nevada
registered office of the Company. The Restated Articles also expressly state
that the Company may maintain offices in locations outside the State of Nevada.
Paragraph Third of the Original Articles authorizes the Company to
conduct all lawful business and will not be altered by the Restated Articles.
Changes to Paragraph Fourth of the Original Articles are addressed in,
and will be adopted by the Shareholders by an affirmative vote on, Proposal No.
3 of this Proxy Statement.
Paragraph Fifth of the Original Articles will be altered by the
Restated Articles. The Restated Articles expressly state that the Company will
be governed by Directors and, because Nevada law requires the listing of current
directors when a corporation restates its articles of incorporation, the
Corporation's Restated Articles list the current Board.
Paragraph Sixth of the Original Articles states that the Company will
maintain a perpetual existence and will not be altered by the Restated Articles.
Paragraph Seventh of the Original Articles provides that the
Corporation's business will be conducted by the Corporation's Officers and other
persons as provided in the By-Laws and will not be altered by the Restated
Articles.
Paragraph Eighth of the Original Articles authorizes the Company to
hold real and personal property and will not be altered by the Restated
Articles.
Paragraph Ninth of the Original Articles, which relates to the amount
of debt the Company may incur, will not be altered by the Restated Articles.
Paragraph Tenth of the Original Articles protects the Shareholders from
liability for corporate debts and will not be altered by the Restated Articles.
Paragraph Eleventh of the Original Articles enumerates the powers of
the Directors and will be altered by the Restated Articles. The Restated
Articles modify the first sentence to expressly state and to clarify
pre-existing language that stated that the list of enumerated powers in
Paragraph Eleventh is neither exclusive nor comprehensive.
11
<PAGE>
The Restated Articles add Paragraph Twelfth to specify the name and
address of the registered agent of the Company. The Paragraph was added to
comply with Nevada law requirements that corporations must meet when restating
their articles of incorporation.
The Restated Articles add Paragraph Thirteenth. The Original Articles
were silent and did not make any provision that granted Shareholders, as a
matter of right, the opportunity to subscribe for or receive additional stock.
Paragraph Thirteenth explicitly states what was understood under the Original
Articles and allows the Board of Directors, in its discretion, to issue
additional stock to Shareholders.
The Restated Articles add Paragraphs Fourteenth and Fifteenth to
promote the attraction of qualified people to serve as Officers and Directors of
the Company and to promote the retention of those qualified people. The
provisions are necessary to protect Directors and Officers from certain
litigation, however, the protections are provided only to the extent authorized
by the Nevada Revised Statutes.
The Restated Articles add Paragraph Sixteenth to preserve the right of
the Company to alter its Articles of Incorporation. The provision is necessary
to give the Company freedom to respond in a manner most beneficial to the
Company.
A COPY OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF ITEX CORPORATION
WILL BE SENT AT NO CHARGE TO SHAREHOLDERS REQUESTING THE SAME, IN WRITING, TO
DONOVAN C. SNYDER, SECRETARY, P.O. BOX 2309, PORTLAND, OR 97208-2309.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO.
3. A MAJORITY OF THE VOTES CAST BY A QUORUM OF SHARES IN ATTENDANCE IN PERSON OR
BY PROXY AT THE ANNUAL MEETING WILL BE REQUIRED FOR THE APPROVAL OF THIS
PROPOSAL.
PROPOSAL NO. 5 -- REQUESTED SHAREHOLDER ACTION ON THE COMPANY'S 1997 INCENTIVE
STOCK OPTION PLAN
Management believes that the Company's long-term growth is dependent
upon the performance and efforts of management and staff. It is considered
appropriate for the Company to provide incentives for superior performance in
the form of options to acquire the Company's stock. For that reason, the Board
of Directors adopted an incentive stock option plan as of December 27, 1996.
Under the Plan, the Company may grant to the Optionee during the period ending
on a date not more than five years from the date of the grant, the option to
purchase common stock of the Company at a price per share equal to the bid price
of the Company's traded common stock on the date of the grant of the option.
Such options vest when they are granted. The Company did not receive nor will it
receive any consideration for the granting of the options.
At the last Annual Meeting of Shareholders, not enough shares held in
street name were voted to approve the plan. By a margin of almost 3 to 1, those
shareholders who voted on the proposal approved it. However, because the holders
of stock in street name are not permitted to vote on proposals such as this one,
and since street name holders of the Company's stock did not vote in sufficient
numbers to constitute a quorum for acting on that proposal, ratification of this
plan was not achieved.
This lack of ratification did not mean that the Option were not
granted. Those options were validly approved by the Board of Directors. The
effect of the Shareholder non-vote on the proposal simply precluded the Company
from filing an S-8 Registration Statement on those shares thus making it
practically impossible for Officers and Directors to exercise those options
without subsequently holding the stock issued on exercise for a period in excess
of one year. This effectively negated the desirablity of the options both as a
method of compensating the Officers and Directors and as a source of additional
income to the Company which is realized on the payment of the exercise price of
the options.
In order to solve the problems arising from the non-votes on the issue,
Management is again presenting the identical 1997 Employee Incentive Stock
Option Plan for Shareholder action along with Proposal No. 5 which involves the
1998 Employee Incentive Stock Option Plan.
The following options were granted on December 27, 1996 at an exercise
price of $3.75 per share, the price at which the Company's stock was trading on
that date:
12
<PAGE>
a. Members of the Board of Directors each received an option to
purchase 10,000 shares.
b. Vice Presidents and vice president level managers each received
the option to acquire 25,000 shares.
c. Graham H. Norris received an option to purchase 200,000 shares
in connection with his acceptance of the position of Chief
Executive Officer of the Company.
d. Mr. Norris was granted the authority to award up to a total of
100,000 options to employees or brokers of the Company.
e. Consultants to the Company Peter Grandich (Peter Grandich
Company), Mary Martin (Hamilton-Martin Group) and Jim Schilling
(West Coast Consultants) each received an option to acquire 50,000
shares for 1997.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS TABLE
- -------------------- -------------------------------------------------- --------------------------
Class of stock Name and Position Number of Securities
underlying Options of Optionee Underlying Options Granted
- -------------------- -------------------------------------------------- --------------------------
<S> <C> <C>
Common Graham H. Norris, President, CEO and Director 210,000
- -------------------- -------------------------------------------------- --------------------------
Common Each Director serving on 12/27/96 (8 persons) 10,000
- -------------------- -------------------------------------------------- --------------------------
Common Vice Presidents and vice president level 25,000
managers (5 persons)
- -------------------- -------------------------------------------------- --------------------------
Executive Group (6 persons) 415,000
- -------------------- -------------------------------------------------- --------------------------
Non-Executive Director Group (5 persons) 50,000
- -------------------- -------------------------------------------------- --------------------------
</TABLE>
Federal Income Tax Consequences
The Company intends that options granted under the plan will qualify
as "incentive stock options" ("ISO") under section 422 ("section 422") of the
Internal Revenue Code. The following discussion of the federal income tax
consequences of participation in the Plan therefore assumes that: the Plan
satisfies the requirements of section 422; that all options granted will, when
granted, qualify under section 422 as ISOs and will continue to so qualify at
all times until exercise; and that optionees are, at all times beginning with
the Date of Grant and ending on the day three months before the date of
exercise, be "employees" within the meaning of section 422(a)(2). This
discussion is only a summary, does not purport to be complete, and does not
cover, among other things, state and local tax consequences. Differences in
participants' financial situations may cause federal, state, and local tax
consequences of participation in the Plan to vary and no assurances are or will
be given to any participant regarding the tax consequences of participating in
the Plan. Accordingly, the Company urges each participant in the Plan to consult
his or her own accountant, legal counsel or other financial advisor regarding
the tax consequences of participation in the Plan. This discussion is based on
the provisions of the Code and applicable regulations thereto, as presently in
effect.
Incentive Stock Options
Under the current provisions of the Code, the optionees in an incentive
stock option plan will not recognize income at the time of the grant of the ISO.
In addition, the optionee will generally not recognize income upon exercise of
the ISO and receipt of the stock subject thereto (the "option stock"). However,
the Company will not be entitled to a deduction for compensation expense in
connection with granting the ISO. Also, unless the holder disposes of the option
stock in a disqualifying disposition, as described below, the Company will not
be entitled to a deduction in connection with issuing the option stock.
The tax consequences to the holder upon disposition of the option stock
will depend on whether the disposition occurred within the statutory holding
period. The holding period is the later of two years from the Date of Grant or
one year from the transfer of the option stock to the optionee on exercise. If
the employee-holder disposes of the option stock after the holding period
13
<PAGE>
expires, then the disposition is considered a qualifying disposition and the
employee will be entitled to capital gain treatment on the difference between
the amount he or she receives from the disposition of the option stock and his
or her tax basis in the option stock. In a qualifying disposition, the holder's
basis is the amount paid on exercise of the option.
A disposition during the holding period is a disqualifying disposition.
When a disqualifying disposition occurs the employee must recognize compensation
income in the amount of the bargain purchase element of the option stock the
holder disposes of. The bargain purchase element is the difference between the
exercise price and the fair market value of the option stock on the date of
exercise. The gain attributable to the bargain purchase element is then added to
the holder's basis in the option stock to determine gain or loss on the
disposition. The gain (or loss) resulting from the disqualifying disposition
(i.e. the difference between the proceeds received on disposition and the tax
basis) is a capital gain (or loss). The shareholder must recognize the income
attributable to the bargain purchase element and the capital gain or loss in the
year when the disqualifying disposition occurs. From the Company's perspective,
the Company may deduct, as compensation expense, an amount equal to the
compensation income the employee recognizes on the bargain purchase element. The
Company would be entitled to such a deduction during the year in which the
disqualifying disposition occurs.
The foregoing discussion assumes the fair market value of option stock
exercisable by an optionee does not exceed the value limitation of section
422(d) of the Code. Section 422(d) limits the aggregate fair market value of ISO
stock exercisable in any calendar year to $100,000, based on the fair market
value of the option stock on the Date of Grant. The aggregate fair market value
of option stock first exercisable in any one year that exceeds $100,000 is not
ISO stock and is treated as stock subject to a non-qualified option. Generally,
on exercise of a non-qualified stock option the holder will recognize ordinary
income in an amount equal to the excess of the fair market value of the shares
acquired over the exercise price. The Company will be entitled to expense as
compensation the amount of ordinary income which the holder thus recognizes.
Upon the sale of the non-qualified option stock, the holder will recognize short
term or long term capital gain, or loss, as the case may be, in an amount equal
to the difference between the amount he or she receives from the sale of those
shares and his or her tax basis. The holder's tax basis will generally be the
exercise price paid plus the amount of ordinary income recognized.
In order for this plan to qualify, shareholder approval is necessary. A
total of 755,000 shares of the Company's common stock will be set aside for
grants under the plan, both those made as of December 27, 1996 and those which
may be made in the future.
Interests of Directors and Executive Officers in this Proposal. Those
Directors and Executive Officers listed above have a substantial interest in
this matter to be acted upon by the shareholders.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO.
5. A MAJORITY OF THE VOTES CAST BY A QUORUM OF SHARES IN ATTENDANCE IN PERSON OR
BY PROXY AT THE ANNUAL MEETING WILL BE REQUIRED FOR THE APPROVAL OF THIS
PROPOSAL.
PROPOSAL NO. 6 -- REQUESTED SHAREHOLDER ACTION ON THE COMPANY'S 1998 INCENTIVE
STOCK OPTION PLAN
Judging especially by the practice in other successful companies,
Management remains committed to the belief that the Company's long-term growth
is dependent upon the performance and efforts of management and staff. The
Company is a leader in a unique industry which requires a high level of
expertise and specialized management skills. However, the pool of knowledgeable
management which is capable of skillfully guiding the Company is small.
Therefore, Management believes that the recruitment and retention of individuals
highly skilled in the operation of a Retail Trade Exchange and similarly skilled
in corporate trade transactions requires incentive compensation in the form of
stock options.
Conversely, the inability of the Company to retain and recruit skilled
Management would be expected to impair operation of the Company and the ITEX
Retail Trade Exchange, reducing the profitability of the Company and the value
of the Company to its shareholders. Management believes that the grant of
incentive stock options is to the benefit of the Company and will help to ensure
the continued viability of the Company as the leader in a specialized industry
to the benefit of the Shareholders.
It is considered appropriate for the Company to provide incentives for
superior performance in the form of options to acquire the Company's stock. For
that reason, the Board of Directors adopted an incentive stock option plan as of
September 3, 1997. Under the Plan, the Company may grant to the Optionee during
the period ending on a date not more than ten years from the date of the grant,
the option to purchase common stock of the Company at a price per share equal to
the bid price of the
14
<PAGE>
Company's traded common stock on the date of the grant of the option. Such
options vest when they are granted. The Company did not receive nor will it
receive any consideration for the granting of the options. Hoever, the Company
will received the exercise price on these option, $3.1875 per share, upon
exercised of the options.
If this Plan is not approved by Shareholders it will not mean that the
Option were not granted. Those options were validly approved by the Board of
Directors. The effect of a Shareholder no vote or non-vote on the proposal would
simply preclude the Company from filing an S-8 Registration Statement on those
shares thus making it practically impossible for Officers and Directors to
exercise those options without subsequently holding the stock issued on exercise
for a period in excess of one year. The effective of a Shareholder no vote or
non-vote would be to negate the desirablity of the options as a method of
compensating the Officers and Directors and to deprive the Company of a source
of additional cash which is realized on the payment of the exercise price of the
options.
The following options were granted on September 3, 1997 at an exercise
price of $3.1875 per share, the price at which the Company's stock was trading
on that date:
a. Members of the Board of Directors each received an option to
purchase 50,000 shares.
b. Vice President Gerald Pitts was granted the option to acquire
75,000 shares and, based upon her several years of service as a
vice president, Mary Scherr was granted the option to acquire
90,000 shares. In addition, Senior Vice President and CFO Joseph
Morris was granted the option to acquire 125,000 shares and
President and CEO Graham Norris was granted the right to acquire
175,000 shares.
c. In recognition of extraordinary service to the Company, ITEX
USA, Inc. received an option to purchase 50,000 shares and Edward
Wittman was granted the right to acquire 50,000 shares in
connection with his acceptance of the position of Director of
Business Development for the Company.
d. Mr. Norris was granted the authority, with the concurrence of
the Board of Directors to award up to a total of 200,000 additonal
options to employees or brokers of the Company.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS TABLE
- -------------------- -------------------------------------------------- --------------------------
Class of stock Name and Position Number of Securities
underlying Options of Optionee Underlying Options Granted
- -------------------- -------------------------------------------------- -----------------------------------
<S> <C> <C>
Common Graham H. Norris, President, CEO 175,000
- -------------------- -------------------------------------------------- -----------------------------------
Common Each Outside Director serving on 09/03/97, 200,000
50,000 shares (4 persons)
- -------------------- -------------------------------------------------- -----------------------------------
Common Vice President Mary Scherr (90,000), Vice 315,000
President Gerald Pitts (70,000) and Senior Vice
President Joseph Morris (125,000)
- -------------------- -------------------------------------------------- -----------------------------------
Executive Group (6 persons) 465,000
- -------------------- -------------------------------------------------- -----------------------------------
Non-Executive, Director Group (4 persons) 200,000
- -------------------- -------------------------------------------------- -----------------------------------
</TABLE>
Federal Income Tax Consequences
The Company intends that options granted under the plan will qualify
as "incentive stock options" ("ISO") under section 422 ("section 422") of the
Internal Revenue Code. The following discussion of the federal income tax
consequences of participation in the Plan therefore assumes that: the Plan
satisfies the requirements of section 422; that all options granted will, when
granted,
15
<PAGE>
qualify under section 422 as ISOs and will continue to so qualify at all times
until exercise; and that optionees are, at all times beginning with the Date of
Grant and ending on the day three months before the date of exercise, be
"employees" within the meaning of section 422(a)(2). This discussion is only a
summary, does not purport to be complete, and does not cover, among other
things, state and local tax consequences. Differences in participants' financial
situations may cause federal, state, and local tax consequences of participation
in the Plan to vary and no assurances are or will be given to any participant
regarding the tax consequences of participating in the Plan. Accordingly, the
Company urges each participant in the Plan to consult his or her own accountant,
legal counsel or other financial advisor regarding the tax consequences of
participation in the Plan. This discussion is based on the provisions of the
Code and applicable regulations thereto, as presently in effect.
Incentive Stock Options
Under the current provisions of the Code, the optionees in an incentive
stock option plan will not recognize income at the time of the grant of the ISO.
In addition, the optionee will generally not recognize income upon exercise of
the ISO and receipt of the stock subject thereto (the "option stock"). However,
the Company will not be entitled to a deduction for compensation expense in
connection with granting the ISO. Also, unless the holder disposes of the option
stock in a disqualifying disposition, as described below, the Company will not
be entitled to a deduction in connection with issuing the option stock.
The tax consequences to the holder upon disposition of the option stock
will depend on whether the disposition occurred within the statutory holding
period. The holding period is the later of two years from the Date of Grant or
one year from the transfer of the option stock to the optionee on exercise. If
the employee-holder disposes of the option stock after the holding period
expires, then the disposition is considered a qualifying disposition and the
employee will be entitled to capital gain treatment on the difference between
the amount he or she receives from the disposition of the option stock and his
or her tax basis in the option stock. In a qualifying disposition, the holder's
basis is the amount paid on exercise of the option.
A disposition during the holding period is a disqualifying disposition.
When a disqualifying disposition occurs the employee must recognize compensation
income in the amount of the bargain purchase element of the option stock the
holder disposes of. The bargain purchase element is the difference between the
exercise price and the fair market value of the option stock on the date of
exercise. The gain attributable to the bargain purchase element is then added to
the holder's basis in the option stock to determine gain or loss on the
disposition. The gain (or loss) resulting from the disqualifying disposition
(i.e. the difference between the proceeds received on disposition and the tax
basis) is a capital gain (or loss). The shareholder must recognize the income
attributable to the bargain purchase element and the capital gain or loss in the
year when the disqualifying disposition occurs. From the Company's perspective,
the Company may deduct, as compensation expense, an amount equal to the
compensation income the employee recognizes on the bargain purchase element. The
Company would be entitled to such a deduction during the year in which the
disqualifying disposition occurs.
The foregoing discussion assumes the fair market value of option stock
exercisable by an optionee does not exceed the value limitation of section
422(d) of the Code. Section 422(d) limits the aggregate fair market value of ISO
stock exercisable in any calendar year to $100,000, based on the fair market
value of the option stock on the Date of Grant. The aggregate fair market value
of option stock first exercisable in any one year that exceeds $100,000 is not
ISO stock and is treated as stock subject to a non-qualified option. Generally,
on exercise of a non-qualified stock option the holder will recognize ordinary
income in an amount equal to the excess of the fair market value of the shares
acquired over the exercise price. The Company will be entitled to expense as
compensation the amount of ordinary income which the holder thus recognizes.
Upon the sale of the non-qualified option stock, the holder will recognize short
term or long term capital gain, or loss, as the case may be, in an amount equal
to the difference between the amount he or she receives from the sale of those
shares and his or her tax basis. The holder's tax basis will generally be the
exercise price paid plus the amount of ordinary income recognized.
In order for this plan to qualify, shareholder approval is necessary. A
total of 965,000 shares of the Company's common stock will be set aside for
grants under the plan, both those made as of September 3, 1997 and those which
may be made in the future.
Interests of Directors and Executive Officers in this Proposal. Those
Directors and Executive Officers listed above have a substantial interest in
this matter to be acted upon by the shareholders.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO.
6. A MAJORITY OF THE VOTES CAST BY A QUORUM OF SHARES IN ATTENDANCE IN PERSON OR
BY PROXY AT THE ANNUAL MEETING WILL BE REQUIRED FOR THE APPROVAL OF THIS
PROPOSAL.
16
<PAGE>
NOTICE CONCERNING NEXT YEAR'S ANNUAL MEETING: The date by which proposals of
security holders intended to be presented at the next Annual Meeting must be
received by the Company for inclusion in its proxy statement and form of proxy
relating to that Meeting is September 10, 1998.
OTHER BUSINESS
While the Notice of Annual Meeting of Shareholders provides for
transaction of such other business as may properly come before the meeting, the
Board of Directors has no knowledge of any other matters to be presented at the
meeting other than those referred to in this Proxy Statement. If any other
business requiring a vote of the shareholders should come before the meeting,
the persons designated as your proxies will vote or refrain from voting in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS:
- ---------------------------------------------------------------
Graham H. Norris, Sr., President, CEO and Chairman of the Board
17
<PAGE>
ADDENDUM TO PROXY STATEMENT OF ITEX CORPORATION
DECEMBER 1, 1997
This Addendum is to the ITEX Corporation Proxy Statement dated December 1, 1997
and relating to the Annual Meeting of the Shareholders of ITEX Corporation to be
held on Thursday, January 8, 1998 at 1:00 p.m., Pacific Standard Time, in the
Conference Room, second floor, 2 Lincoln South, at 10220 S.W. Greenburg Road,
Portland, OR 97223:
ADDITIONAL MATERIAL REGARDING PROPOSAL NO. 3:
Proposal No. 3 is "To adopt an Amendment to the Articles of
Incorporation of the Company changing the authorized capital of the Company from
20 million shares to 50 million shares." This proposal is discussed on pp. 8-9
of the Proxy Statement.
ITEX CORPORATION HAS NO PRESENT COMMITMENTS, PLANS OR UNDERSTANDINGS TO
ISSUE ANY OF THE ADDITIONALLY AUTHORIZED SHARES, IF SO AUTHORIZED BY
THE AFFIRMATIVE VOTE OF THE SHAREHOLDERS. THIS PROPOSAL WAS INCLUDED IN
THE PROXY STATEMENT PRIMARILY TO GIVE ITEX CORPORATION THE FLEXABILTITY
TO DECLARE A FORWARD STOCK SPLIT OR STOCK DIVIDEND IN THE FUTURE. IF
DEEMED ADVISABLE BY THE BOARD OF DIRECTORS.
ADDITIONAL MATERIAL REGARDING PROPOSALS NO. 1, 3 AND 4 :
Proposals No. 1, 3 and 4 all have elements of potential anti-takeover
defenses for the Company as described at pp. 2-3, 8-9 and 9-10, respectively, of
the Proxy Statement.
NONE OF THE PROPOSED CHANGES TO THE BY-LAWS OR ARTICLES OF
INCORPORATION OF THE COMPANY ARE PROPOSED IN RESPONSE TO A PARTICULAR
POSSIBLE TAKE-OVER OF THE COMPANY. THE PROPOSED CHANGES ARE SUBMITTED
AS LOGICAL AND SIMPLE CHANGES TO THE BY-LAWS AND THE ARTICLES OF
INCORPORATION WHICH WOULD HAVE THE EFFECT OF MAKING AN UNSOLICITED
TAKE-OVER OF THE COMPANY MORE DIFFICULT.
All other elements of the Proxy Statement remain as found in the Proxy Statement
mailed to all Shareholders of the Company.
<PAGE>
<TABLE>
<CAPTION>
ITEX CORPORATION PROXY FORM
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
<S><C>
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned shareholder of ITEX Corporation (the "Company"), do hereby appoint
Graham H. Norris, Sr., President and Chief Executive Officer of the Company, to be my proxy agent with full power of substitution to
vote as indicated below all of the shares of the Company standing in my name on its books at the Annual Meeting of Shareholders to
be held on Thursday, January 8, 1998 at 1:00 p.m., Pacific Time in the Conference Room, second floor, 2 Lincoln South, at 10220 S.W.
Greenburg Road, Portand, OR 97223 (Please mark your vote on each item with an "X")
(1) TO RATIFY ADOPTION OF AMENDED AND RESTATED BY-LAWS FOR THE COMPANY. FOR AGAINST ABSTAIN
---- ---- ----
(2) (a) ELECTION OF DIRECTORS TO HOLD OFFICE FOR A ONE YEAR TERM AND UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
Mary Scherr FOR AGAINST ABSTAIN Dr. Charles Padbury FOR AGAINST ABSTAIN Vern O. Curtis FOR AGAINST ABSTAIN
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(b) Election of directors to hold office for a two year term and until their successors are elected and qualified.
Robert Nelson FOR AGAINST ABSTAIN Dr. Evan Ames FOR AGAINST ABSTAIN Robert P. Erickson FOR AGAINST ABSTAIN
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(c) Election of directors to hold office for a three year term and until their successors are elected and qualified.
Graham H. Norris FOR AGAINST ABSTAIN Dr. G. Dale Weight FOR AGAINST ABSTAIN Joseph Morris FOR AGAINST ABSTAIN
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3. TO ADOPT AN AMENDMENT TO THE ARTICLES OF INCORPORATION OF THE COMPANY CHANGING THE AUTHORIZED CAPITAL OF THE COMPANY FROM 20
MILLION SHARES TO 50 MILLION SHARES.
FOR AGAINST ABSTAIN
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4. TO ADOPT AMENDED AND RESTATED ARTICLES OF INCORPORATION FOR THE COMPANY. FOR AGAINST ABSTAIN
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5. TO RATIFY THE 1997 INCENTIVE STOCK OPTION PLAN. FOR AGAINST ABSTAIN
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6. TO RATIFY THE 1998 INCENTIVE STOCK OPTION PLAN. FOR AGAINST ABSTAIN
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I ratify and confirm all acts my proxy agent may do or cause to be done by virtue of this Proxy. I revoke all proxies
previously given by me for the Annual Meeting of the shareholders of the Company. I recognize that this Proxy shall be voted FOR the
proposals presented to the shareholders at the Annual Meeting unless contrary instructions are indicated above and will be voted at
the discretion of my proxy agent if other matters properly come before the meeting. I acknowledge receipt of the Notice of Annual
Meeting of Shareholders, Proxy Statement and Annual Statement of ITEX Corporation.
Dated this day of , 1997.
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Number of shares
----------------------------
- -------------------------------- --------------------------------
(Print Name) (Print Name)
- --------------------------------------------------------------- ---------------------------------------------------------------
(Please sign name exactly as it appears on this Proxy Material) (Please sign name exactly as it appears on this Proxy Material)
IF STOCK IS HELD JOINTLY, EACH HOLDER SHOULD SIGN. IF EXECUTION IS IN REPRESENTATIVE CAPACITY BY AN OFFICER, ATTORNEY, PERSONAL
REPRESENTATIVE, TRUSTEE, GUARDIAN OR OTHER LEGAL REPRESENTATIVE, GIVE FULL TITLE AS SUCH.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED, PREADDRESSED ENVELOPE. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED AT THE ANNUAL MEETING.
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