SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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 Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ITI TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
ITI TECHNOLOGIES, INC.
A DELAWARE CORPORATION
2266 NORTH SECOND STREET
NORTH ST. PAUL, MINNESOTA 55109
--------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1998, AT 8:30 O'CLOCK A.M.
--------------------------------------------
TO ITI TECHNOLOGIES, INC. STOCKHOLDERS:
The annual meeting of the stockholders of ITI Technologies, Inc. (the "COMPANY")
will be held on May 13, 1998, at 8:30 o'clock a.m., C.D.T., at the Marquette
Hotel, Seventh Street and Marquette Avenue, Minneapolis, Minnesota 55402, for
the following purposes:
* To elect a Board of Directors.
* To consider and act upon a proposed amendment to the Company's
Long-Term Stock Incentive Plan (1992).
* To ratify the selection by the Board of Directors of Coopers &
Lybrand, L.L.P. as the independent accountants to audit the
consolidated financial statements of the Company for the year ending
December 31, 1998.
* To transact such other business as may properly come before the
meeting or any adjournments thereof.
In accordance with the Bylaws of the Company, the Board of Directors has set the
close of business on March 30, 1998, as the record date for the determination of
the stockholders entitled to notice of and to vote at the meeting or any
adjournments thereof.
Your attention is respectfully directed to the attached Proxy Statement and the
Proxy. IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN THE
ATTACHED PROXY AND DATE, SIGN AND MAIL IT AS PROMPTLY AS POSSIBLE IN ORDER TO
SAVE THE COMPANY FURTHER SOLICITATION EXPENSE.
By Order of the Board of Directors
/s/ Charles A. Durant
CHARLES A. DURANT
Secretary
North St. Paul, Minnesota
April 3, 1998
<PAGE>
ITI TECHNOLOGIES, INC.
A DELAWARE CORPORATION
2266 NORTH SECOND STREET
NORTH ST. PAUL, MINNESOTA 55109
612-777-2690
--------------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1998
--------------------------------------------
SOLICITATION OF PROXIES
This Proxy Statement is submitted in support of the solicitation of the enclosed
proxy by the Board of Directors of ITI Technologies, Inc., a Delaware
corporation (the "COMPANY"), for the annual meeting of the stockholders of the
Company (the "ANNUAL MEETING") to be held on May 13, 1998, at 8:30 o'clock a.m.
at the Marquette Hotel, Seventh Street and Marquette Avenue, Minneapolis,
Minnesota 55402, and at any adjournments thereof. The cost of solicitation will
be borne by the Company. This Proxy Statement and the accompanying Proxy and
Notice of Annual Meeting of Stockholders is intended by the Company to be mailed
to its stockholders on or about April 3, 1998.
The Company may reimburse brokerage firms, banks, and other custodians,
nominees, and fiduciaries for expenses reasonably incurred in forwarding
solicitation materials to beneficial owners of shares. The Company may have one
or more of its officers or employees communicate by telephone, telegraph, or
mail with some of the stockholders who may have omitted to return proxies.
VOTING AND REVOCATION OF PROXY
The Annual Meeting is being held for the purposes of electing the Company's
Board of Directors, to consider and act upon the proposed amendment to the
Company's Long-Term Stock Incentive Plan (1992) (the "STOCK INCENTIVE PLAN"), to
ratify the selection by the Board of Directors of Coopers & Lybrand L.L.P. as
the Company's independent accountants for the year ending December 31, 1998, and
to transact such other business as may properly come before the Annual Meeting
or any adjournments thereof.
The summary annual report of the Company for the year ended December 31, 1997,
and the Annual Report on Form 10-K of the Company for the year ended December
31, 1997, including financial statements, are being mailed to stockholders
simultaneously herewith, but such materials are not to be considered part of the
proxy soliciting materials.
Only holders of record of shares of the Company's $0.01 per share par value
common stock (the "COMMON STOCK") at the close of business on March 30, 1998,
the record date of the Annual Meeting, will be entitled to notice of and to vote
at the Annual Meeting and any adjournment thereof. The securities of the Company
outstanding as of March 30, 1998, and which are entitled to vote at the Annual
Meeting consist of 8,493,004 shares of Common Stock, each share being entitled
to one vote. Stockholders do not have the right to cumulate votes for the
election of directors.
<PAGE>
The enclosed Board of Directors' proxy, when properly signed and returned to the
Company, will be voted at the Annual Meeting as directed therein. Proxies in
which no direction is given with respect to the various matters of business to
be transacted at the Annual Meeting will be voted (i) FOR the election of the
six nominees for the Board of Directors named in this Proxy Statement; (ii) FOR
the approval of the proposed amendment to the Stock Incentive Plan; and (iii)
FOR the ratification of the appointment of Coopers & Lybrand L.L.P. as the
Company's independent accountants for the year ending December 31, 1998. While
the Board of Directors knows of no other matters to be presented at the Annual
Meeting or any adjournment thereof, all proxies returned to the Company will be
voted on any such matter in accordance with the judgment of the proxy holders.
The enclosed proxy may be revoked at any time before it is voted by the
execution and delivery of a proxy bearing a later date or by notification in
writing given to the Secretary of the Company prior to the Annual Meeting. The
enclosed proxy may also be revoked by attending the Annual Meeting and electing
to vote in person.
A quorum, consisting of a majority of the shares of Common Stock entitled to
vote at the Annual Meeting, must be present in person or by proxy before action
may be taken at the Annual Meeting. In accordance with the laws of the State of
Delaware and the Company's Certificate of Incorporation and Bylaws, (i) with
respect to the election of directors, which requires a plurality of the votes
cast, only proxies and ballots indicating votes "FOR all nominees," "WITHHELD
for all nominees," or specifying that votes be withheld for one or more
designated nominees, are counted to determine the total number of votes cast,
and broker non-votes are not counted, and (ii) with respect to the adoption of
all other proposals, which are decided by a majority of the shares of the Common
Stock of the Company present in person or by proxy and entitled to vote, only
proxies and ballots indicating votes "FOR," "AGAINST" or "ABSTAIN" on the
proposal or providing the designated proxies with the right to vote in their
judgment and discretion on the proposal are counted to determine the number of
shares present and entitled to vote.
Broker non-votes will be counted for the purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be considered
as votes cast with respect to a particular matter as to which the broker has
expressly not voted. Accordingly, broker non-votes will have no effect upon the
outcome of voting on matters presented to the stockholders at the Annual
Meeting.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
As required by rules adopted by the Securities and Exchange Commission (the
"SEC") under Section 16(a) of the Securities Exchange Act of 1934, since
November 22, 1994, the Company's directors, executive officers and beneficial
owners of at least 10% of the Company's Common Stock have been required to file
with the SEC reports regarding their ownership of the Company's Common Stock and
any subsequent changes in such ownership. Based upon inquiries made by the
Company of its executive officers and directors, and based solely upon copies of
such reports received from the Company's 10% beneficial owners of Common Stock,
the Company believes that during 1997 all of these filing requirements were
satisfied.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of February 20, 1998,
by (i) each stockholder who is known by the Company to own beneficially more
than 5% of the outstanding Common Stock, (ii) each director (who together
constitute all nominee directors), (iii) each executive officer named in the
Summary Compensation Table, and (iv) all executive officers and directors as a
group.
Name of Beneficial Amount of
Owner of Identity of Group Beneficial Ownership (1)
-------------------------- ------------------------
Shares Percent
------ -------
MLGAL Partners, L.P. (2) (3).......................... 1,281,159 15.1%
MLGA Fund II, L.P. (2) (3)............................ 1,281,159 15.1%
Investment Advisors, Inc.............................. 578,300 6.8%
Granahan Investment Management, Inc. (4).............. 555,750 6.5%
Vanguard Explorer Fund, Inc. (4)...................... 459,000 5.4%
Thomas L. Auth........................................ 760,741(6) 8.4%
Robert E. Brunius..................................... 240,318(6) 2.8%
Charles E. Briskey.................................... 90,199(6) 1.1%
Joe Hurst............................................. 24,000(6) *
Perry J. Lewis(5)..................................... 55,156(6) *
W. Wallace McDowell, Jr............................... 53,500(6) *
Sangwoo Ahn(5)........................................ 50,156(6) *
William C. Ughetta, Jr. (5)........................... 16,500(6) *
Walter R. Barry, Jr................................... 7,500(6) *
Reed G. Grothe........................................ 5,639(6) *
All executive officers and directors as a
group (14 persons).................................. 1,324,248(6) 14.1%
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* Less than 1%.
(1) Percentages of outstanding shares are based on 8,490,884 shares of
Common Stock outstanding as of February 20, 1998. Shares of Common
Stock subject to options granted under the Company's Stock Incentive
Plan which currently are exercisable, or which become exercisable
within 60 days, are deemed outstanding for computing the number and
percentage ownership of the person or group holding such options but
are not deemed outstanding for computing the percentages with respect
to other persons. Except as otherwise noted, the persons named in the
table and footnotes have sole voting and investment power with respect
to all shares of Common Stock reported as beneficially owned by them.
(2) The business address of MLGAL Partners, L.P. and MLGA Fund II, L.P. is
Two Greenwich Plaza, Greenwich, Connecticut 06830.
<PAGE>
(3) MLGAL Partners, L.P., controls MLGA Fund II, L.P., and thus the
1,281,159 shares of Common Stock owned of record by MLGA Fund II, L.P.,
are also shown as being owned by MLGAL Partners, L.P.
(4) A Schedule 13G was filed with the SEC by Granahan Investment
Management, Inc. reporting beneficial ownership of 555,750 shares of
Common Stock of the Company, including shares of Common Stock of the
Company for which Vanguard Explorer Funds, Inc. has the right to
receive, or the power to direct the receipt of, dividends from, or the
proceeds from the sale of, such securities.
(5) Messrs. Ahn, Lewis, Ughetta and John A. Morgan may be deemed to be
affiliates of MLGAL Partners, L.P. These individuals each disclaim
beneficial ownership of the shares directly owned by MLGAL Partners,
L.P. The business address of these individuals is MLGAL Partners, L.P.,
Two Greenwich Plaza, Greenwich, Connecticut 06830.
(6) Includes options granted under the Stock Incentive Plan and the
Director Plan to purchase the following number of shares held by the
following individuals, which options are currently exercisable or will
become exercisable within 60 days of February 20, 1998: Mr. Auth
(521,009), Mr. Brunius (210,318), Mr. Briskey (90,000), Mr. Hurst
(24,000), Mr. McDowell (7,500), Mr. Ahn (7,500), Mr. Lewis (7,500), Mr.
Ughetta (7,500), Mr. Barry (7,500), Mr. Grothe (4,400), and other
executive officers as a group, 4 persons (16,750). The business address
of Mr. Auth is Interactive Technologies, Inc., 2266 North Second
Street, North St. Paul, Minnesota 55109.
(The remainder of this page was intentionally left blank)
<PAGE>
PROPOSALS TO BE ACTED UPON AT THE ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
The Bylaws of the Company provide that the number of directors may be set by the
Board of Directors at any time but may not be fewer than three nor more than
nine. The Board has set the number of directors at no fewer than six nor more
than eight.
It is the recommendation of the Company's Board of Directors that the six
nominees named below be elected as directors, to serve as directors until the
next annual meeting of the stockholders and until their successors shall be duly
elected and qualified as directors. The Board may appoint up to two additional
members to the Board if individuals qualified to serve as directors are found
and agree to serve.
Unless otherwise directed, the proxies solicited by the Board of Directors will
be voted in favor of the nominees named below. However, in the event of the
inability or unwillingness of one or more of these nominees to serve as a
director at the time of the Annual Meeting or any adjournments thereof, the
shares represented by the proxies will be voted in favor of the remainder of
such nominees and may also (in the discretion of the holders of said proxies) be
voted for other nominees not named herein, in lieu of those unable or unwilling
to serve. As of the date hereof, the Board of Directors knows of no nominee who
is unable or unwilling to serve.
All of the nominees of the Board of Directors are presently serving as directors
of the Company. The names, ages and tenure of all six nominees are as follows:
Ages Director Since
---- --------------
Thomas L. Auth 53 1992
W. Wallace McDowell, Jr. 61 1992
William C. Ughetta, Jr. 37 1992
Perry J. Lewis 60 1992
Sangwoo Ahn 59 1992
Walter R. Barry, Jr. 64 1995
STOCKHOLDER APPROVAL
The affirmative vote of a plurality of the voting power of the shares present in
person or by proxy at the Annual Meeting and entitled to vote (assuming a quorum
is present) is required to elect each director.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF
THE SIX NOMINEES FOR THE BOARD OF DIRECTORS SET FORTH ABOVE.
<PAGE>
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS
The following discussion sets forth certain information regarding the nominees
for the Board of Directors of the Company.
THOMAS L. AUTH has been an executive officer of Interactive Technologies, Inc.,
a wholly-owned subsidiary of the Company ("INTERACTIVE TECHNOLOGIES"), since
1981 and its President since 1983. He has been President and Chief Executive
Officer of the Company since March 1993 and a director since May 1992. Mr. Auth
was appointed Chairman of the Board of Directors of the Company on April 1,
1997. Mr. Auth is currently a director, Chief Executive Officer and President of
Interactive Technologies, a director of CADDX Controls, Inc., a wholly owned
subsidiary of the Company ("CADDX"), a director and President and Treasurer of
ITI International, Inc., a wholly owned subsidiary of Interactive Technologies
("ITI INTERNATIONAL"), and a director and Chief Executive Officer of ITI Finance
Corporation, a wholly owned subsidiary of Interactive Technologies ("ITI
FINANCE"). Mr. Auth also is a director of Ergodyne Corporation, EH Publishing,
Inc., and Vomela Specialty Company, which are privately-held companies. He has
served as the Treasurer and a Board member of the Security Industry Association
and is also a certified public accountant.
W. WALLACE MCDOWELL, JR. has been a director of the Company since May 1992 and
served as Chairman of the Board of Directors from May 1992 to April 1997. On
November 1, 1994, he became a private investor. From 1991 until November 1,
1994, he was a Managing Director of Morgan Lewis Githens & Ahn ("MLG&A"), a
privately-owned international investment banking and leveraged buyout firm which
was founded in 1982. From 1983 until January 1991, Mr. McDowell was Chairman and
Chief Executive Officer of the Prospect Group, Inc., which was founded as a
private venture capital company and evolved into a diversified leveraged
acquisition company. Mr. McDowell is a director of U.S. HomeCare, Inc. and
Children's Discovery Centers of America, which are publicly-held companies. He
is also a director of Jack Morton Productions, a privately-held company, and a
trustee of Excelsior Funds, a group of mutual funds registered under the
Investment Company Act of 1940, as amended.
WILLIAM C. UGHETTA, JR. has been a director of the Company since February 1992
and an officer since March 1992. Mr. Ughetta currently serves as Assistant
Secretary of the Company. In December 1997, Mr. Ughetta became a Managing
Director of Long Point Capital, Inc., a private equity investment firm. From
January 1994 through December 1996, Mr. Ughetta was a general partner of MLG&A
and MLGAL Partners, L.P. MLGAL Partners, L.P. is the general partner of MLGA
Fund II, L.P. Mr. Ughetta joined both MLG&A and MLGAL Partners as Vice President
in October 1990 and became a managing director of both entities in January 1994.
Currently, Mr. Ughetta is a managing director of MLG&A and MLGAL Partners, L.P.
and is also a director of Gradall Industries, Inc., a publicly-held company.
PERRY J. LEWIS has been a director of the Company since May 1992 and was
President from May 1992 until March 1993. Mr. Lewis was a founding partner of
MLG&A and has served as a partner of that firm since 1982. He has been a general
partner of MLGAL Partners, L.P. since April 1987. Mr. Lewis is a director of Aon
Corporation, Chancellor Media Corporation, Stuart Entertainment, Inc., and
Gradall Industries, Inc., which are publicly-held companies.
SANGWOO AHN has been a director of the Company since May 1992. He is a founding
partner of MLG&A and has served since April 1982 as a partner of that firm. He
has been a general partner of MLGAL Partners, L.P., since April 1987. Mr. Ahn is
also a director of Kaneb Pipe Line Partners, L.P., Kaneb
<PAGE>
Services, Inc., PAR Technologies, Inc., Stuart Entertainment, Inc., Quaker
Fabric Corporation, and Gradall Industries, Inc., which are publicly-held
companies.
WALTER R. BARRY, JR. has been a director of the Company since February 1995. Mr.
Barry is a director of Old Country Buffets, Inc., a publicly-held company, and
he also serves as a director of Diamond Brands Inc. and Tru-Stone Corp., which
are privately-held companies. Until January 1, 1988, Mr. Barry served as an
Executive Vice President of General Mills, Inc., a manufacturer and marketer of
consumer foods.
BOARD ACTIONS AND COMMITTEES
During the fiscal year ended December 31, 1997, the Board of Directors held five
formal meetings and twice adopted written actions in lieu of a meeting. Board
members also met informally during the year to discuss various aspects of the
business affairs of the Company.
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified or until their earlier
death, resignation or removal from office. The officers of the Company are
appointed by the Board of Directors and hold office until their successors are
chosen and qualified or until their earlier death, resignation, or removal from
office.
The Compensation Committee of the Board of Directors for 1997 and 1998 consisted
of and consists of Thomas L. Auth, W. Wallace McDowell, Jr., and Perry J. Lewis.
Messrs. McDowell and Lewis are nonemployee directors of the Company and
constitute the members of the Sub-Committee of the Compensation Committee (the
"SUB-COMMITTEE") that administer certain aspects of the Stock Incentive Plan.
The Compensation Committee makes recommendations to the Board regarding the
compensation of executive officers, and the Compensation Committee and
Sub-Committee administer the Company's Stock Incentive Plan. The Compensation
Committee adopted a written action in lieu of a meeting once during 1997.
The Audit Committee of the Board of Directors for 1997 and 1998 consisted of and
consists of W. Wallace McDowell, Jr., William C. Ughetta, Jr., and Walter R.
Barry, Jr., all of whom are nonemployee directors of the Company. The Audit
Committee annually recommends the independent accountants for appointment by the
Board of Directors and ratification by the stockholders, reviews the services to
be performed by the independent accountants, and receives and reviews the
reports submitted by them. The Audit Committee held one meeting during 1997.
The Board of Directors has no nominating committee.
No member of the Board of Directors attended less than 75% of the aggregate of
(i) the total number of meetings of the Board of Directors and (ii) the total
number of meetings held by all committees of the Board on which he served.
COMPENSATION OF DIRECTORS
FEES AND REIMBURSEMENT OF EXPENSES
Effective in 1995, the Company's Board of Directors authorized payment to all
nonemployee directors who are not affiliated with MLG&A of a $12,000 per year
fee, a fee of $750 per meeting attended of the Board of Directors or a Committee
of the Board of which they are members, and the reimbursement of all
out-of-
<PAGE>
pocket expenses incurred by them in attending meetings of the Board or
Committees of the Board. Nonemployee directors who are affiliated with MLG&A are
reimbursed for all out-of-pocket expenses incurred by them in attending meetings
of the Board or Committees of the Board. The Company's nonemployee directors who
are not affiliated with a major stockholder of the Company now consist of W.
Wallace McDowell, Jr. and Walter R. Barry, Jr. The other nonemployee directors
now consist of Perry J. Lewis, Sangwoo Ahn and William C. Ughetta, Jr. In 1997,
directors' fees of $15,750 were paid to both Mr. McDowell and Mr. Barry.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
The following description of the Nonemployee Director Stock Option Plan (the
"DIRECTOR PLAN") is qualified in its entirety by reference to the text of the
Director Plan.
The Director Plan is administered by the Board of Directors, which may delegate
its authority to a committee of the Board. Except for decisions regarding who is
eligible to participate in the Director Plan, the number of shares subject to
options granted under the Director Plan, and the exercise price and term of such
options (which are determined pursuant to a formula set forth in the Director
Plan, as described below), the Board of Directors makes any determinations
necessary or advisable for the administration of the Director Plan consistent
with its terms, including when and the terms under which the options will vest.
The Director Plan currently provides for the grant of its options to acquire up
to 75,000 shares of the Company's Common Stock, and a total of 75,000 shares has
been reserved by the Board of Directors for issuance pursuant to options granted
under the Director Plan. As of February 20, 1998, no shares were subject to
outstanding options, and 75,000 shares were available for future grants of
options under the Director Plan. Only directors that are not employees of the
Company, Interactive Technologies, or any other subsidiary of the Company
("NONEMPLOYEE DIRECTORS") are eligible to receive options under the Director
Plan. A Nonemployee Director, upon becoming a director of the Company, is
automatically granted under the Director Plan an option to purchase 7,500 shares
of Common Stock at an exercise price equal to the "Fair Market Value" of the
Common Stock on the date of grant, as the term "Fair Market Value" is defined in
the Director Plan. Options granted under the Director Plan vest as determined by
the Board of Directors at the time of grant. The Board of Directors, in its sole
discretion, may permit a participant under the Director Plan to surrender to the
Company shares of Common Stock previously acquired by the participant as part or
full payment for the exercise of a stock option, and such surrendered shares
would be valued at their Fair Market Value on the date of exercise. Options
granted under the Director Plan are not intended to be "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "CODE").
The Director Plan terminates on February 2, 2005, and no options may be granted
under the Plan after such date.
Effective February 3, 1995, and as approved by the Company's stockholders at the
annual meeting of stockholders held on May 10, 1995, Messrs. McDowell, Lewis,
Ahn, Ughetta and Barry, as Nonemployee Directors of the Company, each was
granted under the Director Plan a non-qualified option to purchase 7,500 shares
of Common Stock at an exercise price of $25.88 per share, which was the "Fair
Market Value" of the Common Stock on such date as defined in the Director Plan
(consisting of the officially quoted closing price on the date of grant). The
options granted on February 3, 1995, became exercisable to the extent of
one-third of the number of shares underlying each option (or 2,500 shares) on
the date of grant of the options and on the first and second anniversary dates
of the grant of the options. Therefore, as of February 3, 1997, each such option
was exercisable to the extent of 7,500 shares.
<PAGE>
The stated purpose of the Director Plan is to advance the interests of the
Company through the motivation, attraction and retention of its Nonemployee
Directors. In light of this purpose and the substantial reduction in the market
value of the Company's Common Stock following the November 15, 1996,
announcement by the Company that it had received notice from its largest
customer, ADT Security Systems, Inc. ("ADT"), stating that ITI was not then
included in ADT's future strategic product planning and should anticipate a
reduction in purchase orders from ADT during the first quarter of 1997, the
Board of Directors approved on May 22, 1997, the cancellation of options awarded
to date under the Director Plan and the replacement of such options with options
under the Stock Incentive Plan with an exercise price equal to the market value
of the Common Stock of the Company on the close of business on May 22, 1997,
which was $16.00. The Board amended the Stock Incentive Plan to allow awards
thereunder to be made to Nonemployee Directors of the Company, as well as
employees, so that newly issued options under the Stock Incentive Plan could be
exchanged for all options outstanding under the Director Plan as of May 22,
1997. See "Executive Compensation -- Report of the Compensation Committee --
1997 Option Replacement/Repricing."
PROPOSAL 2
AMENDMENT TO LONG-TERM STOCK INCENTIVE PLAN (1992)
On May 11, 1992, in connection with the acquisition of Interactive Technologies
by the Company, the Company's Board of Directors and stockholders approved the
Stock Incentive Plan. The Stock Incentive Plan permits the granting of awards to
employees and nonemployee directors of the Company or its subsidiaries in the
form of stock options, restricted stock, restricted stock units, and stock
appreciation rights (collectively, "AWARDS"). Stock options granted under the
Stock Incentive Plan are intended to be non-qualified options not meeting the
requirements of Section 422 of the Code.
The Stock Incentive Plan is intended to assist the Company in hiring and
retaining well-qualified employees and directors by allowing them to participate
in the ownership and growth of the Company through the grant of Awards.
Management feels that the granting of Awards under the Stock Incentive Plan will
serve as partial consideration for, and give key employees an additional
inducement to, remain in the service of the Company and provide them with an
increased incentive to work for the Company's success.
On January 20, 1998, the Company's Board of Directors adopted a proposed
amendment to the Company's Stock Incentive Plan, which amendment is to be
considered by the Company's stockholders at the Annual Meeting. The proposed
amendment is to increase the total number of shares of Common Stock for which
Awards may be granted under the Stock Incentive Plan from 2,000,000 to
2,500,000.
The Board believes that the additional stock options would, among other things,
promote the interests of the Company and its shareholders by assisting the
Company in attracting, retaining and stimulating the performance of officers,
key employees and directors. The Board believes that the existing options have
contributed substantially to the successful achievement of the above objectives
and the granting of stock options for these purposes is comparable with other
high-tech companies. As of February 20, 1998, 1,959,409 Awards of options on
shares (excluding Awards that have been forfeited and canceled, which are
available for reissue) had been granted and 1,360,787 shares remained subject to
outstanding options. Of the 1,959,409 options granted under the Stock Incentive
Plan, an aggregate of 870,109 options were issued prior to the Company's initial
public offering on November 22, 1994. Of the 870,109 options issued prior to the
Company's initial public offering, 625,700 were issued in 1992 in connection
with the acquisition of Interactive Technologies by the Company.
<PAGE>
The following discussion of the principal features and effects of the Stock
Incentive Plan is qualified in its entirety by reference to the text of the
Stock Incentive Plan.
ADOPTION OF STOCK INCENTIVE PLAN
The Stock Incentive Plan was approved by the Company's Board of Directors and
stockholders on May 11, 1992. Options granted under the Stock Incentive Plan are
not intended to qualify as incentive stock options within the meaning of Section
422 of the Code.
ADMINISTRATION
The Stock Incentive Plan is administered by the Compensation Committee of the
Board of Directors. In certain circumstances, however, the Sub-Committee makes
determinations regarding Awards granted under the Stock Incentive Plan.
The Stock Incentive Plan gives broad powers to the Compensation Committee and
Sub-Committee to administer and interpret the Stock Incentive Plan, including
the authority to select the individuals to be granted options and to prescribe
the particular form and conditions of each option granted. With respect to such
decisions regarding executive officers of the Company, the Sub-Committee now
consisting of W. Wallace McDowell, Jr. and Perry J. Lewis, both of whom are
nonemployee directors of the Company, makes decisions under and interprets the
Stock Incentive Plan. The Sub-Committee has authority to select the Company's
executive officers who will receive Awards and to determine the number and other
terms of such Awards. In all other cases, the Compensation Committee determines
the employees who will be granted Awards under the Stock Incentive Plan and,
subject to the provisions of the Stock Incentive Plan, determines the number of
shares subject to each Award and the terms thereof. In addition, and subject to
the authority of the Compensation Committee and Sub-Committee as discussed
above, the Board of Directors makes any other determinations necessary or
advisable for the administration of the Stock Incentive Plan consistent with its
terms. Determinations by the Board of Directors, the Compensation Committee or
Sub-Committee, as the case may be, are final and conclusive. Grants of Awards
and other decisions of the Board of Directors or the Compensation Committee or
Sub-Committee are not required to be made on a uniform basis.
The Stock Incentive Plan provides that each Award granted thereunder shall be
evidenced in writing and that the writing shall be delivered to the participant
and shall specify the terms and conditions of the Stock Incentive Plan and any
rules applicable thereto, including the effect on such Award of the death,
retirement or other termination of employment of the participant and the effect
thereon, if any, of a change in control of the Company.
SHARES SUBJECT TO STOCK INCENTIVE PLAN
The Stock Incentive Plan currently provides for the grant of Awards to acquire
up to 2,000,000 shares of the Company's Common Stock. As of February 20, 1998,
1,379,027 shares were subject to outstanding options and 40,591 shares were
available for future grants of Awards under the Stock Incentive Plan. The shares
to be issued pursuant to Awards granted under the Stock Incentive Plan are
currently authorized but unissued shares. The number of shares of the Company's
Common Stock available under the Stock Incentive Plan and purchasable pursuant
to Awards issued under the Stock Incentive Plan may be adjusted to prevent
dilution in the event of a stock split, combination of shares, stock dividend or
certain other similar events.
<PAGE>
ELIGIBILITY
The Company's Board of Directors, Compensation Committee or Sub-Committee, as
the case may be, is authorized to grant Awards under the Stock Incentive Plan
only to Nonemployee Directors of the Company or employees of the Company,
Interactive Technologies, CADDX and any other subsidiary of the Company who, in
the opinion of the Compensation Committee or Sub-Committee, have the capacity
for contributing in a substantial measure to the successful performance of the
Company.
TERMS OF AWARDS
OPTIONS
Upon the grant of an option under the Stock Incentive Plan, the Compensation
Committee or Sub-Committee (as the case may be) determines the terms of the
option, including the number of shares of the Company's Common Stock that may be
purchased upon exercise of the option, the exercise price at which the shares
may be purchased upon exercise of an option, and the conditions and limitations
applicable to the exercise of the option. However, no option may be exercisable
after the expiration of ten years from the date of grant. Upon exercise of any
option, payment may be made in cash or its equivalent, or, if and to the extent
permitted by the Compensation Committee or Sub-Committee, by exchanging shares
of Common Stock owned by the optionee (which are not the subject of any pledge
or other security interest), or by a combination of the foregoing, but only if
the combined value of all cash and cash equivalents and the fair market value of
any such Common Stock so tendered to the Company, valued as of the date of such
tender, is at least equal to the exercise price of the Option. All options
granted under the Stock Incentive Plan are non-transferable and non-assignable
except by will or the laws of descent and distribution and may be exercised
during the lifetime of the optionee only by the optionee. Upon an optionee's
death, such optionee's options pass by will or the laws of descent and
distribution and may be exercised by the optionee's personal representative,
distributees or legatees but only to the extent that the options could have been
exercised by the optionee at the date of his or her death.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
The Stock Incentive Plan authorizes the grant thereunder of restricted shares of
Common Stock ("RESTRICTED STOCK") contingently granted to a participant under
the Stock Incentive Plan and restricted stock units ("RESTRICTED STOCK UNITS")
contingently awarded under the Stock Incentive Plan. As of February 20, 1998, no
Awards of Restricted Stock or Restricted Stock Units had been granted or were
outstanding. The Compensation Committee or the Sub-Committee (as the case may
be) has the sole and complete authority to determine the employees to whom
shares of Restricted Stock and Restricted Stock Units shall be granted, the
number of shares of Restricted Stock and the number of Restricted Stock Units to
be granted to each participant, the duration of the period during which, and the
conditions under which, a grant of Restricted Stock or Restricted Stock Units
may be forfeited to the Company ("RESTRICTION PERIOD"), and the other terms and
conditions of such Awards. However, the Restriction Period must consist of at
least one year (which may be shortened or waived by the Compensation Committee
or Sub-Committee at any time in its discretion) with respect to one or more
participants or Awards outstanding.
Restricted Stock Units and shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Restriction Period.
Certificates issued evidencing shares of Restricted Stock are to be registered
in the name of the participant and deposited by such participant, together with
a stock power endorsed in blank, with the Company. At the expiration of the
Restriction Period, the Company is to deliver such certificates to the
participant or the participant's legal representative. Payment
<PAGE>
for Restricted Stock Units is to be made to the Company in cash or shares of
Common Stock, as determined at the sole discretion of the Compensation Committee
or Sub-Committee.
STOCK APPRECIATION RIGHTS
The Stock Incentive Plan provides for the grant to employees of stock
appreciation rights ("STOCK APPRECIATION RIGHTS"), which entitle the recipient
thereof to receive an amount of cash equal to the excess, if any, of the "Fair
Market Value" (as the term "Fair Market Value" is defined in the Stock Incentive
Plan) of a share of Common Stock upon the exercise of the Stock Appreciation
Right (or such other date specified by the Compensation Committee or
Sub-Committee at the time of grant) over the exercise price thereof. As of
February 20, 1998, no Awards of Stock Appreciation Rights were outstanding. The
Stock Incentive Plan grants to the Compensation Committee or Sub-Committee sole
and complete authority to grant Stock Appreciation Rights in tandem with or in
addition to an option granted under the Stock Incentive Plan, or as freestanding
and unrelated to an option. Stock Appreciation Rights granted in tandem with or
in addition to an option may be granted either at the same time as the option or
at a later time.
Stock Appreciation Rights are not exercisable earlier than six months after
grant, are not exercisable after the expiration of ten years from the date of
grant, and must have an exercise price of not less than 100% of the Fair Market
Value of the Common Stock on the date of grant.
EFFECT OF CERTAIN CORPORATE EVENTS, INCLUDING REORGANIZATION
Under the Stock Incentive Plan, if the Compensation Committee or Sub-Committee
shall determine that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
corporate event, affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Stock Incentive Plan, the Compensation Committee or
Sub-Committee, in its sole discretion, and in such manner as it shall deem
equitable, may adjust any or all of (i) the number and kind of shares which
thereafter may be awarded or optioned and sold under the Stock Incentive Plan,
(ii) the number and kind of shares subject to outstanding Awards, and (iii) the
grant, exercise or conversion price with respect to any of the foregoing and/or,
if deemed appropriate, make provision for a cash payment to a participant or a
person who has an outstanding Award; provided, however, that the number of
shares subject to any Award shall always be a whole number.
TERMINATION AND AMENDMENT
The Stock Incentive Plan terminates on May 10, 2002, and no options or other
Awards may be granted under the Stock Incentive Plan after that date.
The Compensation Committee may amend, modify or terminate any outstanding Award
with the participant's consent at any time prior to payment or exercise in any
manner not inconsistent with the terms of the Stock Incentive Plan, including,
without limitation, (i) to change the date or dates as of which an option
becomes exercisable or Restricted Stock becomes nonforfeitable, or (ii) to
cancel and reissue an Award under such different terms and conditions as it
determines appropriate. In addition, the Compensation Committee may amend the
Stock Incentive Plan in such manner as may be necessary so as to have the Stock
Incentive Plan conform with local rules and regulations.
<PAGE>
The Board of Directors may amend, suspend or terminate the Stock Incentive Plan
or any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with any
tax or regulatory requirement.
FEDERAL INCOME TAX CONSEQUENCES
The following description is a general summary of the current federal income tax
provisions relating to the grant and exercise of Awards under the Stock
Incentive Plan. The provisions summarized below are subject to changes in
federal income tax laws and regulations, and the effects of such provisions may
vary with individual circumstances.
OPTIONS
The options granted under the Stock Incentive Plan are not intended to be
"incentive stock options" within the meaning of Section 422 of the Code. Upon
the grant of an option under the Stock Incentive Plan, no taxable income is
recognized by the optionee, and there is no concomitant expense deductible by
the Company.
Upon the exercise of an option granted under the Stock Incentive Plan, the
difference between the fair market value of the shares on the date of exercise
and the lower option price is taxable to the optionee as ordinary income,
generally is deductible by the Company, and is added to the optionee's basis in
the Common Stock purchased upon exercise of the option. More complex rules apply
in determining basis if the optionee is permitted to use previously acquired
Common Stock to pay all or part of the exercise price of an option granted under
the Stock Incentive Plan. A recipient who surrenders Common Stock (if permitted
to do so by the Compensation Committee) in payment of all or part of the
exercise price will not recognize gain or loss with respect to the surrendered
shares. Upon the exercise of an option granted under the Stock Incentive Plan,
the difference between the fair market value at the date of exercise and the
exercise price will be an item of tax preference for purposes of calculating the
option holder's alternative minimum tax which, under certain circumstances,
could cause an increased tax liability as a result of the exercise.
Upon the sale of shares of Common Stock acquired upon the exercise of an option
granted under the Stock Incentive Plan, the optionee recognizes a capital gain
or loss to the extent of the difference between the optionee's basis in the
shares and the sale price of the shares, and there is no tax consequence to the
Company.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
A recipient of Restricted Stock or Restricted Stock Units normally will not
recognize taxable income at the time Restricted Stock or Restricted Units are
granted, unless rights to all or part of the Restricted Stock or Restricted
Stock Units are immediately vested and are not subject to Section 16(b) of the
Securities Exchange Act of 1934. Thereafter, the recipient will recognize
ordinary income as the restrictions lapse. The amount of such ordinary income
will be equal to the market value of the Restricted Stock or Restricted Stock
Units (in excess of any amount paid by the recipient) at the time of the lapse.
However, the recipient may elect under Section 83(b) of the Code to recognize
ordinary income in an amount equal to the market value of the Restricted Stock
or Restricted Stock Units (in excess of any amount paid by the recipient) at the
time the Restricted Stock or Restricted Stock Units are granted. Upon a
subsequent sale, a change in the value of the Restricted Stock or Restricted
Stock Units would be treated as capital gain or loss. The
<PAGE>
Company or its appropriate subsidiary will generally be allowed an income tax
deduction equal to the ordinary income recognized by the recipient.
STOCK APPRECIATION RIGHTS
The recipient of a Stock Appreciation Right will not recognize taxable income at
the time the Stock Appreciation Right is granted, nor will the Company or any of
its subsidiaries be entitled to a tax deduction at that time. Upon exercising a
Stock Appreciation Right, the recipient will recognize ordinary income on the
exercise date in an amount equal to any cash received. The Company will
generally be allowed an income tax deduction equal to the ordinary income
recognized by the recipient.
WITHHOLDING
The Company or its appropriate subsidiary is required to withhold tax on
ordinary income recognized by participants in connection with the exercise of
options and Stock Appreciation Rights granted under the Stock Incentive Plan and
in connection with the vesting of Restricted Stock or Restricted Stock Units.
The amounts withheld may significantly reduce or eliminate amounts otherwise
payable to participants with respect to salaries, bonuses and other employee
compensation. Further, the Company may require the participant to remit to the
Company an amount sufficient to satisfy any applicable withholding requirement
prior to the delivery of any shares of Common Stock.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the voting power of the shares present
either in person or by proxy at the Annual Meeting and entitled to vote
(assuming a quorum is present) is required to approve the amendment to the Stock
Incentive Plan.
The Company's Board is not required to submit the proposed amendment to the
Stock Incentive Plan to the approval of the stockholders. The approval by the
Company's stockholders of the amendment to the Stock Incentive Plan increasing
the number of shares for which options may be granted appears to be one of the
requirements to have the Company's Common Stock quoted on The Nasdaq National
Market. Assuming that stockholder approval of the amendment to the Stock
Incentive Plan is required by the rules of The Nasdaq Stock Market, failing to
obtain such approval ultimately could result in the Common Stock being sold on
the over-the-counter market, which probably would result in less liquidity for
the Common Stock. Accordingly, if the stockholders do not approve the proposed
amendment to the Stock Incentive Plan, the amendment will not be adopted.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE STOCK INCENTIVE PLAN SET FORTH ABOVE.
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
On March 10, 1998, and subject to the ratification of the holders of the
Company's Common Stock, Coopers & Lybrand L.L.P., who have been the Company's
accountants since 1992, was selected by the Company's Board of Directors as the
independent accountants to audit the Company's consolidated financial statements
for the year ending December 31, 1998. If the holders of the Common Stock do not
ratify the selection of Coopers & Lybrand L.L.P., other independent accountants
will be considered and
<PAGE>
selected by the Board of Directors. All proxies received in response to this
solicitation will be voted in favor of the ratification of the appointment of
Coopers & Lybrand L.L.P. as the Company's independent accountants, unless other
instructions are indicated thereon.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
Annual Meeting and will have the opportunity to make a statement, if they desire
to do so, and will be available to respond to appropriate questions.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the voting power of the shares present in
person or by proxy at the Annual Meeting and entitled to vote (assuming a quorum
is present) is required to ratify the appointment of Coopers & Lybrand L.L.P. as
the independent accountants for the Company for the year ending December 31,
1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE INDEPENDENT
ACCOUNTANTS SET FORTH ABOVE.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Recommendations regarding compensation paid to the Company's executive officers
in 1997 were made to the Board of Directors by a Compensation Committee
consisting of Thomas L. Auth, W. Wallace McDowell, Jr. and Perry J. Lewis;
Messrs. McDowell and Lewis are nonemployee directors of the Company. Mr. Auth is
Chairman of the Board of Directors, Chief Executive Officer and President of the
Company.
INFORMATION REGARDING CERTAIN EXECUTIVE OFFICERS
THOMAS L. AUTH -- See Proposal 1 -- "Election of Directors -- Information
Regarding Nominees for Election as Directors."
CHARLES E. BRISKEY has been employed by Interactive Technologies in various
capacities since July 1981. Mr. Briskey has served as Vice President, Operations
of Interactive Technologies since July 1985. He has been an executive officer of
the Company since March 1993. He has been a Senior Vice President of the Company
since March 1996 and Treasurer of the Company since March 1993. He also serves
as a director and Vice President and Secretary of ITI International.
ROBERT E. BRUNIUS has been employed by Interactive Technologies in engineering
activities since August 1981. Mr. Brunius has served as Vice President,
Engineering of Interactive Technologies since May 1984. He has been an executive
officer of the Company since September 1994. He has been a Senior Vice President
of the Company since March 1996.
JOE HURST has been employed by CADDX since 1986 and has been President and a
director of CADDX since 1987. Mr. Hurst has been a Senior Vice President of the
Company since May 22, 1997. Mr. Hurst
<PAGE>
served as President of the Security Industry Association from 1993 to 1995 and
currently serves as a Vice President, a director and Chairman of the Strategic
Planning Committee for that trade association.
CHARLES A. DURANT has been an employee of the Company and Interactive
Technologies since January 1996. He became Secretary of the Company in March
1996 and was appointed Vice President, General Counsel and Secretary of the
Company in May 1997. Mr. Durant also serves as Vice President, General Counsel
and Secretary of Interactive Technologies, a director, Secretary and Treasurer
of CADDX, and a director, President and Secretary of ITI Finance. From September
1989 until January 1996, he was an attorney at Winthrop & Weinstine, P.A., which
provides legal services to the Company. Prior to entering the legal profession,
he held various accounting positions with Honeywell Inc. Mr. Durant also serves
as a director of Coffee House Press, a private Minnesota nonprofit corporation.
JACK A. REICHERT joined Interactive Technologies in February 1991 as Controller
and became an executive officer of the Company in September 1994. He now serves
as Vice President, Finance of the Company. Mr. Reichert also serves as Vice
President, Finance and Administration of Interactive Technologies and a
director, Vice President and Treasurer of ITI Finance. From May 1990 until
February 1991, he was Controller at American Coating Technology, Inc., a paper
coating concern. From 1983 until May 1990, Mr. Reichert held various accounting
positions with Donaldson Company, Inc., a multinational manufacturer of
filtration products and accessories. He is also a certified public accountant.
DUANE PAULSON has been Vice President, Marketing of Interactive Technologies
since March 1996 and has been employed in various marketing positions at
Interactive Technologies since 1991. From August 1988 to March 1991, he was a
management consultant to member utilities while on the staff of the National
Rural Electric Cooperative Association. From March 1980 to August 1988, he held
various marketing and public relations positions with United Power Association,
a Minnesota utility.
REED G. GROTHE has been Vice President, Sales of Interactive Technologies since
March 1996 and has been employed at Interactive Technologies since February
1995. He was Executive Vice President, Sales and Administration for General
Office Products Company, a regional distributor of office equipment, supplies
and furnishings, from June 1990 to February 1995. From 1986 to 1989, he was
President of Executone of Minnesota, a regional distributor of telephone and
hospital communication systems.
GERALD U. KLASEN has been Vice President, International and Commercial Sales of
Interactive Technologies since March 1997. From 1977 to 1997, he held various
executive positions with Swiss Industrial Group (SIG), Neuhausen, Switzerland.
SIG is an international manufacturer and marketer of sophisticated plant
automation equipment. Positions held were Vice President Sales and marketing,
SIG North America, Vice President Sales and Marketing, Doboy Division, and Vice
President positions in administration and human resources.
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<PAGE>
EXECUTIVE COMPENSATION PROGRAM
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for 1995, 1996
and 1997 awarded to or earned by the Company's Chief Executive Officer and the
four other highest-compensated executive officers of the Company whose salaries
and bonuses exceeded $100,000 during 1997:
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Number of
Name and ------------------- Stock Options All Other
Principal Position Year Salary Bonus Granted(2) Compensation(3)
------------------ ---- ------ ----- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas L. Auth 1995 $300,000 $139,500(1) 160,000 $2,250
President and Chief 1996 325,000 156,500(1) 100,000 2,250
Executive Officer 1997 325,000 185,250(1) 100,000 2,400
Charles E. Briskey 1995 $140,000 $ 55,800(1) 55,000 $2,250
Senior Vice President 1996 150,000 57,600(1) 35,000 2,250
1997 150,000 68,400(1) 35,000 2,400
Robert E. Brunius 1995 $140,000 $ 55,800(1) 55,000 $2,250
Senior Vice President 1996 150,000 57,600(1) 35,000 2,250
1997 150,000 68,400(1) 35,000 2,400
Joe Hurst 1997(4) $116,659 $ 57,000(1) 24,000 $3,000
Senior Vice President
Reed G. Grothe 1995(5) $ 85,773 $ 10,850 7,000 $ ---
Vice President, Sales of 1996 110,000 14,300 5,500 1,039
Interactive Technologies 1997 115,000 13,375 10,000 1,947
</TABLE>
- ------------------
(1) Represents bonuses earned for the year shown in the table and paid in
the following year.
(2) Consists of non-qualified stock options granted under the Stock
Incentive Plan.
(3) Other compensation consists of matching contributions made by the
Company on behalf of each of the named individuals under its 401(k)
profit-sharing plans. Salary deferrals into the 401(k) plans are
included in the salary column.
(4) Mr. Hurst became an employee and executive officer of the Company upon
the acquisition of CADDX by the Company on April 30, 1997. Accordingly,
the salary and bonus for 1997 represents only a partial year.
(5) Mr. Grothe was hired by the Company on February 20, 1995. Accordingly,
the salary and bonus for 1995 represent only a partial year.
<PAGE>
STOCK OPTIONS
As of February 20, 1998, the Stock Incentive Plan provided for the grant of
Awards to acquire up to 2,000,000 shares of Common Stock. As of February 20,
1998, 1,360,787 Stock Options were outstanding under the Stock Incentive Plan,
consisting of 150,000 Series A Options, 1,100 Series B Options, 389,360 Series C
Options, 662,827 Series D Options, 120,000 Series E Options and 37,500 Series F
Options.
As of February 20, 1998, all Series A Options, Series B Options, Series D
Options, Series E Options and Series F Options were exercisable, and Series C
Options to purchase 92,380 shares of Common Stock were exercisable. The Company
has filed a Registration Statement on Form S-8 registering the resale of the
shares purchased upon the exercise of such options.
The following table sets forth information concerning individual grants of all
stock options made during the year ended December 31, 1997, to each of the
executive officers named in the Summary Compensation Table. Options described in
the table were granted under the Company's Stock Incentive Plan as part of an
overall incentive compensation program.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Percentage Value at Assumed
Number of of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Option Term(2)(3)
Options Employees Exercise Expiration -----------------------
Name Granted(1)(2) in 1997(2) Price Date 5% 10%
- ---- ------------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Auth 100,000 27% $14.125(4) 04/14/07 $888,314 $2,251,161
Charles E. Briskey 35,000 10% 14.125(4) 04/14/07 310,910 787,906
Robert E. Brunius 35,000 10% 14.125(4) 04/14/07 310,910 787,906
Joe Hurst 24,000 7% 14.875(4) 04/30/07 224,515 568,966
Reed G. Grothe 10,000 3% 14.125(4) 04/14/07 88,831 225,116
</TABLE>
- -----------------
(1) The Stock Options granted to Messrs. Auth, Briskey, Brunius and Hurst
are Series D Options, while the options granted to Mr. Grothe are
Series C Options. The terms of these Stock Options,
<PAGE>
including the conditions under which they become exercisable, are
described in "Election of Directors--Executive Compensation--Incentive
Compensation Program."
(2) The number of Stock Options granted does not include Stock Options
granted in previous years that were repriced or replaced in 1997. See
"Executive Compensation -- Option Repricing."
(3) Represents the potential net realizable value of each grant of Stock
Options assuming that the market price of the underlying Common Stock
appreciates in value from its fair market value on the date of grant to
the end of the option term at the indicated annual rates. The actual
value realized, if any, on Stock Option exercises will be dependent
upon overall market conditions and the future performance of the
Company and its Common Stock. There is no assurance that the actual
value realized will approximate the amounts reflected in this table.
(4) Represents the fair market value of the Common Stock at the date of
grant as determined by the Board of Directors.
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<PAGE>
The following information is furnished with respect to the exercise of Stock
Options during the year ended December 31, 1997, by the Company's executive
officers named in the Summary Compensation Table and the value at December 31,
1997, of unexercised Stock Options held by such individuals. All options were
granted under the Company's Stock Incentive Plan.
AGGREGATED OPTION EXERCISES IN 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised Options "In the Money" Options(2)
Shares Acquired Value ------------------------------ -------------------------
Name Upon Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Auth
Series A Options 15,000 $298,125 97,600 --- $1,634,800 $ ---
Series B Options --- --- --- --- --- ---
Series D Options --- --- 363,409 --- 2,811,192 ---
Series E Options --- --- 60,000 --- 315,000 ---
Charles E. Briskey $ --- $ ---
Series A Options --- $ --- --- --- ---
Series B Options --- --- --- --- ---
Series D Options 60,318 941,515 70,000 --- 450,625 ---
Series E Options --- --- 20,000 --- 105,000 ---
Robert E. Brunius
Series A Options --- $ --- 52,400 --- $ 877,700 $ ---
Series B Options --- --- 1,100 --- 15,675 ---
Series D Options --- --- 136,818 --- 1,135,508 ---
Series E Options --- --- 20,000 --- 105,000 ---
Joe Hurst
Series D Options --- $ --- 24,000 --- $ 183,000 ---
Reed G. Grothe
Series C Options --- $ --- --- 22,000 --- $139,250
</TABLE>
- ------------------
(1) These amounts represent the applicable number of shares underlying the
Stock Options multiplied by the result obtained by subtracting from the
fair market value of the Common Stock at the time of exercise the per
share exercise prices of the Stock Options.
(2) The amounts set forth represent the difference between the $21.75 per
share closing price of the Common Stock as quoted on The Nasdaq
National Market on December 31, 1997, and the exercise price of the
Stock Options, multiplied by the applicable number of shares underlying
the options.
EMPLOYMENT CONTRACTS
Messrs. Auth, Briskey, Brunius and Durant have entered into compensation
agreements with the Company which provide that their annual base salaries will
be not less than $300,000, $140,000, $140,000 and $100,000, respectively. Such
compensation agreements have no term and provide for severance pay in an amount
equal to six months' base salary if employment is terminated without cause.
These compensation
<PAGE>
agreements also provide that each executive officer is eligible for
discretionary incentive bonuses and is entitled to receive benefits that are
otherwise provided to employees and/or executives of the Company. As recipients
of Stock Options under the Stock Incentive Plan, each of the executive officers
is also subject to certain non-compete restrictions.
In connection with the April 30, 1997, acquisition of CADDX, Mr. Hurst entered
into a one-year employment agreement with CADDX, which provides that his annual
base salary will be $175,000 and that he will be eligible for discretionary
bonus compensation in such amounts as determined from time to time by the Board
of Directors. Subsequent to the initial one-year term of the agreement, CADDX
agreed that Mr. Hurst's annual base salary shall be not less than $175,000 and
he will be eligible for severance pay in an amount equal to six months' base
salary if employment is terminated without cause. Concurrent with execution of
his employment agreement, Mr. Hurst entered into a five-year non-competition
agreement with the Company. As a recipient of Stock Options under the Stock
Incentive Plan, Mr. Hurst is also subject to additional non-compete
restrictions.
INCENTIVE COMPENSATION PROGRAM
The principal components of the compensation for the Company's senior officers,
who are Messrs. Auth, Hurst, Briskey and Brunius (the "EXECUTIVE GROUP"), are
base salaries, cash bonuses and Stock Options. Since the acquisition of
Interactive Technologies by the Company in May 1992, the amount of the bonuses
and the vesting schedule for the Stock Options have been tied to the financial
performance of the Company according to a formula determined annually by the
Company's Board of Directors.
On May 5, 1997, the Sub-Committee approved the 1997 incentive compensation
program, consisting of the Executive Group Bonus Plan for Year Ended December
31, 1997 (the "BONUS PLAN"), and the Executive Group Employee Stock Options,
Series D, Acceleration Plan for the Year Ended December 31, 1997 (the
"ACCELERATION PLAN"). Messrs. Auth, Hurst, Briskey and Brunius each were
eligible for cash bonuses under the Bonus Plan, the amount of which was
dependent upon the Company's level of net sales and operating profit (before
amortization of intangible assets and before all bonuses awarded to the
Executive Group) in accordance with a formula approved by the Sub-Committee. As
part of the Acceleration Plan, on May 5, 1997, Messrs. Auth, Hurst, Briskey and
Brunius were granted by the Sub-Committee Series D Options for the purchase of
an aggregate of 194,000 shares of Common Stock. Under the Acceleration Plan,
currently issued, but not vested, prior issues of the Series D Options would
become vested and immediately exercisable in accordance with a formula adopted
and approved by the Sub-Committee. If the formula criteria were not met, the
Series D Options that did not become vested under the Acceleration Plan would
become vested on April 14, 2004. Under the Acceleration Plan, Series D Options
held by the following individuals to purchase the following number of shares of
Common Stock become vested and immediately exercisable as of January 1, 1998:
Mr. Auth (104,000 shares), Mr. Hurst (24,000 shares), Mr. Briskey (36,400
shares) and Mr. Brunius (36,400 shares). See "Election of Directors--Report of
the Compensation Committee."
On May 5, 1997, Mr. Grothe was granted by the Sub-Committee Series C Options for
the purchase of 10,000 shares of Common Stock. One-fifth of such options vest
each year on the anniversary date of the grant until they are fully vested on
the fifth such anniversary date.
On May 5, 1997, the Sub-Committee repriced all Series D and/or Series E Stock
Options held by Messrs. Auth, Briskey and Brunius that had an exercise price of
$22.56 or higher to provide for a new exercise price of $16.50 (which is $0.50
greater than the market value of the Common Stock of the Company as of the
<PAGE>
close of business on May 5, 1997) with all other terms and conditions contained
in such awards remaining unchanged. Additionally, all holders of Series C
Options with an exercise price of $22.75 or more were given the right to
exchange such Stock Options for new Stock Options in the identical number, but
with a new exercise price equal to the market value of the Common Stock as of
the close of business on January 28, 1997, and with five-year vesting commencing
January 28, 1997. On March 7, 1997, Mr. Grothe exchanged 7,000 Series C Options
with an exercise price of $23.75 (of which 2,800 would have become vested in
April 1997) and 5,000 Series C Options with an exercise price of $26.75 (of
which 1,000 would have become vested in May 1997) for 12,000 new options with an
exercise price of $16.50 with five-year vesting commencing January 28, 1997. See
"Report of the Compensation Committee--1997 Option Replacement/Repricing."
(The remainder of this page was intentionally left blank)
<PAGE>
OPTION REPRICING
The following table sets forth information concerning all repricings of stock
options held by any executive officer or director of the Company during the
period commencing November 22, 1994 (when the Company became a reporting company
pursuant to the Securities Exchange Act of 1934, as amended) and ending on
December 31, 1997.
<TABLE>
<CAPTION>
Ten-Year Option Repricing
-------------------------
Market Price
Number of of Stock at Exercise New Length of Original Option
Options Time of Price at Time Exercise Term Remaining at Date
Name Date Repriced Repricing of Repricing Price of Repricing
---- ---- -------- --------- ------------ ----- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Auth 05/05/97 100,000 $16.00 $23.75 $16.50 8 years, 3 months
Director, Chairman, 05/05/97 100,000 16.00 26.75 16.50 9 years, 4 months
CEO and President
Charles E. Briskey 05/05/97 31,500 16.00 23.75 16.50 8 years, 3 months
Senior Vice President 05/05/97 35,000 16.00 26.75 16.50 9 years, 4 months
and President
Robert E. Brunius 05/05/97 35,000 16.00 23.75 16.50 8 years, 3 months
Senior Vice 05/05/97 35,000 16.00 26.75 16.50 9 years, 4 months
President
Charles A. Durant 01/28/97 7,500 16.50 25.25 16.50 8 years, 11 months
Vice President, 01/28/97 2,000 16.50 26.75 16.50 9 years, 4 months
General Counsel and
Secretary
Jack A. Reichert 01/28/97 4,000 16.50 23.75 16.50 8 years, 3 months
Vice President, 01/28/97 2,000 16.50 26.75 16.50 9 years, 4 months
Finance
Reed G. Grothe 01/28/97 7,000 16.50 23.75 16.50 8 years, 3 months
Vice President, Sales 01/28/97 5,000 16.50 26.75 16.50 9 years, 4 months
of Interactive
Technologies
Duane Paulson 01/28/97 2,000 16.50 23.75 16.50 8 years, 3 months
Vice President, 01/28/97 3,000 16.50 26.75 16.50 9 years, 4 months
Marketing of
Interactive
Technologies
Sangwoo Ahn 05/22/97 7,500 16.00 25.88 16.00 2 years, 9 months
Director
Walter R. Barry, Jr. 05/22/97 7,500 16.00 25.88 16.00 2 years, 9 months
Director
<PAGE>
Ten-Year Option Repricing
-------------------------
Market Price
Number of of Stock at Exercise New Length of Original Option
Options Time of Price at Time Exercise Term Remaining at Date
Name Date Repriced Repricing of Repricing Price of Repricing
---- ---- -------- --------- ------------ ----- ----------------------
Perry J. Lewis 05/22/97 7,500 $16.00 $25.88 $16.00 2 years, 9 months
Director
W. Wallace 05/22/97 7,500 16.00 25.88 16.00 2 years, 9 months
McDowell, Jr.
Director
William C. 05/22/97 7,500 16.00 25.88 16.00 2 years, 9 months
Ughetta, Jr.
Director and
Assistant Secretary
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
For 1997 and 1998, the Compensation Committee of the Board of Directors
consisted and consists of Thomas L. Auth, W. Wallace McDowell, Jr., and Perry J.
Lewis. The Compensation Committee is responsible for assuring that compensation
for executives is consistent with the Company's compensation philosophy. The
Compensation Committee also administers and makes grants under the Company's
Stock Incentive Plan with respect to the Company's key employees, although the
Sub-Committee consisting of Messrs. McDowell and Lewis makes such determinations
under the Stock Incentive Plan with respect to the Company's executive officers.
EXECUTIVE COMPENSATION
The Company's policy with respect to the compensation of executive officers
includes the following beliefs:
1. The Company's compensation system should attract and retain
highly-qualified personnel.
2. Executive compensation should include a significant cash bonus
component, the amount of which should depend on the financial
performance of the Company and the attainment of an executive officer's
individual performance goals on behalf of the Company.
3. Executive compensation should also include a significant
incentive-based equity component in the form of options or other stock
awards.
The principal components of compensation for the Company's executive officers
are base salaries, cash bonuses, and Stock Options. The amounts of the annual
base salaries of the Company's executive officers named in the Summary
Compensation Table were based in part on information regarding the salaries of
executive officers of other companies of a similar size in the security
industry.
<PAGE>
The other two components of compensation for the Executive Group--cash bonuses
and Stock Options--are incentive based and closely tied to the financial
performance of the Company, as determined annually by the Company's Board of
Directors and the Sub-Committee, respectively. As previously described above in
"Executive Compensation -- Incentive Compensation Program," on May 5, 1997, the
Sub-Committee approved the 1997 Bonus Plan and Acceleration Plan, under which
the cash bonuses for 1997 were determined. The Sub-Committee determined the
grant and vesting of Stock Options for executive officers under the 1997 Bonus
Plan and Acceleration Plan.
In determining its recommendations for the 1997 Bonus Plan and Acceleration
Plan, the Compensation Committee took into account the overall financial
performance of the Company, the scope of responsibility of a particular
executive officer's position at the Company, and goals regarding the executive
officer's performance on behalf of the Company. All of these factors generally
were weighted equally by the Compensation Committee and the Board.
Messrs. Auth, Hurst, Briskey and Brunius were each eligible for cash bonuses
under the Bonus Plan, the amount of which was determined based on the level of
the Company's net sales and operating profit (before amortization of intangible
assets, before all bonuses awarded to salaried employees and before $5.8 million
of charges related to the acquisition of CADDX). The Bonus Plan for these four
individuals for the year ended December 31, 1997, specifies that, only if
certain levels of net sales and operating profits are achieved by the Company,
then these individuals will be eligible to receive bonuses, the amount of which
then is based on such levels of net sales and operating profit. No bonuses are
paid, and no Stock Options become vested on an accelerated basis, if the minimum
levels of net sales and operating profits are not reached by the Company.
As described above, the amount of compensation earned by the Executive Group,
including Mr. Auth, includes two significant incentive-based components, the
amounts of which are closely tied to the Company's financial performance. Based
upon the Company's 1997 net sales of $101 million and operating profit of $21.8
million (before amortization of intangible assets, before all bonuses awarded to
said officers, and before $5.8 million of charges relating to the acquisition of
CADDX), the executive officers named in the Summary Compensation Table who were
eligible under the Bonus Plan received an aggregate of $379,050 in bonuses for
1997 (paid in 1998).
As part of the Acceleration Plan, and as determined by the Sub-Committee, on May
5, 1997, Messrs. Auth, Hurst, Briskey and Brunius received Series D Options to
purchase an aggregate of 194,000 shares of Common Stock, none of which were then
exercisable. Under the Acceleration Plan, a Series D Option to purchase one
share of Common Stock becomes vested and exercisable as of a date determined by
the Sub-Committee. Therefore, effective as of January 1, 1998, Series D Options,
including Series D Options issued in prior years that have not previously been
accelerated by the Sub-Committee held by Messrs. Auth, Hurst, Briskey and
Brunius to purchase an aggregate of 200,800 shares of Common Stock, became
exercisable.
Thomas L. Auth, the only member of the Compensation Committee who is an officer
and employee of the Company, participates in the discussions of the Compensation
Committee of his compensation but does not determine the final recommendations
of the Compensation Committee to the Board regarding his compensation.
Recommendations regarding the compensation for Mr. Auth are made by the
nonemployee members of the Compensation Committee using a process and philosophy
similar to those used for all other executive officers. The nonemployee members
of the Compensation Committee, in making their recommendations regarding Mr.
Auth's compensation, consider, among other things, the overall performance of
the Company along with their own assessment of Mr. Auth's performance and
contributions to the Company. The Compensation Committee then includes Mr. Auth
in the Bonus Plan and Acceleration
<PAGE>
Plan, which are later considered by the Board of Directors. The Sub-Committee
(consisting of nonemployee members of the Compensation Committee) makes
decisions regarding the granting of options and other awards under the Stock
Incentive Plan to Mr. Auth and the other executive officers of the Company.
1997 OPTION REPLACEMENT/REPRICING
On November 14, 1996, without prior warning, ADT notified the Company that it
would be phasing out the Company as a supplier. No clear reason was ever given
for the decision. The unexpected news precipitated a significant decrease in the
market value of the Common Stock of the Company, which plunged from $30-1/8 to
$11-7/8 overnight. The Compensation Committee determined that the circumstances
surrounding ADT's decision were beyond the control of senior management.
In light of these circumstances, the Compensation Committee deemed it necessary
and desirable for the Company to reprice or exchange certain Stock Options held
by the Company's executive officers and certain other employees. The
Compensation Committee determined that this program was necessary because equity
incentives are a significant component of total compensation of each employee
and play a substantial role in the Company's ability to retain the services of
the individuals essential to the Company's long-term financial success. The
purpose of the Stock Incentive Plan is to promote the interests of the Company
and its stockholders by attracting and retaining executive personnel and other
key employees of outstanding ability and by enabling such employees to
participate in the long-term growth and success of the Company. The Compensation
Committee felt that the Company's ability to retain key employees would be
significantly impaired unless the value of such employees' Stock Options was
restored by repricing or replacing such Stock Options at the then-current market
price. The Compensation Committee noted that other companies in the technology
industry that had been confronted with this problem have made similar
adjustments in option prices to motivate and retain their employees. This is the
first time that the Compensation Committee has approved repricing of Stock
Options, and the Compensation Committee considers this an unusual event for the
Company.
On January 28, 1997, the Board of Directors approved a proposal to offer all
current employees of the Company or its subsidiaries who held Series C Options
as of January 28, 1997, with an exercise price of $22.75 or higher an exchange
of such Series C Options for new Series C Options with an exercise price equal
to the market value of the Common Stock of the Company as of the close of
business on January 28, 1997 ($16.50) with five-year vesting starting over as of
January 28, 1997. The vast majority of employees eligible for such an exchange
did in fact so exchange their Series C Options.
On May 5, 1997, the Sub-Committee repriced all Series D and/or Series E Stock
Options held by Messrs. Auth, Briskey and Brunius that had an exercise price of
$22.56 or higher to provide for a new exercise price of $16.50, with all other
terms and conditions contained in such Awards remaining unchanged.
On May 22, 1997, the Board of Directors approved the cancellation of options
awarded to date under the Director Plan and the replacement of such options with
Stock Options under the Stock Incentive Plan with an exercise price equal to the
market value of the Common Stock of the Company on the close of business on May
22, 1997, which was $16.00. The Board amended the Stock Incentive Plan to allow
Awards thereunder to be made to Nonemployee Directors of the Company, as well as
employees, so that newly issued Stock Options under the Stock Incentive Plan
could be exchanged for all options outstanding under the Director Plan as of May
22, 1997.
<PAGE>
The Compensation Committee believes that the lower exercise prices of the
regranted/repriced Stock Options make the Stock Options once again valuable to
the executive officers and key employees who are critical to the Company's
success. See "Executive Compensation -- Option Repricing" above for the table
setting forth information concerning any repricing of Stock Options held by any
executive officer or directors of the Company.
Members of the Compensation Committee:
Thomas L. Auth
W. Wallace McDowell, Jr.
Perry J. Lewis
(The remainder of this page was intentionally left blank)
<PAGE>
PERFORMANCE GRAPH
The Company's Common Stock has been traded on The Nasdaq National Market since
November 22, 1994. Prior to that date, there was no public market for the
Company's Common Stock. The following graph shows changes during the period from
November 22, 1994, to December 31, 1997, in the value of $100 invested in: (1)
the Company's Common Stock; (2) the Total Return Index for The Nasdaq Stock
Market (U.S.) compiled by the Center for Research in Securities Prices ("CRSP")
at the University of Chicago, Chicago, Illinois; and (3) the CRSP Total Return
Index for Nasdaq Non-Financial Stocks. The values of each investment as of the
dates indicated are based on share prices plus any dividends paid in cash, with
the dividends reinvested on the date they were paid.
The calculations exclude trading commissions and taxes.
[PLOT POINT GRAPH]
11/22/94 12/30/94 12/29/95 12/31/96 12/31/97
-------- -------- -------- -------- --------
Nasdaq (U.S.) $100.00 $101.58 $143.67 $176.70 $216.84
Nasdaq Non-Financial 100.00 101.42 141.35 171.76 201.56
ITI Technologies, Inc. 100.00 139.62 183.08 93.08 133.85
<PAGE>
OTHER BUSINESS
All items of business intended by management to be brought before the meeting
are set forth in this Proxy Statement, and management knows of no other business
to be presented. If other matters of business not presently known to the Board
of Directors shall be properly raised at the Annual Meeting, the persons named
as the proxies will vote on such matters in accordance with their best judgment.
FUTURE STOCKHOLDER PROPOSALS
Under the Securities Exchange Act of 1934, the stockholders of the Company have
certain rights to have stockholder proposals included within the Proxy Statement
of the Company for the Company's annual stockholders' meeting in 1999. Any
voting stockholder desiring to submit a proposal for consideration at the 1999
annual meeting should forward the proposal so that it will be received in the
Company's principal executive offices no later than December 5, 1998. Proposals
received by that date that are proper for consideration at the Annual Meeting
and otherwise conform to the rules of the Securities and Exchange Commission
will be included in the 1999 Proxy Statement. Due to the technical nature of the
rights of stockholders and the Company in this area, a stockholder desiring to
make a stockholder proposal should consider consulting his or her personal legal
counsel with respect to such rights.
FINANCIAL INFORMATION
The Company's 1997 Summary Annual Report to Stockholders and the Company's
Annual Report on Form 10-K, including, but not limited to, balance sheets as of
December 31, 1997, and 1996 and the statements of income, stockholders' equity
and cash flows for the years ended December 31, 1997, 1996 and 1995, accompany
these materials. A copy of the 1997 Summary Annual Report to Stockholders and a
copy of its Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission may be obtained without charge
upon written request to the Company. Requests should be directed to Kenneye
Thompson, ITI Technologies, Inc., 2266 North Second Street, North St. Paul,
Minnesota 55109.
By Order of the Board of Directors
/s/ Charles A. Durant
Dated: April 3, 1998 CHARLES A. DURANT
Secretary
<PAGE>
APPENDIX A
ITI TECHNOLOGIES, INC.
LONG-TERM STOCK INCENTIVE PLAN (1992)
(AMENDED AND RESTATED AS OF MAY 13, 1998)
Section 1. PURPOSE
The purposes of the ITI Technologies, Inc. Long-Term Stock Incentive
Plan (1992) (the "PLAN") are to promote the interests of ITI Technologies, Inc.
and its shareholders by attracting and retaining nonemployee directors,
executive personnel and other key employees of outstanding ability; and enabling
such directors and employees to participate in the long-term growth and
financial success of ITI Technologies, Inc.
Section 2. DEFINITIONS
"AWARD" shall mean a grant or award under SECTION 6, 7 or 8 of the
Plan, as evidenced in a written document delivered to a Participant as provided
in SECTION 9(B).
"BOARD OF DIRECTORS" shall mean the Board of Directors of the
Corporation.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITTEE" shall mean the Compensation Committee of the Board of
Directors and any sub-committee of the Compensation Committee designated by the
Board of Directors and/or the Compensation Committee.
"COMMON STOCK" or "STOCK" shall mean the Common Stock, $.01 par value,
of the Corporation.
"CORPORATION" shall mean ITI Technologies, Inc.
"DESIGNATED BENEFICIARY" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive amounts due the
Participant in the event of the Participant's death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean the
Participant's estate.
"EMPLOYEE" shall mean any key employee of the Employer.
"EMPLOYER" shall mean the Corporation and any Subsidiary.
"FISCAL YEAR" shall mean the fiscal year of the Corporation.
"NONEMPLOYEE DIRECTOR" shall mean a director of the Corporation who is
not also an employee of the Corporation.
<PAGE>
"OPTION" shall mean a stock option granted under SECTION 6 which is not
intended to be an incentive stock option within the meaning of Section 422 of
the Code.
"PARTICIPANT" shall mean an Employee and/or a Nonemployee Director who
is selected by the Committee to receive an Award under the Plan.
"RESTRICTION PERIOD" shall mean the period of years selected by the
Committee during which a grant of Restricted Stock or Restricted Stock Units may
be forfeited to the Corporation.
"RESTRICTED STOCK" shall mean shares of Common Stock contingently
granted to a Participant under SECTION 7 of the Plan.
"RESTRICTED STOCK UNIT" shall mean a unit contingently awarded under
SECTION 7 of the Plan.
"STOCK APPRECIATION RIGHT" shall mean a right granted under SECTION 8.
"SUBSIDIARY" shall mean any business entity in which the Corporation
possesses directly or indirectly fifty percent (50%) or more of the total
combined voting power.
Section 3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have sole and complete authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the operation of the Plan as it shall
from time to time deem advisable, and to interpret the terms and provisions of
the Plan. The Committee may delegate to one or more executive officers of the
Corporation the power to make Awards to Participants who are not executive
officers or directors of the Corporation provided the Committee shall fix the
maximum amount of such Awards for the group and a maximum for any one
Participant. The Committee's decisions shall be binding upon all persons,
including the Corporation, stockholders, an Employer, Employees, Nonemployee
Directors, Participants and Designated Beneficiaries.
Section 4. ELIGIBILITY
All Employees and Nonemployee Directors who, in the opinion of the
Committee, have the capacity for contributing in a substantial measure to the
successful performance of the Corporation are eligible to be Participants in the
Plan.
Section 5. MAXIMUM AMOUNT AVAILABLE FOR AWARDS
(a) The maximum number of shares of Stock in respect of which Awards
may be made under the Plan shall be a total of 2,500,000 shares of Common Stock.
Shares of Common Stock may be made available from the authorized but unissued
shares of the Corporation or from shares reacquired by the Corporation. In the
event that (i) an Option expires or is terminated unexercised as to any shares
of Common Stock covered thereby; or (ii) any Award in respect of shares is
canceled or forfeited for any reason under the Plan without the delivery of
shares of Common Stock, such shares shall thereafter be again available for
award pursuant to the Plan.
(b) In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination,
<PAGE>
exchange of shares, warrants or rights offering to purchase Common Stock at a
price substantially below fair market value, or other similar corporate event
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available under
this Plan, then the Committee shall, in its sole discretion, and in such manner
as the Committee may deem equitable, adjust any or all of (i) the number and
kind of shares which thereafter may be awarded or optioned and sold under the
Plan; (ii) the number and kind of shares subject to outstanding Options and
other Awards; and (iii) the grant, exercise or conversion price with respect to
any of the foregoing and/or, if deemed appropriate, make provision for a cash
payment to a Participant or a person who has an outstanding Option or other
Award; provided, however, that the number of shares subject to any Option or
other Award shall always be a whole number.
Section 6. STOCK OPTIONS
(a) GRANT. Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees and/or Nonemployee
Directors to whom Options shall be granted, the number of shares to be covered
by each Option, the option price therefor and the conditions and limitations
applicable to the exercise of the Option.
(b) OPTION PRICE. The Committee shall establish the option price at the
time each Option is granted.
(c) EXERCISE.
(1) Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award or thereafter, provided, however, that in no
event may any Option granted hereunder be exercisable after the expiration of
ten years from the date of such grant. The Committee may impose such conditions
with respect to the exercise of Options, including, without limitation, any
relating to the application of federal or state securities laws, as it may deem
necessary or advisable.
(2) No shares shall be delivered pursuant to any exercise of
an Option until payment in full of the option price therefor is received by the
Corporation. Such payment may be made in cash, or its equivalent, or, if and to
the extent permitted by the Committee, by exchanging shares of Common Stock
owned by the optionee (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that the combined
value of all cash and cash equivalents and the fair market value of any such
Common Stock so tendered to the Corporation, valued as of the date of such
tender, is at least equal to such option price.
Section 7. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
(a) Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees and/or Nonemployee
Directors to whom shares of Restricted Stock and Restricted Stock Units shall be
granted, the number of shares of Restricted Stock and the number of Restricted
Stock Units to be granted to each Participant, the duration of the Restriction
Period during which, and the conditions under which, the Restricted Stock and
Restricted Stock Units may be forfeited to the Corporation, and the other terms
and conditions of such Awards. The Restriction Period shall consist of at least
one (1) year (which may be shortened or waived by the Committee at any time in
its discretion) with respect to one (1) or more Participants or Awards
outstanding.
<PAGE>
(b) Restricted Stock Units and shares of Restricted Stock may not be
sold, assigned, transferred, pledged or otherwise encumbered, except as herein
provided, during the Restriction Period. Certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and deposited by such Participant, together with a stock power endorsed in
blank, with the Corporation. At the expiration of the Restriction Period, the
Corporation shall deliver such certificates to the Participant or the
Participant's legal representative. Payment for Restricted Stock Units shall be
made by the Corporation in cash or shares of Common Stock, as determined at the
sole discretion of the Committee.
Section 8. STOCK APPRECIATION RIGHTS
The Committee may, with sole and complete authority, grant Stock
Appreciation Rights in tandem with an Option, in addition to an Option, or
freestanding and unrelated to an Option. Stock Appreciation Rights granted in
tandem with or in addition to an Option may be granted either at the same time
as the Option or at a later time. Stock Appreciation Rights shall not be
exercisable earlier than six (6) months after grant, shall not be exercisable
after the expiration of ten (10) years from the date of grant and shall have an
exercise price of not less than one hundred percent (100%) of the fair market
value of the Common Stock on the close of business on the date of grant ("FAIR
MARKET VALUE"). A Stock Appreciation Right shall entitle the Participant to
receive from the Corporation an amount of cash equal to the excess, if any, of
the Fair Market Value of a share of Common Stock on the exercise of the Stock
Appreciation Right (or such other date specified by the Committee at the time of
grant) over the exercise price thereof.
Section 9. GENERAL PROVISIONS
(a) WITHHOLDING. The Employer shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan. In
the case of payments of Awards in the form of Common Stock, at the Committee's
discretion the Participant may be required to pay to the Employer the amount of
any taxes required to be withheld with respect to the amount of any taxes
required to be withheld with respect to such Common Stock, or, in lieu thereof,
the Employer shall have the right to retain (or the Participant may be offered
the opportunity to elect to tender) the number of shares of Common Stock whose
fair market value equals the amount required to be withheld.
(b) AWARDS. Each Award hereunder shall be evidenced in writing,
delivered to the Participant and shall specify the terms and conditions thereof
and any rules applicable thereto, including, but not limited to, the effect on
such Award of the death, retirement or other termination of employment of the
Participant and the effect thereon, if any, of a change in control of the
Corporation.
(c) NONTRANSFERABILITY. No Award shall be assignable or transferable
except by will or the laws of descent and distribution, and no right or interest
of any Participant shall be subject to any lien, obligation or liability of the
Participant.
(d) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to be retained in the employ of the Employer. Further,
the Employer expressly reserves the right at any time to dismiss a Participant
free from any liability, or any claim under the Plan, except as provided herein
or in any agreement entered into with respect to any Award.
<PAGE>
(e) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she has become the holder thereof. Notwithstanding
the foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall not
be entitled to the rights of a stockholder in respect of such Restricted Stock.
(f) CONSTRUCTION OF THE PLAN. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in
accordance with the laws of New York, regardless of the law that might be
applied under applicable principles of conflicts of laws.
(g) EFFECTIVE DATE. Subject to the approval of the stockholders of the
Corporation, the Plan shall be effective on May 11, 1992. No Options or Awards
may be granted under the Plan after May 10, 2002.
(h) AMENDMENT OF AWARD; AMENDMENT OF THE PLAN.
(1) The Committee may amend, modify or terminate any
outstanding Award with the Participant's consent at any time prior to payment or
exercise in any manner not inconsistent with the terms of the Plan, including
without limitation (i) to change the date or dates as of which (A) an Option
becomes exercisable; (B) Restricted Stock becomes nonforfeitable; or (ii) to
cancel and reissue an Award under such different terms and conditions as it
determines appropriate.
(2) The Board of Directors may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no amendment shall be
made without stockholder approval if such approval is necessary to comply with
any tax or regulatory requirement. Notwithstanding anything to the contrary
contained herein, the Committee may amend the Plan in such manner as may be
necessary so as to have the Plan conform with local rules and regulations.
(i) NOTICE OF EXERCISE. Prior to the receipt of any shares of Common
Stock in connection with any Award hereunder, the Participant will execute and
deliver to the Corporation a Notice of Exercise of Stock Option in the form, and
containing such terms and conditions, as shall be determined by the Committee.
<PAGE>
PROXY ITI TECHNOLOGIES, INC.
A DELAWARE CORPORATION
2266 NORTH SECOND STREET, NORTH ST. PAUL, MINNESOTA 55109
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Thomas L. Auth and Charles A. Durant, and either of them, are hereby
appointed Proxies, each with the power to appoint his substitute, to represent
and to vote, as designated below, all shares of common stock of ITI
Technologies, Inc. ("Company") held of record by the undersigned on March 30,
1998 at the Annual Meeting of Stockholders to be held on May 13, 1998 or any
adjournment thereof.
1. ELECTION OF FOR all six nominees listed below WITHHOLD AUTHORITY
DIRECTORS: (except as marked to the contrary to vote for all nominees
below). |_| listed below. |_|
(INSTRUCTION:To withhold authority to vote for any individual nominee,
strike a line through the nominee's name below.)
THOMAS L. AUTH, W. WALLACE MCDOWELL, JR., PERRY J. LEWIS,
SANGWOO AHN, WILLIAM C. UGHETTA, JR. AND WALTER R. BARRY, JR.
2. PROPOSAL TO AMEND THE COMPANY'S LONG-TERM STOCK INCENTIVE PLAN (1992).
|_|FOR |_|AGAINST |_|ABSTAIN
3. PROPOSAL TO RATIFY THE SELECTION OF COOPERS & LYBRAND, L.L.P. AS THE
INDEPENDENT ACCOUNTANT TO AUDIT THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY FOR THE YEAR ENDING DECEMBER 31, 1998.
|_|FOR |_|AGAINST |_|ABSTAIN
In the event of the inability or unwillingness of one or more of the
above-named nominees to serve as a director at the time of the Annual Meeting on
May 13, 1998 or of any adjournments thereof, the shares represented by the
proxies will be voted in favor of the remainder of such nominees and may also,
in the discretion of the holders of said proxies, be voted for other nominees
not named herein in lieu of those unable or unwilling to serve. As of the date
hereof, the Board of Directors knows of no nominee who is unable or unwilling to
serve.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting; management is not
presently aware of any such matters to be presented for action at the Annual
Meeting.
(CONTINUED, AND TO BE COMPLETED AND SIGNED, ON THE REVERSE SIDE)
<PAGE>
(CONTINUED FROM THE OTHER SIDE)
The undersigned hereby ratifies and confirms all the parties shall lawfully
do or cause to be done by virtue hereof and hereby revokes all proxies
previously given to vote such shares.
This Proxy, when properly executed, shall be voted in the manner indicated
by the undersigned stockholder, but if no direction is made, this Proxy will be
voted for the directors named in the Proxy Statement, in favor of the proposed
amendment to the Company's Long-Term Stock Incentive Plan and in favor of the
proposal to ratify the selection of Coopers & Lybrand, L.L.P. to audit the
consolidated financial statements of the Company for the year ending December
31, 1998.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, guardian, or in some other fiduciary capacity, please give full title
as such.
If a corporation, please sign in full
corporate name by president or other
authorized officer(s). If a partnership,
please sign in partnership name by
authorized person(s).
Dated: ___________________________, 1998
________________________________________
Signature
________________________________________
Signature if held jointly
(PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY, USING THE
ENCLOSED ENVELOPE.)
