UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
INTEGRATED SECURITY SYSTEMS, INC.
________________________________________________
(Name of Registrant as Specified In Its Charter)
N/A
________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:_________
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:____________
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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:_____________________________________________________________
INTEGRATED SECURITY SYSTEMS, INC.
To the Stockholders of Integrated Security Systems, Inc.:
The 2004 Annual Meeting of Stockholders of Integrated Security Systems,
Inc. has been called for 10:00 a.m. (local time) on __________ __, 2004, at the
Company's offices, 8200 Springwood Drive, Suite 230, Irving, Texas 75063. All
stockholders of record as of ___________ __, 2004 are entitled to vote at the
Annual Meeting.
You are requested to participate in person or by proxy by voting on the
matters presented for action at the meeting, as described in the attached Notice
of Annual Meeting and Proxy Statement. The Company's business strategy and
progress will be reviewed at the meeting. Directors and officers will be
participating and available to respond to stockholder inquiries.
We cordially invite you to attend the meeting. Your support is
important and we encourage you to vote "yes" on the agenda items. Whether or not
you plan to attend the meeting, please sign, date, and return the enclosed proxy
promptly in the envelope provided. If you attend the meeting, you may, at your
discretion, withdraw the proxy and vote in person.
Thank you for your time and consideration to respond to this request.
Sincerely,
/S/ C. A. RUNDELL, JR.
-------------------------------
C. A. Rundell, Jr.
Chairman of the Board and Chief
Executive Officer
Enclosures
___________ __, 2004
2
INTEGRATED SECURITY SYSTEMS, INC.
NOTICE OF THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________ __, 2004
To the Stockholders of Integrated Security Systems, Inc.
The 2004 Annual Meeting of Stockholders (the "Meeting") of Integrated
Security Systems, Inc., a Delaware corporation (the "Company"), will be held on
__________ __, 2004, at 10:00 a.m. (local time) at the Company's offices at 8200
Springwood Drive, Suite 230, Irving, Texas 75063 for the purpose of considering
and voting upon the following matters:
1. To elect eight (8) directors of the Company to serve until the
2005 Annual Meeting of Stockholders or until their successors
are duly elected and appointed;
2. To consider and vote upon a proposal to amend the Company's
certificate of incorporation to increase the number of shares of
the Company's common stock, par value $0.01 per share (the
"Common Stock") authorized for issuance from 75,000,000 to
150,000,000; and
3. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Your Board of Directors recommends that you vote "FOR" the nominees to
the Board and the other proposals set before you. We have fixed the close of
business on __________ __, 2004, as the record date for the Meeting, and only
holders of our Common Stock and holders of our Series D Preferred Stock of
record on that date are entitled to receive notice of, and to vote at the
Meeting or any adjournment thereof. At the record date, 74,853,491 shares of
Common Stock were issued and outstanding and 91,250 shares of Series D Preferred
Stock were issued and outstanding. While the Company also has 9,500 shares of
Series A Preferred Stock issued and outstanding, pursuant to the certificate of
designation establishing the Series A Preferred Stock, holders of shares of the
Company's Series A Preferred Stock are not entitled to vote such shares on any
matter.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
NO POSTAGE IS REQUIRED IF THE PROXY IS MAILED IN THE UNITED STATES. PROXIES
FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED AS REQUESTED BY
THEM. BY PROMPTLY RETURNING YOUR PROXY, YOU WILL SAVE THE EXPENSE INVOLVED WITH
FURTHER COMMUNICATION. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF
YOU HAVE RETURNED A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS,
/S/ C. A. RUNDELL, JR.
-------------------------------
C. A. Rundell, Jr.
Chairman of the Board and Chief
Executive Officer
Irving, Texas
___________ __, 2004
3
INTEGRATED SECURITY SYSTEMS, INC.
8200 Springwood Drive, Suite 230
Irving, Texas 75063
(972) 444-8280
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON ___________ __, 2004
This proxy statement accompanies the notice (the "Notice") of the
annual meeting of stockholders of Integrated Security Systems, Inc. (the
"Company") and is furnished in connection with the solicitation by the board of
directors of the Company of proxies to be voted at the annual meeting of
stockholders of the Company (the "Meeting") and at any and all adjournments of
the Meeting. The Meeting will be held on __________ __, 2004, at the Company's
offices at 8200 Springwood Drive, Suite 230, Irving, Texas 75063. The record
date for determining stockholders entitled to vote at the Meeting is __________
__, 2004.
At the Meeting, holders of the Company's Common Stock and Series D
Preferred Stock will vote upon the proposals set forth in this proxy statement.
While the Company also has shares of Series A Preferred Stock issued and
outstanding, pursuant to the certificate of designation establishing the Series
A Preferred Stock, holders of shares of the Company's Series A Preferred Stock
are not entitled to vote such shares on any matter.
The cost of soliciting proxies will be borne by the Company. The
solicitation will be made by mail. The Company will supply brokerage firms and
other custodians, nominees and fiduciaries with such number of proxy materials
as they may require for mailing to beneficial owners and will reimburse them for
their reasonable expenses incurred in connection therewith. Directors, officers
and employees of the Company, not specifically employed for the purpose, may
solicit proxies, without remuneration therefor, by mail, telephone, telegraph or
personal interview. We have presented the following questions and answers
section to provide you answers to commonly asked questions.
ABOUT THE MEETING
When and where is the Meeting?
The Meeting will take place on __________ __, 2004, at 10:00 a.m.,
local time, at the Company's offices located at 8200 Springwood Drive, Suite
230, Irving, Texas 75063.
What will be voted on at the Meeting?
Stockholders will vote upon the following matters: (1) the election of
nominees to the board of directors and (2) an amendment to the Company's
certificate of incorporation to increase the number of shares of Common Stock
authorized for issuance.
What information will I receive?
Copies of (a) the notice of annual meeting of stockholders, (b) this
proxy statement, and (c) the enclosed proxy card are being mailed or delivered
in a single envelope to stockholders on or about __________ __, 2004.
Who can attend the Meeting?
All holders of our Common Stock and Series D Preferred Stock
outstanding as of the record date, or their duly appointed proxies, may attend
the annual meeting.
If you hold your shares in "street name", that is, through a broker or
other nominee, you will need to bring a copy of a brokerage or other nominee
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the annual meeting. You can not vote these shares
unless you also bring a broker issued proxy, as discussed below.
4
Who can vote at the Meeting?
Only holders of our Common Stock or Series D Preferred Stock of record
as of the close of business on _________ __, 2004 (the "Record Date") will be
entitled to vote at the Meeting and any adjournment or postponement thereof. As
of the Record Date, 74,853,491 shares of Common Stock were issued and
outstanding and 91,250 shares of Series D Preferred Stock were issued and
outstanding. Holders of our Series D Preferred Stock will vote with holders of
our Common Stock on an as-converted to Common Stock basis, as described below
under "How Many Votes can I Cast?". While the Company also has 9,500 shares of
Series A Preferred Stock issued and outstanding, pursuant to the certificate of
designation establishing the Series A Preferred Stock, holders of shares of the
Company's Series A Preferred Stock are not entitled to vote such shares on any
matter.
How do I vote?
If you hold your shares as a stockholder of record, you can vote by
proxy or in person at the Meeting. To vote by proxy you should mark, date, sign
and mail the enclosed proxy card in the enclosed prepaid envelope. The proxies
identified on the back of the proxy card will vote the shares of which you are a
stockholder of record in accordance with your instructions. Giving a proxy will
not affect your right to vote in person -- by voting in person you automatically
revoke your proxy. You also may revoke your proxy at any time before the voting
by giving the Secretary of the Company written notice of your revocation or by
submitting a later-dated proxy. If you execute, date and return your proxy, but
do not mark your voting preference, the shares represented by proxy will be
voted as recommended by our board of directors. Thus, if no directions are
given, the proxy will be voted FOR the proposals.
Many of our stockholders hold their stock in street name, that is, the
shares are registered in the name of their broker, bank or other nominee rather
in the stockholders own name. Your broker or other nominee should provide to
you, along with these proxy solicitation materials that we have provided to the
broker or nominee, the broker's or nominee's own request for voting
instructions. By completing the voting instruction card, you may direct your
broker or nominee how to vote your shares. Alternatively, if you want to vote
your street name shares at the annual meeting, you must contact your broker or
other nominee directly in order to obtain a proxy card issued to you by your
broker or nominee. A broker letter that identifies you as a stockholder is not
the same as a broker-issued proxy. If your shares are registered in the name of
your broker or other nominee and you fail to bring a broker-issued proxy to the
annual meeting, you will not be able to vote your nominee held shares at the
annual meeting.
If you hold your shares in street name through a broker or other
nominee, your broker or nominee will not be permitted to exercise voting
discretion with respect to the matters to be acted upon. Thus, if you do not
give your broker or nominee specific instructions, your shares may not be voted
on those matters and will not be counted in determining the number of shares
necessary for approval. Shares represented by these "broker non-votes" will,
however, be counted in determining whether there is a quorum present at the
annual meeting.
How many votes can I cast?
Each holder of Common Stock of record as of the Record Date is entitled
to one vote at the Meeting for each director to be elected and upon all other
matters to be voted upon at the Meeting. The holders of the Company's Series D
Preferred Stock are entitled to vote together with the holders of Common Stock,
as a single class and on an as converted to Common Stock basis:
o for the election of directors under proposal one; and
o on all other matters submitted to a vote of the holders of
Common Stock, including proposal two, the amendment to the
Company's certificate of incorporation to increase the
authorized number of shares of Common Stock.
Each share of Series D Preferred is entitled to the number of votes
equal to the number of shares of Common Stock into which the share of Series D
Preferred Stock could be converted on the Record Date. Each share of Series D
Preferred Stock currently has 25 votes and the total number of votes held by the
holders of Series D Preferred Stock, on an as-converted to Common Stock basis,
is 2,281,250. In addition, approval of the holders of Common Stock, voting
separately as a class, is required for proposal two, the amendment to the
Company's certificate of incorporation to increase the authorized number of
shares of Common Stock.
5
Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy card, you may change your
vote at any time before the proxy is exercised by filing with the Secretary of
the Company either a notice of revocation or a proxy that you have executed
bearing a later date. If you hold your shares in street name and you would like
to vote your shares at the Meeting, you will also need to bring with you a legal
proxy from your broker. The powers of the proxy holders will be suspended as to
your shares if you attend the Meeting in person and so request, although
attendance at the Meeting will not by itself revoke a previously granted proxy.
What happens if the Meeting is postponed or adjourned?
If the Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Meeting all proxies will be voted in the same
manner as the proxies would have been voted at the original convening of the
Meeting. However, proxies may be revoked or withdrawn in the manner we describe
above prior to the reconvened Meeting even if they have been voted on the same
or any other matter at the prior meeting.
What constitutes a quorum and how does it affect voting on the proposals?
Voting can take place at the Meeting only if stockholders owning a
majority of the outstanding shares of the Common Stock and Series D Preferred
Stock, together as a class and on an as-converted to Common Stock basis, as of
the Record Date are present in person or by proxy. If you submit a valid proxy
card or attend the Meeting, your shares will be counted to determine whether
there is a quorum. Proxies received by us but marked as abstentions and broker
non-votes are counted as present for purposes of establishing the quorum
necessary for the Meeting to proceed.
What are the board's recommendations?
Unless you give other instructions on your proxy card, the persons
named as proxy holders on the proxy card will vote in accordance with the
recommendation of our board of directors. The board's recommendations are set
forth below together with the description of the proposals in this proxy
statement. The board recommends a vote in favor of the election of eight
directors to serve terms as described below or until their successors are duly
qualified and elected. Our board of directors has unanimously nominated these
persons for election as director. The board also recommends a vote in favor of
the amendment to our certificate of incorporation to increase the number of
authorized shares of Common Stock.
With respect to any other matters that properly come before the
Meeting, the proxy holders will vote as recommended by the board of directors,
or, if no recommendation is given, in their own discretion. The board of
directors does not know of any other business to be presented at the Meeting.
How are abstentions and broker non-votes treated?
Brokers and other nominee holders holding shares of record for their
customers generally are not entitled to vote on certain matters unless they
receive voting instructions from their customers. "Broker non-votes" means those
votes that could have been cast on the matter in question by brokers and other
nominee holders with respect to uninstructed shares if the brokers and other
nominee holders had received their customers' instructions. "Uninstructed
shares" means those shares held by a broker or other nominee who has not
received instructions from its customers on the matters and the broker or other
nominee has so notified the Company on a proxy form in accordance with industry
practice or has otherwise advised the Company that the nominee lacks voting
authority.
The effect of broker non-votes and abstentions is described below in
"Proposal 1: Election of Directors" and "Proposal 2: Amendment to Certificate of
Incorporation to Increase Authorized Shares of Common Stock."
6
PROPOSAL 1: ELECTION OF DIRECTORS
At the Meeting, stockholders will elect eight directors, who make up
the entire board of directors, to hold office until the next annual meeting of
stockholders or until their successors are duly qualified and elected. The
affirmative vote of a plurality of the shares of Common Stock and Series D
Preferred Stock, voting together as a class and on an as-converted to Common
Stock basis, represented at the Meeting will be required to elect each of these
directors. Each share of Series D Preferred is entitled to the number of votes
equal to the number of shares of Common Stock into which the share of Series D
Preferred Stock could be converted on the Record Date. Each share of Series D
Preferred Stock currently has 25 votes and the total number of votes held by the
holders of Series D Preferred Stock, on an as-converted to Common Stock basis,
is 2,281,250. Holders of our Series A Preferred Stock are not entitled to vote
such shares on the election of directors. Votes may be cast in favor of or
withheld with respect to each nominee. Abstentions and broker non-votes will not
be taken into account and will have no effect in determining the outcome of the
election.
Nominees for Election
The nominees for director listed below will stand for election at the
Meeting.
C. A. RUNDELL, JR., 72, has been a director of the Company since March
1999. Mr. Rundell has served as Chief Executive Officer of the Company since
August 2000. Since 1988, Mr. Rundell has owned and operated Rundell Enterprises,
a sole proprietorship engaged in providing acquisition and financial services to
business enterprises. Mr. Rundell was previously the Chief Executive Officer of
Tyler Corporation from October 1996 to December 1998. Mr. Rundell was a director
and Chairman of the Board of NCI Building Systems, Inc. from April 1989 to July
2000. Mr. Rundell is a director of Renaissance US Growth Investment Trust, PLC.
He is also a director of Tandy Brands Accessories, Inc., a designer,
manufacturer and marketer of men's, women's and children's fashion accessories.
Mr. Rundell earned an M.B.A. with Distinction from Harvard University and a B.S.
in Chemical Engineering from The University of Texas at Austin.
ALAN M. ARSHT, 60, has been a director of the Company since 1999. Mr.
Arsht is President of Arsht & Company, Inc., a New York based investment banking
firm established in 1986, and is also Chief Executive Officer of M Space
Holdings, LLC, a lessor of commercial modular space. From 1977 to 1986, Mr.
Arsht was Senior Vice President and Managing Director of Thomson McKinnon
Securities, Inc. He also served as Vice President, Corporate Finance at Wertheim
& Company, Inc. and was Special Assistant to the Deputy Secretary of the U.S.
Treasury Department. Mr. Arsht also held positions at the U.S. Securities and
Exchange Commission. Mr. Arsht earned an M.B.A. in Finance from American
University and a B.A. in History from East Texas State University.
PETER BEARE, 47, has been a director of the Company since June 2002.
Mr. Beare was appointed as President of B&B Electromatic, Inc., now B&B ARMR
Corporation, a wholly-owned subsidiary of the Company, in May 2003. Mr. Beare
was the President and Chief Operating Officer of Ultrak, Inc. from July 2000
until March 2002 and was the Vice President - Technology of Ultrak from May 2000
to July 2000. From April 1994 to May 2000, he was employed by Baxall Ltd. in the
United Kingdom (UK), a subsidiary of Upperpoint, in various capacities,
including Managing Director, and later joined the main board of Upperpoint as
Technology Director. Prior to Baxall, Ltd., Mr. Beare was a consultant to
various companies in the communications and audio industries. From 1986 to 1990,
Mr. Beare was the founder and Director of Camteq, Ltd. in the UK.
WILLIAM D. BREEDLOVE, 64, has been a director of the Company since May
2001. Mr. Breedlove has served as Vice Chairman of Hoak Breedlove Wesneski & Co.
(HBW), an investment banking firm, since August 1996. Mr. Breedlove has held
senior management positions in commercial and merchant banking for over 30
years. Prior to HBW's formation in 1996, Mr. Breedlove was chairman, managing
director and co-founder of Breedlove Wesneski & Co., a private merchant banking
firm. From 1984 to 1989, Mr. Breedlove also served as president and director of
Equus Capital Corporation, the corporate general partner of three public and
private limited partnerships operating as management leveraged buyout funds. Mr.
Breedlove's experience also includes 22 years at First National Bank in Dallas,
the last three years of which he served as chairman and chief executive officer
of the lead bank and vice chairman of InterFirst Corporation. Mr. Breedlove
currently serves as a director of NCI Building Systems, Inc., Local Financial
Corporation, Park Pharmacy Corporation and seven private companies. He has
previously served as director of several other publicly-held companies,
including InterFirst Corporation, Texas Oil and Gas Corporation, Dillard's
Department Stores, and Cronus Industries, Inc. Mr. Breedlove received his B.B.A.
degree in finance and banking from the University of Texas at Austin.
RUSSELL CLEVELAND, 65, has been a director of the Company since
February 2001. Mr. Cleveland is the President, Chief Executive Officer, sole
Director and the majority shareholder of Renaissance Capital Group, Inc. He has
served as President, Chief Executive Officer and director of Renaissance Capital
Growth & Income Fund III, Inc. since its inception in 1994. Mr. Cleveland is a
Chartered Financial Analyst with more than 41 years experience as a specialist
in investments for smaller capitalization companies. Mr. Cleveland has also
served as President of the Dallas Association of Investment Analysts. He serves
on the Boards of Directors of Renaissance US Investment Trust PLC, BFS US
Special Opportunities Trust PLC, Cover-All Technologies, Inc., Digital
Recorders, Inc. and Tutogen Medical, Inc. Mr. Cleveland is a graduate of the
Wharton School of Commerce and Finance of the University of Pennsylvania.
7
ROBERT M. GALECKE, 62, has been a director of the Company since May
1996. Mr. Galecke is currently Senior Vice President of Finance and
Administration for the University of Dallas. Prior to that he was a principal in
the corporate consulting firm of Pate, Winters & Stone, Inc. from 1993 to May
1996. He also served as Executive Vice President, Chief Operating Officer and
Chief Financial Officer of Southmark Corporation, a financial services insurance
and real estate holding company, from 1986 to 1992. From 1989 to 1995, Mr.
Galecke served as Chairman of the board, President and Chief Executive Officer
of National Heritage, Inc. Mr. Galecke received a graduate degree from the
School of Banking at the University of Wisconsin, Madison, and a B.S. in
Economics from the University of Wisconsin at Stevens Point.
FRANK R. MARLOW, 66, has been a director of the Company since May 1995.
Mr. Marlow served as Vice President, Sales and Marketing for the Company from
October 1993 to February 1995. Mr. Marlow has been Vice President of Sales,
Western Region, for ACI, a publicly traded company headquartered in Omaha,
Nebraska since March 2003. ACI sells electronic payments engines to banks,
credit card companies, large payment processors and merchant processors with
over 600 customers around the world. In addition, Mr. Marlow is currently a
Senior Partner with SMI Consulting, a sales and marketing consulting firm. Mr.
Marlow was Vice President of Sales for Cofiniti, formerly Money Star, a
technology company based in Austin, Texas from 1998 until 2001. From 1995 until
1998, Mr. Marlow was Vice President of Hogan Systems, a publicly traded company
subsequently purchased by Computer Sciences Corp. Previously, Mr. Marlow served
in various executive sales and training positions at IBM, Docutel Corporation,
UCCEL Corporation and Syntelligence Corporation.
PAUL ROLAND, 47, has been a director of the Company since September
2003. Mr. Roland was appointed President of B&B ARMR Corporation in September
2003 and was Vice President of ARMR Services Corporation before the merger of
ARMR Services Corporation and B&B Electromatic, Inc. in September 2003. Mr.
Roland was a founder of ARMR Services Corporation in 1998 and prior to that time
served as a Vice President of a competitor in the vehicle barrier business. From
1986 until 1998, Mr. Roland was responsible for the formation of the federal
sales and service office in Washington, DC. Mr. Roland worked as an engineer
supporting the missions of the United State Department of State from 1984
through 1986.
For information relating to Common Stock owned by each of our directors
see "Security Ownership of Certain Beneficial Owners and Management" below.
Our board of directors recommends a vote FOR the election of the
nominees for directors named above.
PROPOSAL 2: AMENDMENT TO CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED SHARES OF COMMON STOCK
Background
Currently, our certificate of incorporation provides that the total
number of shares that we are authorized to issue is 75,750,000, consisting of
75,000,000 shares of Common Stock and 750,000 shares of Preferred Stock. On the
Record Date, 74,853,491 shares of Common Stock, 9,500 shares of Series A
Preferred Stock and 91,250 shares of Series D Preferred Stock were issued and
outstanding. As of the Record Date, additional shares of Common Stock were
subject to future issuance as follows:
o 2,281,250 shares of Common Stock are issuable upon the
conversion of 91,250 outstanding shares of Series D Preferred
Stock;
o 190,000 shares of Common Stock are issuable upon the conversion
of 9,500 outstanding shares of Series A Preferred Stock;
o 19,352,845 shares of Common Stock are issuable upon the exercise
of outstanding warrants to purchase Common Stock; and
o 5,184,527 shares of Common Stock are subject to outstanding
options, 3,301,478 of which are currently exercisable.
8
Reasons for and Effect of the Amendment
During the fiscal years ending June 30, 2002 and 2003, the Company
issued warrants to purchase an aggregate of 9,750,000 shares of Common Stock in
connection with various equity and convertible debt financings. These warrants
are immediately exercisable for shares of Common Stock. If the holders of these
warrants exercised the warrants, the Company would not currently have a
sufficient number of shares of Common Stock available for issuance to the
warrant holders. In addition, the Company does not have a sufficient number of
shares of Common Stock authorized for issuance upon the exercise or conversion
of our other currently outstanding exercisable and convertible securities,
including stock options and our Series A and Series D Preferred Stock.
Therefore, additional shares of authorized Common Stock are necessary in order
to assure the proper conversion of preferred stock and the exercise of options
and warrants.
Our board of directors has unanimously adopted resolutions approving
and recommending that the stockholders adopt an amendment to the Company's
certificate of incorporation to increase the number of authorized shares of
Common Stock from 75,000,000 to 150,000,000 to have enough shares of Common
Stock to issue upon conversion of the Company's preferred stock and upon
exercise of outstanding warrants and options, as described above.
If the stockholders approve the amendment to the certificate of
incorporation, then the certificate of incorporation would be amended to effect
the increase in authorized shares of Common Stock as soon as practicable
following stockholder approval. If the amendment to the certificate of
incorporation is not approved by the stockholders, the existing certificate of
incorporation will continue in effect.
Holders of our Common Stock have no preemptive rights to purchase
additional shares of Common Stock, or securities convertible into Common Stock,
issued by us. The Common Stock will be available for issuance without further
action of the stockholders, unless required by the Company's certificate of
incorporation or by-laws, applicable laws, or the policy of any stock exchange
or registered securities association on which the shares of stock of the Company
are listed, if any.
No Dissenters' Rights
The Delaware General Corporation Law does not grant our stockholders
dissenters' rights or rights of appraisal upon the amendment to the certificate
of incorporation.
Amendment
If the amendment is approved, our certificate of incorporation will be
amended by deleting Article FOURTH in its entirety and inserting in its place
the following:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 150,750,000
shares, of which 150,000,000 shares shall be Common Stock, par
value $0.01 per share ("Common Stock") and 750,000 shares shall
be Preferred Stock, par value $0.01 per share ("Preferred
Stock")."
Approval
The affirmative vote of the holders of a majority of the shares of
Common Stock and Series D Preferred Stock outstanding and entitled to vote on
the Record Date, voting together as a class and on an as-converted to Common
Stock basis, is required to approve the amendment to our certificate of
incorporation. Each share of Series D Preferred is entitled to the number of
votes equal to the number of shares of Common Stock into which the share of
Series D Preferred Stock could be converted on the Record Date. Each share of
Series D Preferred Stock currently has 25 votes and the total number of votes
held by the holders of Series D Preferred Stock, on an as-converted to Common
Stock basis, is 2,281,250. While the Company also has shares of Series A
Preferred Stock issued and outstanding, pursuant to the certificate of
designation establishing the Series A Preferred Stock, holders of shares of the
Company's Series A Preferred Stock are not entitled to vote such shares on any
matter. In addition, the approval of the holders of a majority of the shares of
Common Stock outstanding and entitled to vote on the Record Date, voting
separately as a class, is required to approve the amendment to our certificate
of incorporation. Broker non-votes and abstentions will have the effect of
negative votes on the proposal.
9
Our board of directors recommends a vote FOR approval of the amendment
to the certificate of incorporation to increase the number of authorized shares
of common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of outstanding
shares of Common Stock beneficially owned as of March 31, 2004, by (a) each
director and named executive officer of the Company, (b) all persons who are
known by the Company to be beneficial owners of 5% or more of the Company's
outstanding Common Stock and (c) all officers and directors of the Company as a
group. Unless otherwise noted, each of the persons listed below has sole voting
and investment power with respect to the shares indicated as beneficially owned
by such person.
Number of Shares
Beneficially
Name of Beneficial Owner Owned (1) Percent (1)
------------------------------------------------------------------- ---------------- -----------
Renaissance Capital Growth & Income Fund III, Inc. (4) 27,969,809 37.4%
Renaissance US Growth Investment Trust PLC (5) 27,926,919 37.3%
Russell Cleveland (2)(3)(6) 58,831,433 78.6%
C. A. Rundell, Jr. (2)(3)(7) 6,241,287 8.3%
Mary Roland (2)(3) 5,000,000 6.7%
The Rosenbloom Trust (2) 5,000,000 6.7%
William D. Breedlove (2)(3)(8) 2,138,837 2.9%
Alan M. Arsht (2)(3)(9) 529,124 0.7%
Frank R. Marlow (2)(3)(10) 411,285 0.5%
Peter Beare (2)(3)(11) 337,500 0.5%
Robert M. Galecke (2)(3)(12) 269,199 0.4%
G.M. "John" Ulibarri (2)(3)(13) 168,000 0.2%
Richard B. Powell (2)(3)(14) 140,700 0.2%
All current directors and executive officers as a group (9 persons) 69,067,365 92.3%
---------------------
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table.
(2) The address for this person is 8200 Springwood Drive, Suite 230, Irving,
TX 75063.
(3) Mr. Rundell is a director, chairman of the board and chief executive
officer of the Company. Messrs. Arsht, Beare, Breedlove, Cleveland,
Marlow, and Galecke are directors of the Company. Mr. Beare became the
president of B&B Electromatic, Inc., a subsidiary of the Company,
effective May 2003. Ms. Roland is the spouse of Mr. Paul Roland, who
became director of the Company on September 5, 2003. Mr. Ulibarri became
the president and chief executive officer of Intelli-Site, Inc., a
subsidiary of the Company, effective January 1, 2004. Mr. Powell is vice
president, chief accounting officer and secretary of the Company.
(4) Includes 19,648 shares of Common Stock issuable upon the exercise of
outstanding options excercisable within 60 days; 3,289,299 shares of
Common Stock issuable upon the exercise of warrants within 60 days; and
187,500 shares of Common Stock issuable upon the conversion of preferred
stock within 60 days. The address for this company is 8080 N. Central
Expressway, Suite 210, Dallas, TX 75206.
(5) Includes 19,229 shares of Common Stock issuable upon the exercise of
outstanding options excercisable within 60 days; 4,158,617 shares of
Common Stock issuable upon the exercise of warrants within 60 days; and
187,500 shares of Common Stock issuable upon the conversion of preferred
stock within 60 days. The address for this company is 8080 N. Central
Expressway, Suite 210, Dallas, TX 75206.
(6) Includes 80,616 shares of Common Stock issuable upon the exercise of
outstanding options excercisable within 60 days; 9,997,916 shares of
Common Stock issuable upon the exercise of warrants within 60 days; and
375,000 shares of Common Stock issuable upon the conversion of preferred
stock within 60 days.
10
(7) Includes 995,927 shares of Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days; 2,080,971 shares of Common
Stock issuable upon the exercise of warrants within 60 days; and 331,250
shares of Common Stock issuable upon the conversion of preferred stock
within 60 days.
(8) Includes 184,872 shares of Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days and 250,000 shares of
Common Stock issuable upon the exercise of warrants within 60 days.
(9) Includes 147,519 shares of Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days; 125,000 shares of Common
Stock issuable upon the exercise of warrants within 60 days; and 187,500
shares of Common Stock issuable upon the conversion of preferred stock
within 60 days.
(10) Includes 236,707 shares of Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days; 20,833 shares of Common
Stock issuable upon the exercise of warrants within 60 days; and 31,250
shares of Common Stock issuable upon the conversion of preferred stock
within 60 days.
(11) Includes 237,500 shares of Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(12) Includes 182,296 shares of Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days; 8,333 shares of Common
Stock issuable upon the exercise of warrants within 60 days; and 12,500
shares of Common Stock issuable upon the conversion of preferred stock
within 60 days.
(13) Includes 168,000 shares of Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days.
(14) Includes 140,700 shares of Common Stock issuable upon the exercise of
outstanding options exercisable within 60 days.
EXECUTIVE OFFICERS
Information regarding the Company's executive officers is set forth
below. The executive officers of the Company are appointed by the board of
directors.
Name Age Current Position
------------------- --- ---------------------------------------------------------
C. A. Rundell, Jr. 72 Chairman of the Board and Chief Executive Officer
Richard B. Powell 39 Vice President, Chief Accounting Officer and Secretary
Peter Beare 47 Chief Executive Officer, B&B ARMR Corporation
Paul Roland 47 President, B&B ARMR Corporation
G.M. "John" Ulibarri 46 President and Chief Executive Officer, Intelli-Site, Inc.
The following is a brief description of the business backgrounds of
Richard B. Powell and G.M. "John" Ulibarri. For a narrative description of the
business backgrounds of Messrs. Rundell, Beare and Roland, see "Proposal 1:
Election of Directors" above.
RICHARD B. POWELL, 39, is our Vice President, Chief Accounting Officer
and Secretary. Mr. Powell joined the Company in April 1998 as Corporate
Controller, became Vice President, Chief Accounting Officer in April 2001, and
Secretary in May 2001. Prior to joining the Company, Mr. Powell was the
Accounting Manager at Medical City Dallas Hospital from 1995 to 1998, Accounting
Manager of HealthCor, Inc., a home health care company, from 1993 to 1995 and
Accounting Supervisor of Signature Home Care Group, Inc., a home health care
company, from 1989 to 1993. Mr. Powell holds a B.S. in Accounting from McNeese
State University.
G.M. "JOHN" ULIBARRI, 46, is the President and Chief Executive Officer
of Intelli-Site, Inc., the Company's wholly-owned subsidiary. Mr. Ulibarri
joined the Company in April 2001 as Vice President of Engineering and
Operations, was promoted to Executive Vice President in December of 2002, and
President in January of 2004. Prior to joining the Company, Mr. Ulibarri served
in various senior management and engineering positions with major security and
communications systems integration concerns throughout the US. Mr. Ulibarri
holds a B.S. in Computer Engineering from the University of New Mexico.
11
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation of our current and former
chief executive officers and the executive officers of the Company whose
compensation exceeded $100,000 for the fiscal years ended June 30, 2003, 2002
and 2001.
Long-Term Compensation Award
----------------------------
Annual Compensation Securities
----------------------------------------- Underlying
Name and Other Annual Restricted Options/
Principal Position Year Salary Bonus Compensation Stock Awards SARs
----------------------------- ---- -------- ----- ------------ ------------ ----------
C. A. Rundell, Jr. 2003 $ 50,000 -- -- 41,753 23,298
Chief Executive Officer 2002 24,000 -- -- -- 596,518
2001 24,000 -- -- -- 78,301
Gerald K. Beckmann 2003 $ -- -- -- -- --
Chief Executive Officer 2002 -- -- -- -- --
and President (1) 2001 62,500 -- -- -- --
Holly J. Burlage 2003 $ -- -- -- -- --
Executive Vice President, 2002 -- -- -- -- --
Chief Financial Officer (2) 2001 123,270 -- -- -- --
Jack G. Caldwell 2003 $160,500 -- -- -- --
President 2002 160,500 -- -- -- --
B&B Electromatic, Inc. (3) 2001 160,500 -- -- -- 500,000
Lars H. Halverson 2003 $ -- -- -- -- --
President 2002 70,417 -- -- -- 100,000
Intelli-Site, Inc. (4) 2001 59,583 -- -- -- 1,500,000
---------------------
(1) Resigned as of August 31, 2000.
(2) Resigned as of March 31, 2001.
(3) Resigned as of July 31, 2003.
(4) Began employment on January 16, 2001 and resigned as of January 15, 2002.
No other executive officer's salary and bonus exceeded $100,000
annually and no executive officer had any form of long-term incentive plan
compensation arrangement with the Company during the fiscal years ended June 30,
2003, 2002 or 2001.
12
Stock Option Grants
The following table provides information concerning the grant of stock
options during the fiscal year ended June 30, 2003 to the named executive
officer:
Number Of % Of Total Options
Securities Underlying Granted To Employees Exercise Expiration
Name Options Granted In Fiscal Year Price Date
---------------------- --------------------- -------------------- -------- ----------
C. A. Rundell, Jr. (1) 9,409 2.28% $ 0.31 08/22/07
C. A. Rundell, Jr. (1) 13,889 3.37% $ 0.21 12/22/07
---------------------
(1) These options vested immediately upon grant.
Option Exercises and Holdings
The following table provides information related to the number of
shares received upon exercise of options, the aggregate dollar value realized
upon exercise, and the number and value of options held by the named executive
officers of the Company at June 30, 2003.
Number of Unexercised Value Of Unexercised
Options/SARS at In-The-Money Options/SARS
Fiscal Year End At Fiscal Year End
------------------------------ ------------------------------
For the 12 Months Ended 6/30/03 Exercisable Unexercisable Exercisable Unexercisable
------------------------------- ------------- ------------- ------------- -------------
C. A. Rundell, Jr. 658,427 275,000 $ 3,750 $ --
Gerald K. Beckmann 364,473 -- -- --
Jack G. Caldwell 451,790 125,000 32,500 15,625
Director Compensation
Currently, directors are compensated by either restricted stock awards
or incentive stock options, at the choice of the individual director, in an
amount equivalent to $10,000 annually for serving on the board, in addition to
$1,250 for each committee on which they serve. All directors are reimbursed for
their out-of-pocket expenses incurred in connection with their attendance at
meetings of the board of directors and committees of the board.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors held five meetings during the fiscal year ended
June 30, 2003. None of the directors attended fewer than 75% of the meetings of
the board of directors and its committees on which they served. The board of
directors has established two committees: a compensation and stock option
committee and an audit committee.
The compensation and stock option committee is currently composed of
Messrs. Breedlove, Cleveland and Marlow. The compensation and stock option
committee met twice during the fiscal year ended June 30, 2003. The compensation
and stock option committee determines the amount and form of compensation and
benefits payable to all officers and employees, and advises and consults with
management regarding the benefit plans and compensation policies of the Company.
The compensation and stock option committee also reviews and approves stock
option grants to directors, executive officers and employees of the Company.
The audit committee is currently composed of Messrs. Galecke, Arsht and
Breedlove. The audit committee met twice during the fiscal year ended June 30,
2003. The audit committee recommends to the board of directors the appointment
of independent auditors, reviews the plan and scope of audits, reviews the
Company's significant accounting policies and internal controls and factors that
may affect the quality and integrity of the Company's financial reports, reviews
compliance by the Company's management and employees with Company policies, and
has general responsibility for related matters. Prior to the mailing of this
proxy statement to the stockholders of the Company, this committee met with the
Company's independent auditors to review the audit for the fiscal year ended
June 30, 2003 and the Company's significant accounting policies and internal
controls.
13
The SEC has adopted rules to implement certain requirements of the
Sarbanes-Oxley Act of 2002 pertaining to audit committees. One of the rules
adopted by the SEC requires a company to disclose whether it has an "audit
committee financial expert" serving on its audit committee. Based on its review
of the criteria of an audit committee financial expert under the rules adopted
by the SEC, our board of directors has determined that Mr. Galecke is an "audit
committee financial expert," as that term is defined in Item 401(e) of
Regulation S-B promulgated by the Securities and Exchange Commission.
The Company does not have a standing nominating committee or a
committee serving a similar function. In light of the relatively small size of
the Company and our concentrated focus on increasing revenues and obtaining
positive earnings, our board of directors has concluded that no nominating
committee is needed because it is more efficient for the entire board to
consider nominees for director, and each member of our board of directors
participates in the identification and consideration of director nominees. Our
full board of directors is responsible for identifying individuals qualified to
become members of the board and recommending a slate of directors to be
nominated for election at each annual meeting of stockholders of the Company.
The full board of directors is also responsible for evaluating the
qualifications of each nominee for election to the board and reviewing the
qualifications for membership on all committees of the board of directors.
Stockholder Communications with the Board
Any stockholder of the Company who desires to make his or her concerns
known to an individual director of the Company, the full board of directors or a
committee of the board may do so by mail to: Board of Directors, Integrated
Security Systems, Inc., 8200 Springwood Drive, Suite 230, Irving, Texas 75063.
The secretary of the Company will forward all stockholder communications, other
than communications that are not properly directed or are frivolous, to the
individual director of the Company, the full board of directors or a committee
of the board, as requested in the communication.
Any communications to the Company from one of its officers or directors
will not be considered "stockholder communications." Communications to the
Corporation from one of its employees or agents will only be considered
"stockholder communications" if they are made solely in such employee's or
agent's capacity as a stockholder. Any stockholder proposal submitted pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934 will not be viewed as a
"stockholder communication."
Our directors are strongly encouraged to attend annual meetings of
stockholders of the Company.
AUDIT COMMITTEE REPORT
The audit committee of the board of directors, which was established in
June 1993, oversees the external audit of the Company's financial statements and
reviews the internal audit, control and financial reporting procedures of the
Company. For the fiscal year ended June 30, 2003 and for the purposes of this
report, the audit committee was composed of Messrs. Galecke, Arsht and
Breedlove.
During the fiscal year ended June 30, 2003, the audit committee met
with representatives of Grant Thornton LLP, the Company's independent
accountants, to review the results of the audit for the fiscal year ended June
30, 2002 and to review the scope of the audit for the fiscal year ended June 30,
2003.
In September 2003, the audit committee met with Grant Thornton LLP to
review the results of the audit for the fiscal year ended June 30, 2003. The
committee will meet with Grant Thornton LLP again in 2004 to review the scope of
the audit for the fiscal year ended June 30, 2004. At the September 2003
meeting, the committee reviewed the results of the audit for the fiscal year
ended June 30, 2003 with the members of the Grant Thornton LLP engagement team.
The committee also discussed the fiscal 2003 audited financial statements and
the results of the fiscal 2003 audit with the Company's management.
During the September 2003 meeting, the audit committee discussed with
Grant Thornton LLP the matters required to be discussed by Statements on
Auditing Standards No. 61 relating to the conduct of the audit, including the
restrictions on ownership of securities imposed as part of the independence
standards that the Grant Thornton LLP engagement team must observe. The
committee received during the September 2003 meeting the written disclosures and
letter from Grant Thornton LLP required by Independence Standards Board Standard
No. 1. Standard No. 1 requires auditors to communicate, in writing, at least
annually all relationships between the auditor and the Company that, in the
auditor's professional judgment, may reasonably be thought to affect the
auditor's independence. The committee has received this written disclosure and
has discussed with Grant Thornton LLP its independence. The communication from
Grant Thornton LLP required by Standard No. 1 did not disclose any matter or
relationship that impaired its independence.
14
The audit committee acts pursuant to an audit committee charter adopted
by the Company's board of directors, a copy of which is attached as Appendix "A"
to this Proxy Statement. Each of the members of the audit committee qualifies as
an "independent" director under the current listing standards of the National
Association of Securities Dealers.
Based upon these reviews, discussions and disclosures, the audit
committee made a recommendation to the board of directors that the fiscal year
2003 audited financial statements be included in the Company's Annual Report on
Form 10-KSB for the fiscal year ending June 30, 2003.
By the Audit Committee
Robert M. Galecke, Chairman
Alan M. Arsht
William D. Breedlove
FEES BILLED TO THE COMPANY BY GRANT THORNTON LLP
The following information summarizes the fees paid or payable to Grant
Thornton LLP for services rendered for the fiscal years ended June 30, 2002 and
June 30, 2003.
Audit Fees. Fees for audit services totaled $43,800 in fiscal year 2003
and $37,500 in fiscal year 2002. Audit fees in fiscal year 2003 include fees
associated with the annual audit and the reviews of the Company's quarterly
reports on Form 10-QSB and fees for statutory reports. Audit fees in fiscal year
2002 include fees associated with the annual audit and the reviews of the
Company's quarterly reports on Form 10-QSB.
Audit-Related Fees. The Company did not pay any audit-related service
fees to Grant Thornton LLP, other than the fees described above, for services
rendered during fiscal year 2003 or 2002.
Tax Fees. The Company did not pay any fees for tax compliance, tax
consulting or advisory services to Grant Thornton LLP for services rendered
during fiscal year 2003 or 2002.
All Other Fees. The Company was not billed for fees for any other
services not described above in fiscal year 2003 or 2002.
Consistent with SEC policies regarding auditor independence, the audit
committee has responsibility for appointing, setting compensation and overseeing
the work of the independent auditor. In recognition of this responsibility, the
audit committee pre-approves all audit and permissible non-audit services
provided by the independent auditor.
The audit committee considered whether the provision of all other
services by Grant Thornton LLP is compatible with maintaining Grant Thornton
LLP's independence with respect to the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In exchange for an aggregate of $50,000 cash investment received on
November 8, 2001, the Company issued a promissory note to C. A. Rundell, Jr.,
the Company's Chairman and Chief Executive Officer, on November 9, 2001. The
promissory note is in the original principal amount of $50,000 and has an annual
interest rate of 8%. The promissory note, plus interest, was due on March 9,
2002. The Company received from Mr. Rundell an extension of the due date on the
note until September 30, 2004. Interest is payable in monthly installments on
the first day of each month. As a part of this transaction, on November 9, 2001,
the Company issued a stock purchase warrant to Mr. Rundell. The stock purchase
warrant entitles the Mr. Rundell to purchase from the Company 125,000 fully paid
and non-assessable shares of Common Stock, $0.01 par value, of the Company for
$0.20 per share.
15
In exchange for an aggregate of $50,000 cash investment received on
November 14, 2001, the Company issued a promissory note to C. A. Rundell, Jr.,
Chairman and Chief Executive Officer, on November 16, 2001. The promissory note
is in the original principal amount of $50,000 and has an annual interest rate
of 8%. The promissory note, plus interest, was due on March 16, 2002. The
Company received from Mr. Rundell an extension of the due date on the note until
September 30, 2004. Interest is payable in monthly installments on the first day
of each month. As a part of this transaction, on November 16, 2001, the Company
issued a stock purchase warrant to Mr. Rundell. The stock purchase warrants
entitles Mr. Rundell to purchase from the Company 250,000 fully paid and
non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20
per share.
On January 13, 2003, in exchange for an aggregate of $100,000 cash
investment, the Company issued a promissory note to The Rundell Foundation. C.
A. Rundell, Jr., who is our Chairman and Chief Executive Officer, is also a
Trustee of The Rundell Foundation. The promissory note is in the original
principal amount of $100,000 and has an annual interest rate of 9% that is due
on the first day of each month. The promissory note, plus interest, was
originally due on January 13, 2004. This maturity date was extended until
September 30, 2004. As a part of the cash investment, on January 13, 2003, the
Company issued a stock purchase warrant to The Rundell Foundation. The stock
purchase warrant entitles The Rundell Foundation to purchase from the Company,
at any time, and in whole or in part, 500,000 fully paid and non-assessable
shares of Common Stock of the Company for $0.20 per share. The number of shares
of Common Stock purchasable upon exercise of a warrant is subject to adjustment
in the event of any dividends, distributions, reclassifications, or capital
reorganizations. The holder of the warrant is also entitled to certain
registration rights.
In exchange for an aggregate of $100,000 cash investment, the Company
issued a promissory note to C. A. Rundell, Jr., our Chairman and Chief Executive
Officer, on September 26, 2003. The promissory note is in the original principal
amount of $100,000 and has an annual interest rate of 7%. The promissory note,
plus accrued interest, is due on April 1, 2004. Interest is payable in monthly
installments on the first day of each month. As part of this financing, on
September 26, 2003, the Company issued a stock purchase warrant to Mr. Rundell.
The stock purchase warrant entitles Mr. Rundell to purchase from the Company
125,000 fully paid and non-assessable shares of Common Stock of the Company for
$0.40 per share.
At various times during the fiscal years ending June 30, 2002 and 2003,
and through March 31, 2004, Renaissance Capital Growth & Income Fund III, Inc.,
Renaissance US Growth Investment Trust PLC and BFS US Special Opportunities
Trust PLC made loans to the Company in the aggregate principal amount of
$2,600,000. Russell Cleveland, who serves as one of our directors, is the
President, Chief Executive Officer and director of Renaissance Capital Growth &
Income Fund III, Inc. and serves on the board of directors of Renaissance US
Growth Investment Trust PLC and BFS US Special Opportunities Trust PLC. In
addition, C. A. Rundell, Jr., our Chairman and Chief Executive Officer, is a
director of Renaissance US Growth Investment Trust PLC. In exchange for the
loans, the Company issued several promissory notes to the Renaissance entities.
Each of these promissory notes are at 8% annual interest payable on the first of
each month and were due 120 days from the date of issuance. The Company received
from the Renaissance entities an extension of the due dates on all the notes
until September 30, 2004. The Company also issued several stock purchase
warrants to the Renaissance entities in connection with the loans. Each of the
warrants issued entitles the holder to purchase share of Common Stock of the
Company at $0.20 per share.
During fiscal year 2004, C. A. Rundell, Jr., our Chairman and Chief
Executive Officer, issued a personal letter of credit, supported by a
certificate of deposit, in the amount of $70,000 in order to meet the bonding
requirements of a specific construction project by the Company's wholly-owned
subsidiary B&B ARMR Corporation. The interest rate on this transaction was 6%
per year. The letter of credit and related certificate of deposit was
subsequently refinanced and restructured as a line of credit in the amount of
$450,000 supported by municipal bonds held individually by Mr. Rundell The
Company agreed to compensate Mr. Rundell at the rate of 2.5% per annum for the
amount of the line of credit used by the Company to service bonding. The amount
currently outstanding is $95,000. This arrangement was approved by the Company's
board of directors.
The Company believes that the terms of the foregoing transactions were
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who beneficially own more
than ten percent of the Company's Common Stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. These
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) reports they file. Based solely upon a review of Forms 3, 4
and 5 and amendments thereto provided to the Company pursuant to Rule 16a-3(e),
Messrs. Arsht, Breedlove, Galecke, Marlow and Powell had late filings during the
fiscal year ending June 30, 2003.
16
INDEPENDENT ACCOUNTANTS
Our board of directors, upon recommendation of the audit committee, has
appointed Grant Thornton LLP as the independent accountants of the Company for
the fiscal year ending June 30, 2004.
Representatives of Grant Thornton LLP are expected to be present at the
Meeting with the opportunity to make a statement if they desire to do so and to
be available to respond to appropriate questions.
OTHER MATTERS
Our board of directors does not intend to bring any other matters
before the Meeting nor does the board of directors know of any matters which
other persons intend to bring before the Meeting. If, however, other matters not
mentioned in this proxy statement properly come before the Meeting, the persons
named in the accompanying form of proxy will vote thereon in accordance with the
recommendation of the board of directors.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE
COMPANY'S 2005 ANNUAL MEETING OF STOCKHOLDERS
If any stockholder wishes to present a proposal to be considered for
inclusion in the proxy materials to be solicited by the Company's board of
directors with respect to the next annual meeting of stockholders, such proposal
must be presented to the Company's management by January 1, 2005, pursuant to
Regulation 14a-8 under the Securities Exchange Act of 1934. Such proposals
should be directed to the Company, 8200 Springwood Drive, Suite 230, Irving,
Texas 75063, Attention: Secretary.
The Company's bylaws contain a provision which requires that a
stockholder may nominate a person for election as a director only if written
notice of the stockholder's intention to make the nomination has been given to
the Secretary of the Company not earlier than 60 days nor later than 30 days
prior to a meeting of stockholders. However, in the event that notice or public
disclosure of a meeting of stockholders is first given or made to the
stockholders less than 40 days prior to such meeting, then notice of a
stockholder's intention to nominate a person for election as a director will be
timely if given in writing to the Secretary before the close of business on the
tenth day following the date on which the notice of the meeting was mailed or
the public disclosure of the meeting was made. Our bylaws also require that the
notice include, among other things, a description of all arrangements or
understandings between the nominating stockholder and the nominee pursuant to
which the nomination is to be made or the nominee is to be elected, and any
other information regarding the nominee as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC had the nominee
been nominated by the Company's board of directors. This provision is intended
to give the Company the opportunity to obtain all relevant information regarding
persons nominated for director. The board may disqualify any nominee who fails
to provide the Company with complete and accurate information as required by
this provision. It is currently expected that the 2005 Annual Meeting of
Stockholders will be held on or about April 22, 2005.
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, DATE,
SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED ENVELOPE, TO WHICH
NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. YOUR VOTE IS
IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE MEETING AND WISH TO
VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE.
By Order of the Board of Directors
C. A. RUNDELL, JR.
Chairman and Chief Executive Officer
Dated: __________ __, 2004
17
Please date, sign and mail your
proxy card back as soon as possible.
Annual Meeting of Stockholders
INTEGRATED SECURITY SYSTEMS, INC.
___________ __, 2004
Please Detach and Mail in the Envelope Provided
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|X| Please mark your votes as in this example.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
1.
FOR THE ELECTION OF WITHHOLD
C. A. RUNDELL, JR. AUTHORITY
AS DIRECTOR
(except as marked to the
contrary below)
[ ] [ ]
FOR THE ELECTION OF WITHHOLD
ALAN M. ARSHT AUTHORITY
AS DIRECTOR
(except as marked to the
contrary below)
[ ] [ ]
FOR THE ELECTION OF WITHHOLD
PETER BEARE AUTHORITY
AS DIRECTOR
(except as marked to the
contrary below)
[ ] [ ]
FOR THE ELECTION OF WITHHOLD
WILLIAM D. BREEDLOVE AUTHORITY
AS DIRECTOR
(except as marked to the
contrary below)
[ ] [ ]
FOR THE ELECTION OF WITHHOLD
RUSSELL CLEVELAND AUTHORITY
AS DIRECTOR
(except as marked to the
contrary below)
[ ] [ ]
FOR THE ELECTION OF WITHHOLD
ROBERT M. GALECKE AUTHORITY
AS DIRECTOR
(except as marked to the
contrary below)
[ ] [ ]
18
FOR THE ELECTION OF WITHHOLD
FRANK R. MARLOW AUTHORITY
AS DIRECTOR
(except as marked to the
contrary below)
[ ] [ ]
FOR THE ELECTION OF WITHHOLD
PAUL ROLAND AUTHORITY
AS DIRECTOR
(except as marked to the
contrary below)
[ ] [ ]
FOR AGAINST ABSTAIN
2. Amend the Company's Certificate of [ ] [ ] [ ]
Incorporation to increase the number
of shares of common stock authorized
for issuance.
In their discretion, the proxies are authorized to vote upon matters
not known to the Board of Directors as of the date of the accompanying proxy
statement, matters incident to the conduct of the meeting and to vote for any
nominee of the Board whose nomination results from the inability of any of the
above named nominees to serve.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE PROXIES SHALL
VOTE FOR PROPOSALS 1 AND 2 ABOVE.
Signature ______________________ Signature if held jointly_____________________
Dated:____________________, 2004
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title. If a corporation, please sign in
full corporate name by president or other authorized officer. If a partnership,
please sign partnership name by authorized person.
19
INTEGRATED SECURITY SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
__________ __, 2004
The undersigned acknowledges receipt of the Notice of Annual Meeting and Proxy
Statement of Integrated Security Systems, Inc. and hereby appoints Richard B.
Powell and Pat Dugan, and each of them, with full power of substitution and
resubstitution, are hereby authorized as attorneys and proxies of the
undersigned to represent and to vote all shares of the undersigned in Integrated
Security Systems, Inc. at the Annual Meeting of Stockholders of Integrated
Security Systems, Inc. to be held on __________ __, 2004, and at any
adjournments thereof.
20
APPENDIX A
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee of
Integrated Security Systems, Inc. The audit committee shall review and reassess
this charter on at least an annual basis and obtain the approval of the board of
directors. The audit committee shall be appointed by the board of directors and
shall consist of at least two directors, each of whom is independent of
management and the Company. Members of the audit committee shall be considered
independent if they have no relationship that may interfere with the exercise of
their independence from management and the Company and meet the standards of
independence required by the Stock Exchange or any other exchange on which the
Common Stock of Integrated Security Systems, Inc. is traded. All audit committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the audit committee, and
at least one member shall have accounting or related financial management
expertise as required by the rules of the Stock Exchange or any other exchange
on which the Common Stock of Integrated Security Systems, Inc. is traded.
The audit committee shall provide assistance to the board of directors
in fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and financial reporting process, the systems of internal
accounting and financial controls, the internal audit function, the annual
independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board of
directors. In doing so, it is the responsibility of the audit committee to
maintain free and open communication between the audit committee, independent
auditors, the internal auditors and management of the Company. In discharging
its oversight role, the audit committee is empowered to investigate any matter
brought to its attention with full access to all books, records, facilities, and
personnel of the Company and the power to retain outside counsel or other
experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements and the independent auditors are
responsible for auditing those financial statements. The audit committee in
carrying out its responsibilities believes its policies and procedures should
remain flexible, in order to best react to changing conditions and
circumstances. The audit committee should take the appropriate actions to set
the overall corporate "tone" for quality financial reporting, sound business
risk practices and ethical behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the audit committee may supplement
them as appropriate.
o The audit committee shall have a clear understanding with
management and the independent auditors that the independent
auditors are ultimately accountable to the board and the audit
committee, as representatives of the of the Company's
shareholders. The audit committee and the board shall have the
ultimate authority and responsibility to evaluate and, where
appropriate, replace the independent auditors. The audit committee
shall discuss with the auditors their independence from management
and the Company and the matters included in the written disclosure
required by the Independence Standards Board. Annually, the audit
committee shall review and recommend to the board the selection of
the Company's independent auditors.
o The audit committee shall discuss with the internal auditors
and independent auditors the overall scope and plans for their
respective audits including the adequacy of staffing and
compensation. As to the Company's internal auditors, the audit
committee shall review the quality and staffing of the department.
Also, the audit committee shall discuss with management, the
internal auditors and the independent auditors the adequacy and
effectiveness of the accounting and financial controls, including
the Company's system to monitor and manage business risk, and
legal and ethical compliance programs. Further, the audit
committee shall meet, separately with the internal auditors and
the independent auditors, with and without management present, to
discuss the results of their examinations.
o The audit committee shall review the interim financial
statements prior to the filing of the Company's Quarterly Reports
on Form 10-QSB. The chair of the audit committee may represent the
entire committee for the purpose of this review.
21
o The audit committee shall review with management and the
independent auditors the financial statements to be included in
the Company's Annual Report 10-KSB (or the annual reports to
shareholders if distributed prior to the filling of 10-KSB),
including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statement. Also, the audit committee shall discuss the
results of the annual audit and any other matters required to be
communicated to the audit committee by the independent auditors
under generally accepted auditing standards.
RESOLVED FURTHER, that the President, Secretary and Assistant Secretary
of the Company are authorized to execute any documents and certificates
necessary or advisable to establish the Company's compliance with the audit
committee charter.
RESOLVED FURTHER, that the proper officers of the Company be, and they
hereby are, authorized and directed, on behalf of the Company, to do or cause to
be done any and all things to take all further actions and to execute, deliver
and cause the performance of all other agreements, documents, instruments,
filings, applications and certificates as may be deemed necessary or appropriate
to affect the purpose and intent of the foregoing resolutions related to the
adoption and implementation of the charter for the Company's audit committee.
22