-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UqRuGjk5NxcRnLisB7xWEX8RjA6cAOgP8rX7ggcGNRs/jqk+7fHxADPlTq0WyTLU lvB7MYq9OCKAgGLHBdEY6Q== 0001017951-98-000219.txt : 19981110 0001017951-98-000219.hdr.sgml : 19981110 ACCESSION NUMBER: 0001017951-98-000219 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981120 FILED AS OF DATE: 19981109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVATIVE MEDICAL SERVICES CENTRAL INDEX KEY: 0001006028 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 330530289 STATE OF INCORPORATION: CA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: SEC FILE NUMBER: 000-21019 FILM NUMBER: 98740837 BUSINESS ADDRESS: STREET 1: 1725 GILLESPIE WAY CITY: EL CAJON STATE: CA ZIP: 92020 BUSINESS PHONE: 6195968600 MAIL ADDRESS: STREET 1: 1725 GILLESPIE WAY CITY: EL CAJON STATE: CA ZIP: 92020 PRE 14A 1 PRELIMINARY PROXY STATEMENT INNOVATIVE MEDICAL SERVICES 1725 Gillespie Way El Cajon, California 92020 (619) 596-8600 ____________________ PROXY STATEMENT ____________________ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held December 19, 1998 TO THE SHAREHOLDERS OF INNOVATIVE MEDICAL SERVICES NOTICE HEREBY IS GIVEN that the Annual Meeting of Shareholders of INNOVATIVE MEDICAL SERVICES, an California corporation (the "Company"), will be held at the Company's offices, 1725 Gillespie Way, El Cajon, California 92020, on December 19, 1998, at 10:00 a.m., Pacific Standard Time, and at any and all adjournments thereof, for the purpose of considering and acting upon the following Proposals: Proposal No. 1. ELECTION OF DIRECTORS Proposal No. 2. AUTHORIZATION FOR THE BOARD OF DIRECTORS TO DECLARE A REVERSE SPLIT OF THE OUTSTANDING COMMON STOCK ONLY AND AS WHEN DEEMED NECESSARY BY THE BOARD TO MAINTAIN THE LISTING OF THE COMPANY'S COMMON STOCK ON THE NASDAQ SMALLCAP MARKET AND ON OR BEFORE DECEMBER 31, 1999 ON THE BASIS OF UP TO ONE SHARE OF COMMON STOCK FOR EVERY FOUR SHARES OUTSTANDING ON THE EFFECTIVE DATE WITH EACH RESULTING FRACTIONAL SHARE ROUNDED UP TO THE NEXT WHOLE SHARE. Proposal No. 3. APPROVAL OF THE INNOVATIVE MEDICAL SERVICES 1998 DIRECTORS AND OFFICERS STOCK OPTION PLAN This Annual Meeting is called as provided for by California law and the Company's By-laws. Only holders of the outstanding Common Stock of the Company of record at the close of business on November 20, 1998 will be entitled to notice of and to vote at the Meeting or at any adjournment or adjournments thereof. All shareholders, whether or not they expect to attend the Annual Meeting of Shareholders in person, are urged to sign and date the enclosed Proxy and return it promptly in the enclosed postage-paid envelope which requires no additional postage if mailed in the United States. The giving of a proxy will not affect your right to vote in person if you attend the Meeting. BY ORDER OF THE BOARD OF DIRECTORS. DENNIS ATCHLEY SECRETARY El Cajon, California November 20, 1998 INNOVATIVE MEDICAL SERVICES 1725 Gillespie Way El Cajon, California 92020 619 596 8600 ____________________ PROXY STATEMENT ____________________ ANNUAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 19, 1998 GENERAL INFORMATION The enclosed Proxy is solicited by and on behalf of the Board of Directors of INNOVATIVE MEDICAL SERVICES, a California corporation (the "Company"), for use at the Company's Annual Meeting of Shareholders to be held at the Company's offices, 1725 Gillespie Way, El Cajon, California 92020, on the 19h day of December 1998 at 10:00 a.m. Pacific Standard Time, and at any adjournment thereof. It is anticipated that this Proxy Statement and the accompanying Proxy will be mailed to the Company's shareholders on or before November 18, 1998. Any person signing and returning the enclosed Proxy may revoke it at any time before it is voted by giving written notice of such revocation to the Company, or by voting in person at the Meeting. The expense of soliciting proxies, including the cost of preparing, assembling and mailing this proxy material to shareholders, will be borne by the Company. It is anticipated that solicitations of proxies for the Meeting will be made only by use of the mails; however, the Company may use the services of its Directors, Officers and employees to solicit proxies personally or by telephone without additional salary or compensation to them. Brokerage houses, custodians, nominees and fiduciaries will be requested to forward the proxy soliciting materials to the beneficial owners of the Company's shares held of record by such persons, and the Company will reimburse such persons for their reasonable out-of-pocket expenses incurred by them in that connection. All shares represented by valid proxies will be voted in accordance therewith at the Meeting. Shares not voting as a result of a proxy marked to abstain will be counted as part of total shares voting in order to determine whether or not a quorum has been achieved at the Meeting. Shares registered in the name of a broker-dealer or similar institution for beneficial owners to whom the broker-dealer distributed notice of the Annual Meeting and proxy information and which such beneficial owners have not returned proxies or otherwise instructed the broker-dealer as to voting of their shares, will be counted as part of the total shares voting in order to determine whether or not a quorum has been achieved at the Meeting. Abstaining proxies and broker-dealer non-votes will not be counted as part of the vote on any business at the Meeting on which the shareholder has abstained. The Company's Annual Report to Shareholders for the fiscal year ended July 31, 1998, has been previously mailed or is being mailed simultaneously to the Company's shareholders, but does not constitute part of these proxy soliciting materials. SHARES OUTSTANDING AND VOTING RIGHTS All voting rights are vested exclusively in the holders of the Company's Common Stock with each common share entitled to one vote. Only shareholders of record at the close of business on November 20, 1998 are entitled to notice of and to vote at the Meeting or any adjournment thereof. On November 20, 1998 the Company had 3,916,351 shares of its Common Stock outstanding, each of which is entitled to one vote on all matters to be voted upon at the Meeting, including the election of Directors. No fractional shares are presently outstanding. A majority of the Company's outstanding voting stock represented in person or by proxy shall constitute a quorum at the Meeting. The affirmative vote of a majority of the votes cast, providing a quorum is present, is necessary to elect the Directors. Cumulative voting in the election of Directors is permitted. 1 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND OF MANAGEMENT The following table sets forth persons known to the Company as beneficially owning more than five percent (5%) of the outstanding shares of the Registrant. % of Shares ----------- Name/Address Shares Outstanding - ------------ ------ ----------- Thomas Smith 303,007 7.7% 9408 Lightwood Cove Austin, TX 78748 The following table sets forth the directors and officers and number of shares of the Company's Common Stock beneficially owned as of November 20, 1998, by individual directors and executive officers and by all directors and executive officers of the Company as a group. % of Shares ----------- Name/Address Title Shares Outstanding(1) - ------------ ----- ------ -------------- Dennis Atchley Secretary 22,000 0.6% 1725 Gillespie Way El Cajon, CA 92020 Dennis Brovarone Director 17,534 0.4% 11249 W. 103rd Dr. Westminster, CO 80021 Gary Brownell Trsr-CFO/Director 32,334 0.8% 1725 Gillespie Way El Cajon, CA 92020 Patrick Galuska Director 35,334 0.9% 8137 S. Downing St. Littleton, CO 80122 Michael L. Krall Pres-CEO/Chairman 618,307 15.8% 1725 Gillespie Way El Cajon, CA 92020 Eugene Peiser Director 9,034 0.2% 1725 Gillespie Way El Cajon, CA 92020 Directors and Officers as a Group (7 individuals) 734,543 18.8% MANAGEMENT The executive officers and directors of the Company and their ages are as follows: Name Age Position Michael L. Krall 46 President, CEO, Chairman, Director Gary Brownell, CPA 50 Chief Financial Officer, Director Dennis Atchley, Esq. 46 Secretary Eugene Peiser, PD 67 Director Patrick Galuska 39 Director Dennis Brovarone 42 Director 2 The Directors serve until their successors are elected by the shareholders. Vacancies on the Board of Directors may be filled by appointment of the majority of the continuing directors. The executive officers serve at the discretion of the Board of Directors except as subject to the employment agreement with Mr. Krall. COMMITTEES: MEETINGS OF THE BOARD - ---------------------------------- The Company has a Compensation/Administration Committee and an Audit Committee. The Compensation/Administration Committee and the Audit Committee were formed in 1995. Messrs. Brovarone, Galuska and Peiser comprise the Compensation/Administration Committee and Messrs. Brownell, Galuska and Peiser, are the Audit Committee. The Compensation/Administration Committee recommends to the Board the compensation of executive officers and will serve as the Administrative Committee for the Company's Stock Option Plans. The Audit Committee serves as a liaison between the Board and the Company's auditor. The Compensation/Administration Committee met 2 times during the fiscal year ended July 31, 1998, and the Audit Committee met 2 times during the fiscal year ended July 31, 1998. The Company's Board of Directors held 4 meetings during the fiscal year ended July 31, 1998, at which time all the then Directors were present or consented in writing to the action taken at such meetings. No incumbent Director attended fewer than 100% of said meetings. COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934 - ---------------------------------------------------------------- To the Company's knowledge, during the fiscal year ended July 31, 1998, the Company's Directors and Officers complied with all applicable Section 16(a) filing requirements. This statement is based solely on a review of the copies of such reports furnished to the Company by its Directors and Officers and their written representations that such reports accurately reflect all reportable transactions. FAMILY RELATIONSHIPS - -------------------- There is no family relationship between any Director, executive or person nominated or chosen by the Company to become a Director or executive officer. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table shows for the fiscal year ending July 31, 1998, the compensation awarded or paid by the Company to its Chief Executive Officer and any of the executive officers of the Company whose total salary and bonus exceeded $100,000 during such year (The "Named Executive Officers"): Total Annual Cash ----------------- Compensation ------------ Name and Position (Year ended Restricted Stock or - ----------------- ----------- ------------------- 7/31) ($ Amt.) Options Granted ----- -------- --------------- Michael L. Krall, Chairman, 1998 144,000 50,000 options (1) Pres./CEO 100,000 options (2) 90,000 options (3) 200,000 options (4) (1) Five-year Options exercisable January 1998 at $2.50 per share adopted pursuant to the 1996 Directors and Officers Stock Option Plan. SUBSEQUENTLY SURRENDERED TO THE PLAN IN JULY 1998. (2) Five-year Options exercisable May 1998 at $1.00 per share granted for extraordinary work regarding the EXCOA acquisition adopted pursuant to 1996 Directors and Officers Stock Option Plan. (3) Five-year Options exercisable July 1998 at $1.00 per share as part of option grant to members of the Board of Directors adopted pursuant to 1998 Directors and Officers Stock Option Plan and subject to shareholder approval. See Proposal 3 below. (4) Five-year Options exercisable July 1998 at $.563 per share as part of options granted to Director for extraordinary work regarding the EXCOA acquisition adopted pursuant to 1998 Directors and Officers Stock Option Plan and subject to shareholder approval. See Proposal 3 below. No other executive officer earned more than $100,000 during the current fiscal year. 3 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/VALUES The following table sets forth the number and value of the unexercised options held by each of the Named Executive Officers at July 31, 1998. None of the Named Executive Officers and Directors who hold unexercised options exercised options in the fiscal year ended July 31, 1998. Name & Position Options Held at Exercise Option Value at - --------------- --------------- -------- --------------- July 31, 1998 Price ($) July 31, 1998(1) ------------- --------- ---------------- Michael L. Krall, Chairman, 100,000 1.00 N/A Pres./CEO 90,000 1.00 N/A 200,000 0.563 $8,400 (1) Option value based on exercise price and the average closing price of $0.605 for the 30 days ending July 31, 1998. EMPLOYMENT AGREEMENTS AND EXECUTIVE COMPENSATION In April 1996, the Board of Directors approved a five-year employment agreement for Michael Krall, its President. Mr. Krall receives a salary of $144,000 per year, an amount equal to 3% of the Company's net income before taxes if any plus other benefits. In April 1996 Mr. Krall was awarded five-year options to acquire 31,250 common shares at $3.20 per share which were first exercisable in April, 1997. COMPENSATION OF DIRECTORS Directors are entitled to receive $300 plus reimbursement for all out-of-pocket expenses incurred for attendance at Board of Directors meetings. OTHER ARRANGEMENTS INCENTIVE STOCK OPTION PLAN: On April 17, 1996, the Shareholders approved the Company's 1996 Incentive Stock Option Plan (the Plan). The purpose of the Plan is to advance the business and development of the Company and its shareholders by affording to the key employees of the Company the opportunity to acquire a propriety interest in the Company by the grant of Options to acquire shares of the Company's common stock. The Options granted are "Incentive Stock Options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, for certain key employees. The Plan is administered by an Administrative Committee whom shall serve a one-year term. Subject to anti-dilution provisions, the Plan may issue Options to acquire up to 1,000,000 shares to Key Employees. The maximum number of shares subject to Options granted to any one Key Employee shall not exceed 100,000 shares. The exercise price for Options shall be set by the Administrative Committee but shall not be for less than the fair market value of the shares on the date the Option is granted. The period in which Options can be exercised shall be set by the Administrative Committee not to exceed five years from the date of Grant. The Plan may be terminated, modified or amended by the Board of directors upon the recommendation of the Administrative Committee. The issuance and exercise of options pursuant to this Plan are not expected to be taxable events for recipient until such time that the recipient elects to sell shares received pursuant to an exercise of the option whereupon the recipient is expected to recognize income to the extent the market price of the shares exceeds the exercise price of the option on the date of exercise. All Key Employees of the Company and its subsidiaries are eligible to participate in the Incentive Stock Options. A Key Employee is defined in the Plan as a Company employee who in the judgment of the Administrative Committee has the ability to positively affect the profitability and economic well-being of the Company. Part time employees, independent contractors, consultants and advisors performing bona fide services to the Company shall be considered employees for purposes of participation in the Plan. No Executive Officer or Director of the Company has received options pursuant to this Plan. DIRECTORS AND OFFICERS STOCK OPTION PLAN: On April 17, 1996, the Company's Board of Directors approved a Directors and Officers Stock Option Plan. The purpose of the Plan is to advance the business and development of the Company and its shareholders by affording to the Directors and Officers of the Company who are ineligible to participate in the above Incentive Stock Option Plan, the opportunity to acquire a propriety interest in the Company by the grant of Options to acquire shares of the Company's common stock. The Plan is administered by the entire Board of Directors. The Plan became effective on April 17, 1996 by the Board of Directors, was not subject to Shareholder approval and shall terminate on April 17, 2006. Subject to anti-dilution provisions, the Plan may issue Options 4 to acquire up to 1,000,000 shares to Directors and Officers. The maximum number of shares subject to Options granted to any one Director or Officer shall not exceed 200,000 shares in any 12 month period. The exercise price for Options shall be set by the Board of Directors but shall not be for less than eighty-five (85%) of the fair market value per share on the date of grant. The period in which Options can be exercised shall be set by the Board of Directors not to exceed five years from the date of Grant. The Plan may be terminated, modified or amended by the Board of Directors. Please see the above table for Options granted pursuant to this Plan. TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT There is no compensatory plan or arrangement with respect to any individual named above which results or will result from the resignation, retirement or any other termination of employment with the Company, or from a change in the control of the Company. TRANSACTIONS WITH MANAGEMENT The Company did not enter into any transactions with Management during the fiscal year ended July 31, 1998. 5 PROPOSAL NO. 1. ELECTION AS DIRECTORS The Articles presently provide for a Board of Directors of not more than nine (9) members. The number of Directors of the Company has been fixed at six (6) by the Company's Board of Directors. The Company's Board of Directors recommends the election of Directors of the six (6) nominees listed below to hold office until the next Annual Meeting of Shareholders and until their successors are elected and qualified or until their earlier death, resignation or removal. The persons named as "proxies" in the enclosed form of Proxy, who have been designated by Management, intend to vote for the six (6) nominees for election as Directors unless otherwise instructed in such proxy. If at the time of the Meeting, any of the nominees named below should be unable to serve, which event is not expected to occur, the discretionary authority provided in the Proxy will be exercised to cumulatively vote for the remaining nominees, or for a substitute nominee or nominees, if any, as shall be designated by the Board of Directors. NOMINEES The following table sets forth the name and age of each nominee for Director, indicating all positions and offices with the Company presently held by him, the period during which he has served as such, and the class and term for which he has been nominated: Year Name Age Position First Director - ---- --- -------- ------------- Dennis Brovarone 42 Director 1996 Gary Brownell, CPA 50 Chief Financial Officer, Director 1996 Patrick Galuska 39 Director 1996 Michael L. Krall 46 President, CEO, Chairman, Director 1992 Eugene Peiser, PD 67 Director 1996 Donna Singer 28 Nominee N/A BUSINESS EXPERIENCE OF NOMINEES - ------------------------------- DENNIS BROVARONE Mr. Brovarone has been practicing corporate and securities law since 1986 and as a solo practitioner since 1990. He was elected to the Company's Board of Directors in April, 1996. Since December 1997, Mr. Brovarone has served as the President and Chairman of the Board of Directors of Ethika Corporation, a publicly held, Mississippi corporation investment holding company with its office in Westminster, Colorado. From January 1995 to March 1998 Mr. Brovarone served as President (Chairman) of the Board of Directors of The Community Involved Charter School, a four year old K-12 public school located in Lakewood, Colorado, operating under an independent charter and serving approximately 350 students in an individualized, experiential learning environment. Prior to 1990, Mr. Brovarone served as in-house counsel to R.B. Marich, Inc., a Denver, Colorado based brokerage firm. Mr. Brovarone lives and works in Westminster, Colorado. GARY W. BROWNELL Mr. Brownell is a Certified Public Accountant in a private partnership practice. He is the partner in charge of taxes and municipal audits for his firm. Mr. Brownell graduated from San Diego State University in 1973 with a Bachelor of Science degree in accounting. He received his Certified Public Accountant designation in 1983. Mr. Brownell has been a partner in Brownell and Duffy since 1985. PATRICK GALUSKA Mr. Galuska is a Petroleum Engineer and has been with Meridian Oil Inc., since 1982. He is responsible for the financial viability of numerous properties located in the Rocky Mountains and has also been involved in many property acquisitions and contract negotiations. He is a Registered Professional Engineer and is a member of the Society of Petroleum Engineers. Mr. Galuska graduated from the University of Wyoming in 1982 with a Bachelor of Science degree in Petroleum Engineering. He received his Masters in Business Administration, specializing in Finance from the University of Denver in 1992. Mr. Galuska resides in Denver, Colorado with his wife. 6 MICHAEL L. KRALL Mr. Krall is the President, CEO and Chairman of the Board of Directors of Innovative Medical Services, a position he has held since 1993. He is responsible for the strategic planning, product development, and day-to-day operations of IMS. Previously, Mr. Krall was the President and CEO of Bettis-Krall Construction, Inc. a successful building-development company of custom homes and commercial property in San Diego County, California. He has also held numerous positions in general management in the hospitality industry. Mr. Krall attended Pepperdine University (economics, statistics mechanical engineering). He previously served 4 years in the United States Marine Corps and was elected, by general election, to a 4 year term on the Valle de Oro Planning Board. Mr. Krall lives in El Cajon, California with his wife, Connie and two children. EUGENE S. PEISER, DOCTOR OF PHARMACY Dr. Peiser has been an independent consultant to FDA regulated industries since 1974 and a Member of the Board of Innovative Medical Services since 1994. He graduated from the University of Tennessee College of Pharmacy with a Bachelor of Science in Pharmacy in 1951 and has received his Doctorate of Pharmacy. Dr. Peiser's consultancy advises on a wide variety of subjects, including compliance with the Prescription Drug Marketing Act and other government compliance matters, employee training and drug repackaging. Dr. Peiser furnishes expert witness services and has provides approved Pharmaceutical Continuing Education to several thousand attendees at his seminars. Dr. Peiser is a Founding Director of the Association of Drug Repackagers; is appointed as a Registered Arbitrator by the American Registry of Arbitrators; serves as a member of the Surgeon General's Speakers Bureau; and is President of the Southwest Chapter of the Association of Military Surgeons. Dr. Peiser lives and works in Palm Harbor, FL. DONNA SINGER Ms. Singer has been the Vice President of Operations of Innovative Medical Services since 1996. As Vice President, Ms. Singer is responsible for inter-departmental operations, corporate communication and investor relations and has recently taken charge of the sales and marketing department. Previously, Ms. Singer served as the investor relations executive at Western Garnet International, a mining company in Coeur d'Alene, Idaho that trades on the Toronto Stock Exchange. Ms. Singer graduated from Gonzaga University in 1992 with a Bachelor of Arts degree in English and lives with her husband in Lakeside, California. PROPOSAL NO. 2: AUTHORIZATION FOR THE BOARD OF DIRECTORS TO DECLARE A REVERSE SPLIT OF THE OUTSTANDING COMMON STOCK ONLY AND AS WHEN DEEMED NECESSARY BY THE BOARD TO MAINTAIN THE LISTING OF THE COMPANY'S COMMON STOCK ON THE NASDAQ SMALLCAP MARKET AND ON OR BEFORE DECEMBER 31, 1999 ON THE BASIS OF UP TO ONE SHARE OF COMMON STOCK FOR EVERY FOUR SHARES OUTSTANDING ON THE EFFECTIVE DATE WITH EACH RESULTING FRACTIONAL SHARE ROUNDED UP TO THE NEXT WHOLE SHARE. On November 5, 1998, the Board of Directors approved submitting a reverse stock split of the Company's Common Stock to the Company's shareholders if the Board subsequently determines that a reverse split would be necessary to keep the Common Stock eligible to be quoted on The Nasdaq SmallCap Market ("Nasdaq"). It is recommended that the shareholders approve giving the Board the authority to subsequently declare an up to 4-to-1 reverse stock split of the Company's Common Stock on or before December 31, 1999. Assuming that a reverse stock split would cause the trading price of the Company's Common Stock to increase in the same proportion as the amount of the split, a reverse stock split may be necessary if the quoted bid price of the Common Stock declines below $1.00 per share and remains below $1.00 per share for ninety days or longer, thereby maintaining Nasdaq eligibility of a bid price of not less than $1.00. The effective date for any subsequently declared reverse stock split will be approximately ten days following notice to Nasdaq that a reverse split has been declared. No fractional shares will be issued and no cash will be paid for fractional shares. Instead, each fractional share would be rounded up to a whole share. The Board of Directors does not intend to declare a reverse split at this time and does not believe that a reverse split will be necessary. However, as the Board believes that maintenance of the NASDAQ listing is critical to the Company's ability to raise capital and to maintaining shareholder liquidity, the Board believes it is in the best interest of the Company and its shareholders that the Board have the authority to act promptly to maintain the NASDAQ listing. 7 EFFECT OF REVERSE SPLIT ON HOLDERS OF ODD LOTS OF SHARES If authorized by the shareholders and subsequently declared by the Board, a reverse split may result in shareholders having an "odd lot" of less than 100 shares if their resulting total number of shares is not a multiple of 100. A securities transaction of 100 or more shares is a "round lot" transaction of shares for securities trading purposes and a transaction of less than 100 shares is an "odd lot" transaction. Round lot transaction are the standard size requirements for securities transactions and odd lot transactions may result in higher transaction costs to the odd lot seller. PROPOSAL NO. 3. APPROVAL OF THE INNOVATIVE MEDICAL SERVICES 1998 DIRECTORS AND OFFICERS STOCK OPTION PLAN On November 5, 1998, the Company's Board of Directors approved submitting the Innovative Medical Services 1998 Officers Directors Stock Option Plan to the shareholders for approval. The Board of Directors recommends approval of the Plan. The purpose of the Plan is to advance the business and development of the Company and its shareholders by affording to the Directors and Officers of the Company the opportunity to acquire a propriety interest in the Company by the grant of Options to acquire shares of the Company's common stock. The Options granted are not "Incentive Stock Options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. The issuance of such non-qualified options pursuant to this Plan is not expected to be a taxable event for recipient until such time that the recipient elects to exercise the option whereupon the recipient is expected to recognize income to the extent the market price of the shares exceeds the exercise price of the option on the date of exercise. The Plan is administered by an Administrative Committee whom shall serve a one year term. The Administrative Committee is composed of the Board's Compensation/Administration Committee. Subject to anti-dilution provisions, the Plan may issue Options to acquire up to 5,000,000 shares to Directors and Officers. The Company will not receive any consideration for the grant of options under the Plan and approximate market value of the shares to be reserved for the plan is $3,662,500 based upon the average thirty day closing price for the Company's common stock for the period ending October 31, 1998. The exercise price for Options shall be set by the Administrative Committee but shall not be for less than the fair market value of the shares on the date the Option is granted. Fair market value shall mean the average of the closing price for ten consecutive trading days at which the Stock is listed in the NASDAQ quotation system ending on the day prior to the date an Option is granted. The period in which Options can be exercised shall be set by the Administrative Committee not to exceed five years from the date of Grant. Options granted to new executive officers or directors shall vest one year from date of appointment or election. Shares issuable under options granted to continuing officers or directors are immediately exercisable and vest upon exercise. The maximum number of shares subject to Options granted to any on Director of Officer shall not exceed 200,000 shares in any 12-month period. The Executive Officers and Directors of the Company are eligible to participate in the Plan. The Administrative Committee has, subject to shareholder approval, granted the present Executive Officers and Directors an option to purchase 100,000 shares of common stock at $1.00 per share. The Administrative Committee shall grant to individuals newly appointed as Executive Officers or as Directors, an option to purchase 100,000 shares of common stock at fair market value. Upon each subsequent anniversary thereof, each such Officer and Director will receive an option to purchase 50,000 shares of common stock at fair market value. The plan also gives the Administrative Committee discretion to award additional options. The aggregate number and kind of shares within the Plan and the rights under outstanding Options granted hereunder, both as to the number of shares and Option price, will be adjusted accordingly in the event of a reverse split in the outstanding shares of the Common Stock of the Company. Options granted under the Plan carry Stock Appreciation Rights (SARs). Pursuant to the SARs, the Optionee can use the difference between the price of the common stock over the exercise price of the common stock to exercise the option for a reduced number of shares at the appreciated price. For example, if the market price of the common stock is at $2.00 per share at the time of exercise, the 8 holder of an option to acquire 100,000 shares at $1.00 may use the $100,000 increase in value to acquire 50,000 shares at $2.00 per share in lieu of the exercise of the entire option. SAR's are an advantage to the Optionee who does not have to tender cash to exercise the option and an advantage to the Company because fewer new shares are issued at the then market price while resulting in less dilution to other shareholders. The Board may at any time terminate the plan. The approval of the majority of shareholders is required to increase the total number of shares subject to the plan, change the manner of determining the option price or to withdraw the administration of the plan from the Administrative Committee. 1998 DIRECTORS AND OFFICERS PLAN BENEFITS Dollar Options Name Position Value(1) Granted(2) Dennis Atchley Secretary $0.00 100,000 Dennis Brovarone Director $0.00 100,000 Gary Brownell CFO, Director $0.00 100,000 Patrick Galuska Director $0.00 100,000 Michael L. Krall Pres., CEO, Director $0.00 100,000 Eugene Peiser Director $0.00 100,000 Donna Singer Nominee Director $0.00 100,000 Executive Group (5 individuals) $0.00 500,000 Non-Exec. Dir. Grp (2 individuals) $0.00 200,000 (1) Based upon exercise price of $1.00 and the average closing price of $0.7325 for the thirty days ending October 31, 1998. (2) Granted subject to shareholder approval on July 15, 1998 REQUEST FOR COPY OF FORM 10KSB Shareholders may request a copy of the Form 10KSB by writing to the Company's offices, 1725 Gillespie Way, El Cajon, California 92020. DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS Any proposal by a shareholder to be presented at the Company's next Annual Meeting of Shareholders, including nominations for election as directors must be received at the offices of the Company, 1725 Gillespie Way, El Cajon, California 92020, no later than July 31, 1999. 9 PROXY SOLICITED BY THE BOARD OF DIRECTORS OF INNOVATIVE MEDICAL SERVICES The undersigned appoints Michael L. Krall (and Donna Singer, if Mr. Krall is unable to serve), as the undersigned's lawful attorney and proxy, with full power of substitution and appointment, to act for and in the stead of the undersigned to attend and vote all of the undersigned's shares of the Common Stock of INNOVATIVE MEDICAL SERVICES, an California corporation, at the Annual Meeting of Shareholders to be held at the offices of the Company, 1725 Gillespie Way, El Cajon, California, at 10:00 am. Pacific Standard Time, on December 19, 1998, and any and all adjournments thereof, for the following purposes: A SHAREHOLDER MAY USE CUMULATIVE VOTING FOR THE NOMINEES OF THAT PROPOSAL BY VOTING THE NUMBER OF THE SHARES HELD TIMES THE NUMBER OF DIRECTORS BEING ELECTED ON A SINGLE OR GROUP OF CANDIDATES. SHAREHOLDERS MAY ALSO WITHHOLD AUTHORITY TO VOTE FOR A NOMINEE(S) BY DRAWING A LINE THROUGH THE NOMINEE'S NAME(S). FOR EXAMPLE A SHAREHOLDER WITH 1,000 SHARES MAY CAST A TOTAL OF 6,000 VOTES (# OF SHARES X 6 DIRECTORS) FOR ALL, ONE OR A SELECT NUMBER OF CANDIDATES.] PROPOSAL NO. 1 ELECTION TO THE BOARD OF DIRECTORS [ ] FOR Management nominees listed below equally among all the nominees OR VOTED AS FOLLOWS: Dennis Brovarone ________ Shares Gary Brownell ________ Shares Patrick Galuska ________ Shares Michael L. Krall ________ Shares Eugene Peiser ________ Shares Donna Singer ________ Shares [ ] AGAINST Management's nominees for the Board of Directors, MANAGEMENT INTENDS TO VOTE SHARES FOR ALL OF THE SIX (6) NOMINEES NAMED ABOVE UNLESS OTHERWISE INSTRUCTED IN THIS PROXY. IF AT THE TIME OF THE MEETING, ANY OF THE NOMINEES SHOULD BE UNABLE TO SERVE, THE DISCRETIONARY AUTHORITY PROVIDED IN THE PROXY WILL BE EXERCISED TO CUMULATIVELY VOTE FOR THE REMAINING NOMINEES, OR FOR A SUBSTITUTE NOMINEE OR NOMINEES, IF ANY, AS SHALL BE DESIGNATED BY THE BOARD OF DIRECTORS. PROPOSAL NO. 2. AUTHORIZATION FOR THE BOARD OF DIRECTORS TO DECLARE A REVERSE SPLIT OF THE OUTSTANDING COMMON STOCK ONLY AND AS WHEN DEEMED NECESSARY BY THE BOARD TO MAINTAIN THE LISTING OF THE COMPANY'S COMMON STOCK ON THE NASDAQ SMALLCAP MARKET AND ON OR BEFORE DECEMBER 31, 1999 ON THE BASIS OF UP TO ONE SHARE OF COMMON STOCK FOR EVERY FOUR SHARES OUTSTANDING ON THE EFFECTIVE DATE WITH EACH RESULTING FRACTIONAL SHARE ROUNDED UP TO THE NEXT WHOLE SHARE. [ ] FOR AGAINST ABSTAIN IF THE SHAREHOLDER DOES NOT INDICATE A PREFERENCE, MANAGEMENT INTENDS TO VOTE FOR THE PROPOSAL. PROPOSAL NO. 3. APPROVAL OF THE INNOVATIVE MEDICAL SERVICES 1998 DIRECTORS AND OFFICERS STOCK OPTION PLAN [ ] FOR AGAINST ABSTAIN IF THE SHAREHOLDER DOES NOT INDICATE A PREFERENCE, MANAGEMENT INTENDS TO VOTE FOR THE PROPOSAL. SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE WITH THE SHAREHOLDER'S SPECIFICATION ABOVE. THIS PROXY CONFERS DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS FOR WHICH THE SHAREHOLDER HAS NOT INDICATED A PREFERENCE OR IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE UNDERSIGNED. In the Shareholder's discretion the Proxy is authorized to vote on such other business as may properly be brought before the meeting or any adjournment or postponement thereof. The undersigned revokes any proxies heretofore given by the undersigned and acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement furnished herewith and the Annual Report to Shareholders previously provided. Dated: _______________, 199___ _____________________________ _____________________________ Signature(s) should agree with the name(s) hereon. Executors, administrators, trustees, guardians and attorneys should indicate when signing. Attorneys should submit powers of attorney. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF INNOVATIVE MEDICAL SERVICES. PLEASE SIGN AND RETURN THIS PROXY TO INNOVATIVE MEDICAL SERVICES, C/O AMERICAN SECURITIES TRANSFER, INC., 938 QUAIL STREET, SUITE 101, LAKEWOOD, CO 80215-5513. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING. EX-99.3 2 1998 DIRECTORS & OFFICERS STOCK OPTION PLAN EXHIBIT 99.3 INNOVATIVE MEDICAL SERVICES 1998 DIRECTORS AND OFFICERS STOCK OPTION PLAN ARTICLE I DEFINITIONS As used herein, terms have the meaning hereinafter set forth unless the context should clearly indicate the contrary: (a) "Board" shall mean the Board of Directors of the Company; (b) "Days" shall mean for calculation purposes the days of the week in which the NASDAQ System conducts and is open for regular trading activity; (c) "Company" shall mean Innovative Medical Services, a California corporation; (d) "Director" shall mean a member of the Board; (e) "Fair Market Value" shall mean the average closing low bid price for the Company's common stock for the previous five (5) trading days ending on the date of grant; (f) "Grant" means the issuance of an Option hereunder to an Optionee entitling such Optionee to acquire Stock on the terms and conditions set forth in a Stock Option Agreement to be entered into with the Optionee; (g) "Officer" shall mean a Executive Officer of the Company and any Employee, Consultant or Advisor which has been confirmed by the Board as eligible to participate under this Plan; (h) "Option" shall mean the right granted to an Optionee to acquire Stock of the Company pursuant to the Plan; (i) "Optionee" shall mean an Officer of the Company or a Director of the Company to whom a Grant hereunder has been made; (j) "Plan" shall mean the Innovative Medical Services 1998 Directors and Officers Stock Option Plan, the terms of which are herein set forth; (k) "Stock" shall mean the common stock of the Company or, in the event the outstanding shares of stock are hereafter changed into or exchanged for shares of different stock or securities of the Company or some other corporation, such other stock or securities; (l) "Stock Option Agreement" shall mean the agreement between the Company and an Optionee under which an Optionee may acquire Stock pursuant to the Plan. ARTICLE II THE PLAN 2.1 NAME. The plan shall be known as the "Innovative Medical Services 1998 Directors and Officers Stock Option Plan." 2.2 PURPOSE. The purpose of the Plan is to advance the business and development of the Company and its shareholders by affording to the Directors and Officers of the Company the opportunity to acquire a propriety interest in the Company by the grant of Options to such persons under the terms herein set forth. By doing so, the Company seeks to motivate, retain and attract highly competent, highly motivated Executive Officers and Directors to lead the Company through this critical time in its evolution and ensure the success of the Company. The Options to be granted hereunder are non-statutory Options made available to Directors and Officers of Innovative Medical Services. 2.3 EFFECTIVE DATE. The Plan shall become effective upon its adoption by the Board of the Company and approval by the company's shareholders. 2.4 TERMINATION DATE. The Plan shall terminate ten (10) years from the date the Plan is adopted by the Board of the Company and at such time any Options granted hereunder shall be void and of no further force or effect. ARTICLE III PARTICIPANTS Only Officers and Directors of the Company shall be eligible to be granted an Option under the Plan. The Board may grant Options to any Director or Officer in accordance with such determinations as the Board may, from time to time, in its sole discretion make. ARTICLE IV ADMINISTRATION 4.1 The Plan shall be administered by an Administrative Committee of the Board of Directors of the Company consisting of a majority of independent directors. Subject to the express provisions of the Plan, the Administrative Committee shall have the sole discretion and authority to determine from among eligible persons those to whom and the time or times at which Options may be granted and the number of shares of Stock to be subject to each Option. Subject to the express provisions of the Plan, the Administrative Committee shall also have complete authority to interpret the Plan, to prescribe, amend and rescind rules and regulations related to it and to determine the details and provisions of each Stock Option Agreement and to make all other determinations necessary or advisable in the administration of the Plan. The Administrative Committee shall also have the authority to modify outstanding Options and the provisions therein subject to the agreement of the Optionee. 4.2 RECORDS OF PROCEEDINGS. The Administrative Committee shall maintain written minutes of its actions which shall be maintained among the records of the Company. 4.3 COMPANY ASSISTANCE. The Company shall supply full and timely information to the Board in all matters relating to eligible Optionees, their status, death, retirement, disability and such other pertinent facts as the Board may require. The Company shall furnish the Administrative Committee with such clerical and other assistance as is necessary in the performance of its duties. ARTICLE V SHARES OF STOCK SUBJECT TO THE PLAN 5.1 LIMITATION. The number of shares of Stock which may be issued and sold hereunder shall not exceed 5,000,000 shares. 5.2 OPTIONS GRANTED UNDER THE PLAN. Shares of stock with respect to which an Option is granted hereunder, but which lapses prior to exercise, shall be considered available for grant hereunder. Therefore, if Options granted hereunder shall terminate for any reason without being wholly exercised, new Options may be granted hereunder covering the number of shares to which such terminated Options related. 5.3 OPTIONS TO BE GRANTED. Upon election or appointment to the Company's Board of Directors, or appointment as an Executive Officer, such individual shall receive an option to acquire 100,000 shares of stock per position exercisable at the fair market value on the date of appointment. Upon each anniversary of such date, the individual shall receive an option to acquire 50,000 shares of stock exercisable at the fair market value on the date thereof. The foregoing not withstanding, the Administrative Committee shall have the discretion to award additional options to individuals subject to the terms and conditions of the Plan. 5.4 ANTI-DILUTION. In the event the Stock subject to this Plan is changed into or exchanged for a different number or kind of stock or other securities of the Company or of another organization by reason of merger, consolidation or reorganization, recapitalization, reclassification, combination of shares, stock split or stock dividend; (a) The aggregate number and kind of shares of Stock subject to the Plan shall be adjusted appropriately; (b) The Option price of any outstanding Option issued pursuant to the Plan shall be adjusted appropriately; (c) Where dissolution or liquidation of the Company or any merger of consolidation in which the Company is not a surviving corporation is involved, the Optionee holding any Option issued pursuant to the Plan shall have the right immediately prior to such dissolution, liquidation, merger or combination to exercise the Option, in whole or in part, to the extent that it shall not have been exercised without regard to any installment exercise provision. ARTICLE VI OPTION PROVISIONS 6.1 OPTIONS. Each Option granted hereunder shall be evidenced by minutes of a meeting of or the written consent of the Administrative Committee and by a written Stock Option Agreement dated as of the date of grant and executed by the Company and the Optionee, which agreement shall set forth such terms and conditions as may be determined by the Board consistent with the Plan. 6.2 LIMITATIONS. (a) The maximum number of shares for which an Option or Options may be granted under the Plan to any one Director or Officer shall be 200,000 in any twelve month period. (b) The Options granted hereunder are non-statutory Options which do not satisfy the requisites of Section 422 of the Internal Revenue Code, as amended. 6.3 OPTION PRICE. The per share Option price for the stock subject to each Option shall not be less than the fair market value per share on the effective date of grant or such other price as the Administrative Committee may determine. 6.4 OPTION PERIOD. Each Option granted hereunder must be granted within five (5) years from the effective date of the Plan. The period for the exercise of each Option shall be determined by the Administrative Committee, but in no instance shall such period exceed five (5) years from the date of grant of the Option. 6.5 OPTION EXERCISE. (a) Options granted hereunder may not be exercised until and unless the Optionee shall meet the conditions precedent established by the Administrative Committee for the Officers or Directors. (b) Options may be exercised by the officer or director in whole or in part. Optionees may exercise their Option at any time by giving written notice to the Company with respect to the specified option, delivered to the Company at its principal office together with payment in full to the Company of the amount of the Option price for the number of shares with respect to which the Option(s) are then being exercised. 6.6 STOCK APPRECIATION RIGHTS. Each Option granted hereunder shall carry with it Stock Appreciation Rights (SARs) for each share of stock underlying the Option. Each SAR entitles the holder thereof to receive without payment of the cash exercise price, as many shares of stock as equals the difference between fair market value of the stock on the date of exercise and the exercise price of an Option times the number of SARs exercised divided by the fair market value on the date of exercise. For example assume an Option is granted for 100,000 shares with 100,000 SARS with an exercise price of $1.00 per share, the fair market value on the date of grant. Then assume the fair market value of the common stock appreciates to $2.00 per share. If the holder of the Option/SAR chooses to exercise the 100,000 Options/SARs, the holder receives 50,000 shares without payment of the exercise price. [($2 - $1) X 100,000 / $2 = 50,000]. The foregoing notwithstanding, the holder of an Option/SAR may choose to exercise the option as set forth in paragraph 6.5 above. 6.7 NON-TRANSFERABILITY OF OPTION. No Option or any right relative thereto shall be transferred by an Optionee otherwise than by will or by the laws of descent and distribution. During the lifetime of an Optionee, the Option shall be exercisable only by him or her. 6.8 EFFECT OF DEATH OR OTHER TERMINATION OF EMPLOYMENT OR DIRECTORSHIP. (a) If the Officer or Director's relationship with the Company shall be terminated, with or without cause, or by the act of the Officer or Director, the Optionee's right to exercise such Options shall terminate and all rights thereunder shall cease three (3) days after the date on which such person's association is terminated, unless this provision is modified by the Option Agreement for the Options. Provided however, that if the Optionee shall die or become permanently and totally disabled while employed by or serving as a non-employee Director of the Company, as solely determined by the Board in accordance with its policies, then either his or her personal representatives or a transferee under the Optionee's will or pursuant to the laws of descent and distribution, or the disabled Optionee may exercise the Option in full six (6) months from the date of such death or disability unless this provision is modified by the Option Agreement for the Options. In the case of an Optionee's retirement in accordance with the Company's established retirement policy, such Option shall remain exercisable by the Optionee for three (3) days from the date of such retirement unless this provision is modified by the Option Agreement for the Options. (b) No transfer of an Option by the Optionee by will or the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with a written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of such Option. 6.9 RIGHTS AS A SHAREHOLDER. (a) An Optionee or a transferee of an Option shall have no rights as a shareholder of the Company with respect to any shares subject to any unexercised Options. (b) Unless this provision is modified by the Option Agreement for the Options, ownership rights shall vest with the Officer or Director according to the following schedule with respect to the total number of shares exercised: Initial Appointment/Election Grant: 100% upon exercise or the first anniversary of grant, which ever is later; Anniversary exercise of this option: 100% upon exercise 6.10 REQUIRED FILINGS. An Optionee to whom an Option is granted under the terms of the Plan is required to file appropriate reports with the Internal Revenue Service. As a condition of the receipt of an Option hereunder, Optionees shall agree to make necessary filings with the Internal Revenue Service. The Company shall assist and cooperate with Optionees by providing the necessary information required for compliance of this condition. ARTICLE VII STOCK CERTIFICATES 7.1 ISSUANCE. The Company shall issue and deliver any certificate for shares of Stock purchased upon the exercise of any Option granted hereunder. 7.2 TRANSFER RESTRICTIONS. Unless a registration statement covering the shares underlying the Options is in effect at the time of execution of an Option Agreement, the Board shall instruct the Secretary of the Corporation to impose restrictions of the subsequent transferability of Stock issued pursuant to Options to be granted hereunder. The Stock of the Company to be issued pursuant to the exercise of an Option shall have such restrictions prominently displayed as a legend on such certificate. ARTICLE VIII TERMINATION, AMENDMENT, OR MODIFICATION OF THE PLAN The Board may at any time terminate the plan, and may at any time and from time to time and in any respect amend or modify the Plan. Provided, however, if the Plan has been submitted to and approved by the shareholders of the Company no such action by the Board may be taken without approval of the majority of the shareholders of the Company which: (a) increases the total number of shares of Stock subject to the Plan, except as contemplated in Section 5.1 hereof; (b) changes the manner of determining the Option price; or (c) withdraws the administration of the Plan from the Administrative Committee. ARTICLE IX EMPLOYMENT 9.1 EMPLOYMENT. Nothing in the Plan or any Option granted hereunder or in any Stock Option Agreement shall confer upon a non-employee Director receiving such Option or Stock Option Agreement the status as an employee of the Company. Further, nothing in the Plan or any Option granted hereunder shall in any manner create in any Optionee the right to continue their relationship with the Company or create any vested interest in such relationship, including employment. 9.2 OTHER COMPENSATION PLANS. The adoption of the Plan shall not effect any other stock option, incentive, or other compensation plan in effect for the Company or any of its subsidiaries, nor shall the Plan preclude the Company or any subsidiary thereof from establishing any other forms of incentive or other compensation for employees or non-employee Directors of the Company, or any subsidiary thereof. 9.3 PLAN EFFECT. The Plan shall be binding upon the successors and assigns of the Company. 9.4 TENSE. When used herein nouns in the singular shall include the plural. 9.5 HEADINGS OF SECTIONS ARE NOT PART OF THE PLAN. Headings of articles and sections hereof are inserted for convenience and reference and constitute no part of the Plan. INNOVATIVE MEDICAL SERVICES By:________________________________________ Michael L. Krall, President December 19, 1998 By:________________________________________ Dennis Atchley, Secretary December 19, 1998 -----END PRIVACY-ENHANCED MESSAGE-----